From Yesterday's Blast and Comment On The Block: Anyone looking for a fairly risky trade with pretty good potential return, EOG reports tonight, generally don’t disappoint and they should be very happy with current gas prices. Their shuts in the rockies are unlikely to let them up 2007 guide (4Q) but they may talk a little about next year. Expect another record quarter out of the Barnett.
ZTRADE: EOG $85 for $1.80 with the stock at $82.30
Let me address that in pieces:
[they] generally don’t disappoint:
- Reported EPS of $0.79 (after backing out non cash items) versus $0.81 expected. But that's EPS, and we don't care about EPS. For E&P companies it's all about the cash flow, production, and costs.
- CFPS: $2.79 vs $2.69 Consensus. (First Call range was $2.38 to $2.85, median $2.74)
- Production: Up Big. In the U.S., EOG's crude volumes rose 24% versus the year ago quarter. NG and NGL volumes rose 19% vs 3Q06. While EOG didn't specific quidance for the quarter these volumes should please just about everyone as they were up just over 11% for the 9 month period, which is in line with EOG's 2007 full year guidance. (more on guidance below)
- Cash Costs Are Under Control on A Per Unit Basis. 3Q07 cash costs (the costs of getting it out of the ground and sold: LOE, production taxes, transportation, G&A, and interest expense) crept up to $1.68/Mcfe from $1.57 in the year ago quarter. This is a very manageable rate of growth and it means EOG remains one of the lowest cost operators around. While the sequential quarter actually showed a large decline in costs it's not an apples to apples comparison as there were some extra items included with last quarter's production taxes. Still, LOE dropped to $0.74 from the second quarters $0.79 due to increased production from lower cost (higher return) projects in both the Bakken oil play (North Dakota) and the Barnett Shale.
Their shut-ins in the rockies are unlikely to let them up 2007 guidance: No mention of 2007 guidance other than to say that the Barnett Shale was performing better than expected but more on that in a second.
They may talk a little about next year. This is where they really delivered offering the first guidance for 2008.
- Range is up 13 to 17% for the total company. That's better than the 11.5% target for this year which they appear to be on track to besting.
- The range is price dependent with a $7 natural gas price deck yielding the low end of the range and a $8 deck yielding the upper band.
- Oil production is expected to rise 33% irregardless of price. That simply means EOG will be getting a lot oilier which isn't a bad thing given prices and the fact that they are still the gassiest large cap E&P out there (currently 89% of production is natural gas). See Bakken Field discussion below.
- Trinidad, Canada, and the UK are expected to remain flat YoY, which is as good as anyone should have expected.
Expect another record quarter out of the Barnett. Mission Accomplished. Last quarter EOG highlighted some monster Shale wells (12mm/d IPs) and this quarter they are boosting their expected 2007 exit rate for the Barnett from 300 to 350 Mmcfepd. Wow. They reference a more efficient drilling program and improved well results but are leaving the details for the Q&A.
Bakken Play. EOG's big oil play continues to improve. The cited multiple new wells coming in at 2,000 bopd rates and one pretty long range step out (9 miles) that allowed them to expand reserve estimates here by a third from 60 to 80 million barrels. This will significantly increase the drilling locations as well. In July, EOG was running 4 rigs continuously here, that has since been stepped up to six and they plan to be running 8 rigs by early 2008.
Conference call at 10 EST
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