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EOG Resources Inc. (EOG - Analyst Report) reported solid adjusted second-quarter 2012 results on the back of a striking improvement in productivity at the Eagle Ford and Bakken plays. However, the positives were partly marred by lower commodity prices.
Quarterly adjusted earnings of $1.16 per share exceeded the Zacks Consensus Estimate of 92 cents and were above $1.11 earned in the year-earlier quarter.
Total revenue increased 13.2% year over year to $2,909.3 million and exceeded the Zacks Consensus Estimate of $2,487.0 million. Management pointed out that approximately 86% of its North American wellhead revenue came from liquids in the second quarter.
During the quarter, EOG’s total volume expanded 16.5% from the year-earlier level to 43.7 million barrels of oil equivalent (MMBoe), or 480.5 thousand barrels of oil equivalent per day (MBoe/d).
Crude oil and condensate production was 158.7 thousand barrels per day (MBbl/d), up almost 52% from the year-ago level. This was primarily driven by significant contributions from the company’s Eagle Ford and Bakken plays.
Natural gas liquids (NGL) volumes increased 41.9% from the year-ago quarter to 55.5 MBbl/d. On the other hand, natural gas volumes shrunk 1.1% to 1,598 million cubic feet per day (MMcf/d) from the year-earlier level of 1,615 MMcf/d.
Average price realization for crude oil and condensates decreased approximately 4.6% year over year to $95.20 per barrel. Quarterly NGL prices were down almost 35.0% at $33.72 per barrel from the year-ago level of $51.65. Natural gas was sold at $2.47 per thousand cubic feet (Mcf), showing a deterioration of roughly 40% year over year.
At the end of the second quarter, EOG had cash and cash equivalents of $280.4 million and long-term debt of $5,011.9 million, representing a debt-to-capitalization ratio of 27.3%, which it plans to keep below 30% in 2012.
During the quarter, the company generated approximately $1,381.7 million in discretionary cash flow, compared with $1,152.1 million in the year-ago quarter.
Stellar drilling results during the first half of the year encouraged EOG to increase its full-year crude oil production growth target to 37% from 33% and total company production growth target to 9% from the earlier expectation of 7%.
The company further de-emphasized on natural gas drilling in a weak price environment in North America.
For the third quarter, total production is expected between 443.2 MBoe/d and 476.6 MBoe/d, with 52.6–59.0 MBbls/d of NGL and 1,421–1,497 MMcf/d of gas. For the full year, EOG expects total volume between 447.7 MBoe/d and 474.3 MBoe/d, NGL in the 51.7–59.2 MBbl/d range and natural gas in the 1,478–1,524 MMcf/d range.
For the upcoming quarter as well as full-year 2012, the company expects crude oil and condensate volumes in the range of 153.6 MBbls/d to 168.2 MBbls/d and 149.6 MBbls/d to 161.1 MBbls/d, respectively.
The fourth-largest U.S. independent oil and gas exploration and production company − EOG − remains proactive with its liquid ventures. It will be further augmented by its deep focus on major oil and liquids rich plays, such as South Texas Eagle Ford play, Fort Worth Barnett Shale Combo, as well as Colorado Niobrara, Oklahoma Marmaton, West Texas Wolfcamp and New Mexico Leonard.
The company expects its exploration and production expenditures to range from $7,400 million to $7,575 million for 2012, including exploration, development and production facilities as well as midstream expenditures.
Moreover, the company remains busy with its asset divestiture program in order to focus on the liquid-rich plays, like its peer Chesapeake Energy Corporation (CHK - Analyst Report). Through June 30, the company monetized approximately $1,112 million worth of assets, which it expects to be approximately $1,200 million to $1,250 million for 2012.
Although we view EOG as a favorable long-term story, risk-reward pay-off for the company is still uncertain for the near term due to its natural gas weighted production and reserves base as well as cost overruns.
Hence, we maintain our long-term Neutral recommendation for the EOG stock that is supported by a Zacks #3 Rank (short-term Hold rating).