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EOG Resources Inc. (EOG - Analyst Report) reported solid adjusted fourth-quarter as well as full-year 2013 results on the back of a striking improvement in its crude and liquids production.

Quarterly adjusted earnings of $2.00 per share exceeded the Zacks Consensus Estimate of $1.96 and were 40% higher than the year-ago adjusted earnings of $1.61.

Total revenue in the quarter increased 24.5% year over year to $3,749.0 million and comfortably exceeded the Zacks Consensus Estimate of $3,611.0 million.

Full-year adjusted earnings came in at $8.22 per share, up from the year-earlier earnings of $5.67. The quarterly figure also surpassed our projection of $8.17.

Total revenue surged 24.0% to $14,487.1 million in 2013 from the prior year level of $11,682.6 million. The reported figure also came above our expectation of $14,428.0 million.

Operational Performance

During the quarter, EOG’s total volume expanded 16.7% from the year-earlier level to 48.9 million barrels of oil equivalent (MMBoe), or 531.8 thousand barrels of oil equivalent per day (MBoe/d). Full-year 2013 total production was 186.2 MMBoe or 510.1 MBoe/d, representing a 9.1% annualized growth.

Crude oil and condensate production in the quarter was 244.3 thousand barrels per day (MBbl/d), up approximately 50.2% from the year-ago level. Full-year crude oil and condensate production climbed 39.6% year over year.

Natural gas liquids (NGL) volumes increased 16.6% from the year-ago quarter to 67.4 MBbl/d. On the other hand, natural gas volumes shrunk to 1,321 million cubic feet per day (MMcf/d) from the year-earlier level of 1,408 MMcf/d.

Average price realization for crude oil and condensates decreased approximately 1.5% year over year to $96.57 per barrel. Quarterly NGL prices were down 0.9% at $35.13 per barrel from the year-ago level of $35.45. Natural gas was sold at $3.39 per thousand cubic feet (Mcf), showing a deterioration of 5.0% year over year.

Liquidity Position

At the end of the fourth quarter, EOG had cash and cash equivalents of $1,318.2 million and long-term debt of $5,903.6 million, representing a debt-to-capitalization ratio of 28%.

During the quarter, the company generated approximately $1,853.7 million in discretionary cash flow, compared with $1,437.2 million in the year-ago quarter.

Guidance

EOG set its full-year 2014 crude oil production growth target at 27%, driven by 29% growth in the U.S. Although natural gas prices recently increased due to severe winter in North America, EOG's extensive portfolio of crude oil and liquids-rich resources offer far superior returns compared to alternative natural gas drilling investments.

For the first quarter of 2014, total production is expected between 528.2 MBoe/d and 554.5 MBoe/d, with 64.0–68.2 MBbls/d of NGL and 1,272–1,336 MMcf/d of gas. For full-year 2014, EOG expects total volume between 547.2 MBoe/d and 591.3 MBoe/d, with NGL in the 68.6–77.8 MBbl/d range and natural gas in the 1,263–1,331 MMcf/d band.

For the upcoming quarter as well as full year, the company expects crude oil and condensate volumes in the range of 252.2 MBbls/d to 263.6 MBbls/d and 268.1 MBbls/d to 291.7 MBbls/d, respectively.

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 expects its total capital expenditure budget between $8.1 billion and $8.3 billion for 2014. This compares with the $7.4 billion capex in 2013. 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 currently carries a short-term Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Vermilion Energy Inc. (VET - Snapshot Report), World Fuel Services Corp. (INT - Snapshot Report) and Matador Resources Company (MTDR - Snapshot Report). All these stocks hold a Zacks Rank #1 (Strong Buy).
 

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