EOG Reports Strong Q1 Results Backed By Higher Crude Oil Prices And A Continued Focus On Premium Drilling Locations

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EOG
EOG Resources

EOG Resources (NYSE: EOG) reported its first quarter 2018 results on 3rd May and conducted a conference call with analysts the following day. The company reported an EPS (Non-GAAP) of $1.19, 24% higher year-on-year (y-o-y) and a revenue of $3.7 billion, 42% higher y-o-y. Higher oil prices and production volume coupled with lower per unit cost enabled the company to beat both market earnings and revenue estimates.

EOG reported a 16% increase in its total production of barrels of oil equivalent per day (boed), with liquids accounting for a significant proportionate share of this growth. Crude oil and condensate volume alone grew by 15% (barrel per day), compared to the same period last year. This strong volume growth was largely driven by the company’s focus on its premium drilling locations, with the Delaware Basin, the Eagle Ford, and the Powder River Basin significantly augmenting this growth. Furthermore, higher oil prices aided the company’s revenue growth with average realized crude oil prices rising by 28% y-o-y. Crude oil gained strength in the first quarter of 2018 as a consequence of the extension of the oil production cuts by the Organization of Petroleum Exporting Countries (OPEC) and Non-OPEC allies in December coupled with the recent geopolitical tension in the Middle East and a weaker dollar.

Apart from the significant revenue growth, EOG’s bottom line improved as a consequence of a decline in its per unit operating expenses. Lower per unit depreciation, deletion, and amortization (DD&A) expense combined with a lower per unit transportation and general and administrative cost enabled the company to report a 24% y-o-y increase in its earnings.

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Going forward, the company has kept its 2018 oil production guidance unchanged and expects it to grow between 16% to 20% y-o-y in 2018 with its continued focus on premium drilling locations. Full-year 2018 capital expenditure guidance is also kept unchanged at $5.4 to $5.8 billion (excluding acquisitions and non-cash transactions). The company’s reported first-quarter cash flow from operations of $1.6 billion, well exceeded its first-quarter capital expenditure (CapEx) of $1.4 billion and its total dividend of $97 million, despite a 52% increase in its CapEx forecast for the year. This puts the company in an extremely cash-rich position which should enable it to reach its objective of reducing its total debt to $3 billion (almost 50% reduction from its current level of $6.4 billion) and achieve a higher dividend growth rate.

We have kept our base case estimate for the company unchanged based on the company’s Q1 results as reflected in the graph below. You can make changes to our assumptions by using our interactive dashboard to arrive at your own fair price estimate for the company.

 

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