01—Abstract
Summary
Summary of the 10-K filed February 25, 2009. Cited figures are marked; the original filing is the authoritative source.
EOG Resources' 2008 10-K shows a year of strong top-line and earnings growth driven by natural gas and an accelerating shift toward crude oil and natural gas liquids.
Net operating revenues rose 68% to $7.13 billiona and net income available to common stockholders more than doubled to $2.44 billion ($9.72 diluted EPS), helped by a $598 million mark-to-market gain on commodity hedges. Operating income reached $3.77 billion, and cash from operations rose to $4.63 billion. Wellhead natural gas prices averaged $7.51/Mcf (up 33%), and crude oil averaged $88.18/Bbl (up 28%), while total production grew about 15% to 1,988 MMcfed.
EOG's growth is concentrated in the United States, which generated roughly 71% of proved reserves and 87% of company production in the United States and Canada combined. Key plays include the Fort Worth Basin Barnett Shale, the North Dakota Bakken, the Uinta Basin, the Haynesville, and the Marcellus, along with new positions in the Horn River Basin of British Columbia and the Sichuan Basin in China. Total proved reserves reached 8.7 Tcfe, up 944 Bcfe, while the company sold its Appalachian shallow gas assets for about $386 millionb.
Management guided to a 2009 capital budget of about $3.1 billionc, roughly 3% production growth, and a 17% debt-to-capitalization ratio. Investors should weigh the strong 2008 results against commodity exposure and balance-sheet risk. Natural gas remains about 82% of U.S. and Canadian reserves, and management noted the 2009 NYMEX gas strip had already fallen about 15% after year-end.
Net debt rose to $1.9 billiond to fund the capital program, and the company issued $750 million of senior notes in late 2008. The dividend was raised again in February 2009 to $0.145 per quarter, and no shares were repurchased under the authorized buyback program during 2008.
02—Key points
Key Highlights
- Net income available to common stockholders rose 125% to $2.44 billion, or $9.72 per diluted share, versus $1.08 billion in 2007.
- Net operating revenues increased 68% to $7.13 billion, including $598 million of mark-to-market hedge gains and $6.22 billion of wellhead revenues.
- Total proved reserves reached 8,689 Bcfe at year-end 2008 (about 71% U.S., 15% Canada, 14% Trinidad), up 944 Bcfe from 2007; the company grew production 15% to 1,988 MMcfe/d.
- Crude oil and NGL output grew sharply, with crude and condensate up 46% to 45.5 MBbl/d, led by North Dakota Bakken and Fort Worth Basin Barnett Combo; oil and NGLs were about 19% of production versus 15% in 2007.
- Capital budget for 2009 is approximately $3.1 billion excluding acquisitions, with an expected 3% production increase at $5.00/Mcf Henry Hub and $50/Bbl WTI assumptions.
- Debt-to-total capitalization was 17% at year-end 2008 (14% in 2007), after issuing $750 million of senior notes; the 2009 dividend was raised to $0.145 per quarter.
- Management reported 2009 NYMEX gas strip prices had fallen about 15% and oil strip about 10% after December 31, 2008, and EOG's 2009 hedges and sensitivities are disclosed in detail.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 25, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $7.13B$4.24B | +68.1% |
| Operating Expenses | $3.36B$2.59B | +29.7% |
| Operating Income | $3.77B$1.65B | +128.5% |
| Interest Expense | $94.29M$76.10M | +23.9% |
| Net Income | $2.44B$1.09B | +123.5% |
| EPS (Basic) | $4.94$2.23 | +122.0% |
| EPS (Diluted) | $4.86$2.19 | +122.4% |
| Shares Outstanding (Basic) | 493.32M486.94M | +1.3% |
| Shares Outstanding (Diluted) | 501.08M495.27M | +1.2% |
05—Questions
Frequently Asked Questions
How much did EOG's earnings and cash flow grow in 2008?
Net income available to common stockholders was $2.44 billion ($9.72 diluted EPS), up 125% from $1.08 billion in 2007. Net cash provided by operating activities rose to $4.63 billion from $2.90 billion, an increase of about 60%, driven by higher wellhead revenues and realized prices. Note that 2008 results include a $598 million mark-to-market gain on derivatives, of which realized losses were $137 million, so the unrealized portion is non-cash.
Where are EOG's reserves and growth opportunities concentrated?
About 71% of proved reserves are in the United States, 15% in Canada, and 14% in Trinidad. Growth centers on the Fort Worth Basin Barnett Shale, the North Dakota Bakken, the Uinta Basin Mesaverde, South Texas and the Gulf Coast (including the Haynesville), and the Permian Basin. The company also holds about 3.6 million net undeveloped U.S. acres and is testing the Marcellus Shale in Pennsylvania and the Horn River Basin in British Columbia.
How exposed is EOG to commodity price declines?
EOG is primarily a natural gas producer, so it is more sensitive to gas prices. Each $0.10/Mcf change in wellhead gas prices moves 2009 net income by about $17 million and operating cash flow by about $25 million, while each $1.00/Bbl change in oil and NGL prices moves net income by about $14 million. The company hedges with collars, price swaps and basis swaps, and has 2009 gas swaps averaging $9.71/MMBtu. Risk factors also warn that a sustained price decline could trigger asset write-downs.
What did EOG do with its balance sheet and capital structure in 2008?
Total assets grew to $15.95 billion and stockholders' equity to $9.01 billion. Long-term debt increased to $1.90 billion, after the company issued $400 million of 6.125% notes due 2013 and $350 million of 6.875% notes due 2018 in September 2008, and drew $750 million of new long-term debt in total. The company redeemed its remaining preferred stock, and its $1.0 billion revolving credit facility and commercial paper program were undrawn at year-end. Management believes operating cash flow and financing alternatives will cover the 2009 budget.
Are there notable risks or one-time items investors should watch?
Yes. The 2008 results include a $128 million gain on the sale of Appalachian shallow gas assets, which does not recur, and the Trinidad Lower Reverse L block was relinquished with a $20 million impairment. Operating costs per Mcfe rose to $3.39 from $3.05, driven by transportation and DD&A. Canadian royalty regimes changed in 2009, and the company faces climate-related regulation, counterparty credit exposure, and the risk that the 2009 capital program is funded only if prices hold. A 2009 Alberta royalty framework and SEC reserve-reporting changes effective for 2009 could also affect future disclosures.
06—Continue