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EOG Resources Inc. (EOG - Analyst Report) reported solid adjusted third-quarter 2013 results on the back of strong revenue growth and higher production volumes.

Quarterly adjusted earnings of $2.32 per share exceeded the Zacks Consensus Estimate of $2.03 by 14.3% and were 34.1% higher than the year-ago adjusted earnings of $1.73.

Total revenue in the quarter increased almost 20% year over year to $3,541.4 million but lagged the Zacks Consensus Estimate of $3,679.0 million.

Operational Performance

During the quarter, EOG’s total volume expanded 9.5% from the year-earlier level to 48.4 million barrels of oil equivalent (MMBoe).

Crude oil and condensate production was 235.0 thousand barrels per day (MBbl/d), up approximately 39% from the year-ago level. Natural gas liquids (NGL) volumes increased 17.1% from the year-ago quarter to 69.1 MBbl/d. On the other hand, natural gas volumes contracted 11.8% to 1,334 million cubic feet per day (MMcf/d) from the year-earlier level of 1,512 MMcf/d.

Average price realization for crude oil and condensates increased approximately 11.4% year over year to $108.20 per barrel. Quarterly NGL prices were up 5.2% at $32.74 per barrel from the year-ago level of $31.11. Natural gas was sold at $3.23 per thousand cubic feet (Mcf), showing an improvement of 5.2% year over year.

Liquidity Position

At the end of the third quarter, EOG had cash and cash equivalents of $1,318.8 million and long-term debt of $5,906.5 million, representing a debt-to-capitalization ratio of 28.4%.

During the quarter, the company generated approximately $2,008.7 million in discretionary cash flow compared with $1,610.6 million in the year-ago quarter.

Guidance

The company projects total crude oil production for the fourth quarter in the range of 233.9 MBoe/d to 242.1 MBoe/d.

Citing strong performance during the first nine months of 2013, EOG raised its full-year crude oil and condensate production target to 39% from 35%. The company also raised its outlook for total NGL production to 17% from 14%. Natural gas production is projected to decline 11.0% year over year.

The company now forecasts full-year crude oil and condensate production of 217.1 MBbls/d to 220.3 MBbls/d, up from the prior range of 208.0 MBbls/d to 219.6 MBbls/d.

Outlook

One of the largest U.S. independent oil and gas exploration and production companies, EOG is proactive in its liquids ventures. These efforts will be further aided by its deep focus on major oil and liquids rich plays, while holding its core natural gas and Combo acreage in the Barnett, Leonard and Wolfcamp plays for the long term.

The company has also maintained its total capital expenditure budget between $7 billion and $7.2 billion for 2013. This compares with the $7.6 billion capex in 2012. Moreover, EOG Resource is keen on its asset divestiture program.

Though we view EOG as a favorable long-term story, the risk-reward pay-off for the company is still uncertain due to its natural gas weighted production and reserves base as well as cost overruns. EOG's large portfolio of high-return projects and strong technical competence are the key long-term drivers.

The company retains a Zacks Rank #3 (Hold). However, there are other sector stocks with a Zacks Rank #1 (Strong Buy) that offer value and are worth buying now. These include TransAtlantic Petroleum Ltd (TAT - Snapshot Report), Matador Resources Company (MTDR - Snapshot Report) and Northern Oil and Gas, Inc. (NOG - Snapshot Report).
 

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