EOG Reports Solid 4Q07 – Pre Call Notes

EOG Reports A Beat and Respectable Reserve Figures

  • EPS : Reported $1.44 ($1.26 after excluding one time items) vs expectations of $0.96.
  • CFPs of $3.33 vs expectations of $3.24.
  • Production came in at 2% sequential and 9% YoY growth fro the quarter
  • Annual volumes were up 11%.

Production Guidance:

  • Oil (11% of current production) taking guidance up from 33 to 36% YoY growth primarily due to the Bakken of North Dakota.
  • Natural gas liquids (almost 5% of current production) are expected to grow 40% in 2008 - the result of more liquids rich gas from the Barnett Shale. Prices for NGL's (primarily propane, butane, and pentane) track oil prices more closely than gas so you can bet they will strip all they can out of the stream.
  • Total company growth seen of 15% - all growth coming from U.S. This is the middle of the previous guidance range of 13 to 17%. The change in mix to a higher mix of oil and NGL's will almost certainly improve margins.

Note on pricing: Trinidad came in at $3.84 per Mcfe which is up 32% YoY. This is a nice boon for a stranded gas prices and the second note in the past 24 hours (the first being from APA) showing how the international gas markets are showing improvement around the globe.


Reserves Showed Strong Reserve Replacement and Low Finding Costs. I don't often talk about finding costs as with the exception fo (CHK) and one or two other E&P's , most producers limit reserve reporting to once per year. Here's a quick if somewhat overly simplistic defnition of the two key reserve reporting metrics:

  • Reserve Replacement (RR): measure of production (P) for a period vs change in reserves (dR) for the same period. So RR = dR / P expressed as a percentage. In general the higher the better. Below 100% and you are not replacing reserves that you have produced with new reserves.
  • F&D - Finding & Development Costs: The cost of adding reserves. The so called "all in" F&D measures the cost of adding reserves including acquisition and divestitures. Drill bit R&D excludes asset transactions and answers the question, how much did it cost to add reserves through operational activities. The basic equation is: F&D = Cost (C) / change in reserves (dR) and is expressed in $/BOE or $/Mcfe. The lower the better.
  • All in reserve replacement: $248%. This compares to 205% last year (which was impacted by price related impairments; 237% ex-impairments).
  • Finding and development costs: $2.24 per Mcfe. Last year F&D came in at $2.50 (2.17 ex those impairments).
  • Carving out non-acquisition based reserves yields drillbit only F&D of $2.31. This is very respectable.

Costs Are Pretty Well Contained Allowing Field Level Margin Expansion



Odds & Ends:

  • Operations Update: Nada, zip, nothing....must be saving it for the call.  Same goes for forward costs guidance.
  • Dividend Increase by 33%.
  • Capital budget and planned assets sales should keep debt to cap flat YoY. 

Conference call today at 9 EST

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