01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
EOG Resources' 2006 Form 10-K shows a company that grew substantially while leaning heavily on natural gas.
Net income available to common rose 3% to $1,289 milliona on revenue of $3,904 million, up 8% from $3,620 million. Growth was driven by production: natural gas deliveries rose 10% to 1,337 MMcfd, and total natural gas equivalent volumes reached 1,561 MMcfed, up about 9%. The composite average natural gas price fell 13% to $5.74/Mcf, while crude oil rose to $62.38/Bbl.
Mark-to-market hedging gains of $334 millionb, of which $215 million was realized, supported results, and per-unit operating costs rose to $3.01/Mcfe from $2.70 as DD&A and lease expenses increased. The balance sheet strengthened materially. Debt fell to $733 million from $985 million, the debt-to-capitalization ratio dropped to 12% from 19%, and shareholders' equity rose to $5.6 billion.
Total proved reserves reached 6.8 Tcfe, up 607 Bcfe, with about 60% in the United States, 20% in Canada and 20% in Trinidad. Management budgets roughly $3.4 billionc of 2007 exploration and development spending, excluding acquisitions, and the board raised the quarterly dividend to $0.09 per share. Key risks for investors are commodity-price exposure, since EOG is primarily a natural gas producer, with each $0.10/Mcf move worth about $27 million in net income, and its dependence on infrastructure such as pipelines and processing.
Its international operations also carry foreign-currency, political and fiscal exposure, particularly in Trinidad and the UK North Sea. Hedging positions for 2007 are price swaps only, with no collars outstanding.
02—Key points
Key Highlights
- Net income available to common of $1,289M in 2006, up 3% from $1,252M in 2005, despite a 13% decline in the composite natural gas price.
- Natural gas deliveries rose 10% to 1,337 MMcfd; total production reached 1,561 MMcfed, up about 9%, led by the Fort Worth Barnett Shale.
- Proved reserves grew to 6.8 Tcfe (up 607 Bcfe), with approximately 60% in the U.S., 20% in Canada and 20% in Trinidad.
- Debt reduced to $733M from $985M; debt-to-total-capitalization ratio fell to 12% from 19%.
- 2007 exploration and development budget of approximately $3.4 billion, excluding acquisitions, with planned Barnett drilling of about 380 gross wells.
- Quarterly common dividend raised to $0.09 per share from $0.06, effective after the January 31, 2007 board action.
- Sensitivity: each $0.10/Mcf change in wellhead gas price moves 2007 net income and operating cash flow by about $27M; each $1/Bbl oil move by about $6M.
03—Questions
Frequently Asked Questions
How did EOG's profitability and revenue change in 2006?
Net operating revenues rose 8% to $3,904 million, and net income available to common rose 3% to $1,289 million. Higher production and $334 million of mark-to-market hedging gains offset a 13% drop in the composite natural gas price and higher operating costs, which rose to $3.01 per Mcfe from $2.70.
How strong is EOG's balance sheet?
Strong. Debt fell $252 million to $733 million, the debt-to-capitalization ratio dropped to 12%, and shareholders' equity increased to $5.6 billion. The company had zero commercial paper outstanding at year-end and about $688 million of shelf registration capacity available, with a $600 million revolving credit facility as backup.
What are the main risks to EOG's outlook?
Natural gas price volatility is the largest risk, since EOG is primarily a gas producer. Other risks include reliance on third-party pipelines and processing, weather and hurricanes in the Gulf of Mexico, reserve-estimate uncertainty, and international exposure to political, tax and currency risk in Trinidad, the UK and Canada. Insurance covers only some of these risks.
Where is EOG growing, and what is the 2007 plan?
Growth centers on the Fort Worth Barnett Shale, where EOG plans about 380 gross wells in 2007 and expects over 300 MMcfd net exit production. Other areas include the Rocky Mountains, Mid-Continent Hugoton-Deep and Cleveland plays, South Texas, the Permian Basin Wolfcamp play, Canadian shallow gas (about 1,000 net wells), and Trinidad's Oilbird field, expected to begin production in Q2 2007.
04—Continue