01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
EOG Resources' 2011 10-K shows a company pivoting decisively toward liquids-rich drilling.
Net income rose to $1,091 milliona from $161 million in 2010, on net operating revenues of $10,126 million (up 66%). Results were helped by $626 million of mark-to-market derivative gains and $493 million of asset-disposition gains, while impairments of $1,031 million, driven mainly by North American natural gas assets, weighed on earnings. Year-end total proved reserves reached 2,054 MMBoe, up 104 MMBoe, with crude oil and NGL reserves up 207 MMBbl while natural gas reserves fell.
Crude oil and condensate plus NGL volumes made up about 37%b of 2011 production, versus 27% in 2010, and management expects that share to keep rising. The main growth driver is the Eagle Ford Shale, where net crude oil and condensate production reached 30.2 MBbld in 2011 and EOG holds a 572,000 net-acre oil window position. Liquids growth also came from the Barnett Combo, Permian, Rocky Mountain and Mid-Continent plays.
Management plans 2012 capital expenditures of $7.4 to $7.6 billionc, expects total production to rise about 5.5%, and expects liquids output to grow about 30%. Capital spending is expected to exceed operating cash flow in 2012, so the company plans to sell non-core assets and use its $2.0 billion revolver and commercial paper program to close the gap. Balance-sheet strength improved over the year.
The debt-to-total-capitalization ratio fell to 28% from 34%, aided by a $1,388 milliond common stock offering in March 2011, and total debt was $5,040 million. Risks flagged in the filing include commodity price volatility (about $31 million of net income per $1/Bbl oil move in 2012), a 43% effective tax rate, exposure to foreign operations, and possible regulation of hydraulic fracturing and greenhouse gases.
02—Key points
Key Highlights
- Net income of $1,091 million ($4.10 diluted EPS) versus $161 million in 2010, with revenues up 66% to $10.1 billion.
- Year-end proved reserves of 2,054 MMBoe, up 104 MMBoe; oil and NGL reserves rose 207 MMBbl while natural gas reserves declined 619 Bcf.
- Liquids (crude oil, condensate and NGLs) reached about 37% of 2011 production, up from 27% in 2010, with further growth expected in 2012.
- Eagle Ford Shale is the leading growth asset: EOG is the largest oil producer there, with 30.2 MBbld of net crude oil and condensate output in 2011 on 572,000 net oil-window acres.
- 2012 capital budget of $7.4-$7.6 billion, with production expected to rise 5.5% and liquids output about 30%; capex is expected to exceed operating cash flow, to be partly funded by non-core asset sales.
- Debt-to-total-capitalization improved to 28% from 34% after a $1,388 million equity offering; the $2.0 billion revolver was extended to 2016.
- Impairments of $1,031 million, mainly $745 million on North American natural gas assets, and $626 million of derivative gains supported 2011 results.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $10.13B$6.10B | +66.0% |
| Operating Expenses | $8.01B$5.58B | +43.7% |
| Operating Income | $2.11B$523.32M | +303.8% |
| Interest Expense | $210.36M$205.89M | +2.2% |
| Net Income | $1.09B$160.65M | +579.2% |
| EPS (Basic) | $2.08$0.32 | +548.4% |
| EPS (Diluted) | $2.05$0.32 | +550.8% |
| Shares Outstanding (Basic) | 525.47M501.75M | +4.7% |
| Shares Outstanding (Diluted) | 532.54M509.00M | +4.6% |
05—Questions
Frequently Asked Questions
Why did EOG's net income increase so sharply in 2011?
Net income rose to $1,091 million from $161 million, mainly because wellhead crude oil and condensate revenue rose 92% on higher volumes and prices (composite price up 25% to $92.79/Bbl). Other drivers were $626 million of mark-to-market derivative gains and $493 million of asset-disposition gains. These were partly offset by $1,031 million of impairments and higher DD&A of $2,516 million.
How much of EOG's production is now oil and liquids, and where does growth come from?
Crude oil, condensate and NGLs accounted for about 37% of 2011 production, up from 27% in 2010. Growth came mainly from the Eagle Ford Shale (crude oil and condensate output rose from 4.1 to 30.2 MBbld), the Fort Worth Basin Barnett Combo, the Rocky Mountain area and the Permian Basin. EOG expects this liquids share to increase further in 2012.
Is EOG's balance sheet under pressure given its capital spending plans?
Leverage improved in 2011, with debt-to-total-capitalization falling to 28% from 34%, supported by a $1,388 million equity offering. Total debt is $5,040 million, with no maturities in 2012 and the 2011 Facility providing $2.0 billion of committed capacity. However, EOG expects 2012 capital spending to exceed operating cash flow, so it plans to sell non-core assets and may use commercial paper, bank borrowings or new equity or debt to fund the shortfall.
What are the main risks to EOG's earnings and cash flow?
The largest exposure is commodity prices: EOG estimates that each $1.00/Bbl change in oil and NGL prices moves 2012 net income by about $31 million, and each $0.10/Mcf change in gas prices moves it by about $11 million. Other risks include impairments when prices fall (as in 2011 for natural gas assets), a high effective tax rate (43% in 2011), foreign operations in Trinidad, Canada, the U.K., China and Argentina, possible federal regulation of hydraulic fracturing and greenhouse gases, and the effects of the Dodd-Frank derivatives rules on hedging.
Did EOG change its dividend or share repurchase policy?
In February 2012 the board raised the quarterly dividend to $0.17 per share from $0.16, payable from April 30, 2012. EOG did not repurchase shares under its 10 million share authorization in 2011, leaving 6.4 million shares available. Repurchases in 2011 were limited to shares withheld for employee tax obligations.
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