EOG Resources 3Q’16 Results To Show Improvement Driven By Higher Price Realizations
EOG Resources (NYSE:EOG), the US-based oil and gas producer, is set to release its September quarter financial results on the 4th of November 2016 [1]. The market expects the exploration and production (E&P) company to post a solid improvement in its revenue as well as earnings on a sequential basis, backed by the recovery in the commodity prices over the last few months.
Natural gas prices, measured by the global benchmark Henry Hub gas prices, averaged at around $2.88 per Mcf, growing at about 35% in the third quarter compared to the second quarter. However, crude oil prices remained flat through the quarter. Since EOG has a sizeable exposure to the natural gas market, the rebound in gas prices will boost the company’s revenue for the quarter. However, the third quarter revenue will remain much lower compared to the same quarter of 2015, as the commodity prices have been relatively depressed compared to a year ago.
Source: Google Finance; US Energy Information Administration (EIA)
That said, based on EOG’s guidance for the 3Q’16, its production is likely to come in lower than the previous quarter. The oil and gas producer expects its third quarter production to average in the range of 524 to 550 thousand barrels of oil per day (Mboed), lower than its hydrocarbon production of 551 Mboed in the second quarter. This drop in production could partially offset the impact of higher-than-expected price realizations during the quarter.
Yates Petroleum Merger
In the September quarter, EOG Resources announced its plans to acquire Yates Petroleum Corporation for approximately $2.5 billion in a stock and cash deal to facilitate its plans of expanding its presence in the Permian Basin, one of the most cost-effective oil fields in the US. (Also read: Why Is EOG Resources Acquiring Yates Petroleum Corp.?) Yates is a privately held independent crude oil and natural gas company with 1.6 million net acres, mainly in the Permian Basin and the Powder River Basin in Northeast Wyoming.
Since a notable portion of Yates’ acreage is adjacent to EOG’s existing leases in these basins, it makes economical sense for EOG to invest in these assets even in the current weak oil price environment. The deal is likely to increase EOG’s position in the Permian and adjacent plays by more than 200,000 acres, to 574,000 acres, and double its position in the Delaware Basin in southern New Mexico and West Texas. The acquisition will immediately add roughly 1,740 net premium drilling locations in the Delaware Basin and Powder River Basin to EOG’s existing 4,300 premium drilling locations. This 40% growth in the company’s premium drilling locations will increase its drilling inventory, much higher than the current inventory of 10 years, enabling the company to bounce back as soon as the commodity markets recover.
EOG’s Premium Drilling Locations
Source: EOG Resources-Yates Deal Presentation
Have more questions about EOG Resources (NYSE:EOG)? See the links below:
- Why Is EOG Resources Acquiring Yates Petroleum Corp.?
- Why Has EOG Resources’ Capital Efficiency Improved Despite The Commodity Downturn?
- Here’s Why We Are Bullish On EOG Resources
- EOG Resources’ 2Q’16 Earnings Improve On The Back Of Higher Price Realization And Production
- How Will EOG Resources’ Production Trend Over The Next Few Years?
- How Will EOG Resources’ Revenue Move If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
- How Will EOG Resources’ Revenue Move If Crude Oil Prices Average At $50 Per Barrel Till 2018?
- How Will EOG Resources’ Revenue And EBITDA Grow Over The Next Five Years?
- How Has EOG Resources’ Revenue And EBITDA Changed Over The Last Five Years?
- EOG Resources Posted Weak 1Q’16 Results Driven By Ongoing Commodity Downturn
- Expect Another Weak Quarter From EOG Resources On The Back Of Depressed Commodity Prices
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for EOG Resources
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Notes:- EOG Resources To Announce Third Quarter 2016 Results, 11th October 2016, www.eogresources.com [↩]