01—Abstract
Summary
Summary of the 10-K filed February 22, 2013. Cited figures are marked; the original filing is the authoritative source.
EOG Resources' 2012 10-K shows a company pivoting decisively toward crude oil.
Net income fell to $570 milliona from $1,091 million in 2011, as a 36% drop in North American wellhead natural gas prices and $1.27 billion of impairments (mostly Canadian natural gas assets) offset strong oil growth. Net operating revenues rose 15% to $11.68 billion, and crude oil and condensate deliveries grew 39% to 157.9 MBbld. Crude and liquids now make up about 46% of total production, versus 37% in 2011, and management expects that share to keep rising in 2013.
Reserves and balance sheet: Year-end proved reserves were 1,811 MMBoe, down 243 MMBoe from 2011. Liquids reserves rose 276 MMBbl while natural gas fell by 3.1 Tcf, mainly from price-driven revisions. Total assets reached $27.3 billion and debt rose to $6.3 billionb, with the debt-to-capitalization ratio moving to 32% from 28%.
The company issued $1.25 billionc of 2.625% notes due 2023 in September 2012. For 2013, planned capital spending of $7.0-7.2 billion exceeds expected operating cash flow, so EOG plans roughly $550 million of non-core asset sales to close the gap. It also raised its quarterly dividend to $0.1875 per share.
The key watch items are execution on the Eagle Ford, Bakken, and Permian oil plays, continued natural gas price weakness, and the Canadian write-downs. Investors will also need to track the 2013 funding gap, which depends on asset sales and financing, and the net effective tax rate of 55%d, which was elevated by Canadian valuation allowances.
02—Key points
Key Highlights
- Net income fell 48% to $570 million ($2.11 diluted EPS) from $1,091 million in 2011, driven by $1.27 billion of impairments and lower natural gas prices
- Net operating revenues grew 15% to $11.68 billion, led by a 47% increase in crude oil and condensate revenue to $5.66 billion
- Crude oil and condensate deliveries rose 39% to 157.9 MBbld, with the Eagle Ford growing about 150% to 94.4 MBoed
- Proved reserves were 1,811 MMBoe at year-end 2012, down 243 MMBoe, with liquids up 276 MMBbl and natural gas down 3.1 Tcf
- 2013 capital budget of $7.0-7.2 billion exceeds expected operating cash flow; EOG plans about $550 million of non-core asset sales to fund the gap
- Debt-to-total capitalization rose to 32% from 28%, after a $1.25 billion senior notes issue in September 2012
- Quarterly dividend raised to $0.1875 per share, effective with the April 2013 payment; 2013 production guided up 4%, with total liquids up 23%
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 22, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $11.68B$10.13B | +15.4% |
| Operating Expenses | $10.20B$8.01B | +27.3% |
| Operating Income | $1.48B$2.11B | −30.0% |
| Interest Expense | $213.55M$210.36M | +1.5% |
| Net Income | $570.28M$1.09B | −47.7% |
| EPS (Basic) | $1.07$2.08 | −48.4% |
| EPS (Diluted) | $1.05$2.05 | −48.8% |
| Shares Outstanding (Basic) | 535.15M525.47M | +1.8% |
| Shares Outstanding (Diluted) | 541.52M532.54M | +1.7% |
05—Questions
Frequently Asked Questions
Why did EOG's net income fall sharply in 2012 even though revenue grew?
Net income dropped to $570 million from $1,091 million. Revenue grew 15%, but North American wellhead natural gas prices fell 36%, and impairments rose to $1.27 billion, mainly on Canadian and U.S. natural gas assets. The effective tax rate also rose to 55% because of Canadian valuation allowances on deferred tax assets.
How is EOG's strategy shifting, and what does it mean for the mix of production?
EOG is focusing on crude oil and liquids-rich plays such as the Eagle Ford, Bakken, Permian and Barnett Combo, and it is deemphasizing dry natural gas drilling. Crude and liquids accounted for about 46% of total 2012 production, up from 37% in 2011, and management expects the share to rise further in 2013.
Can EOG fund its 2013 capital program from operations?
Not entirely. Management expects 2013 capital expenditures of $7.0-7.2 billion to exceed operating cash flow. The plan closes the shortfall with about $550 million of non-core asset sales, and EOG has additional funding flexibility through its commercial paper program, its $2.0 billion revolving credit facility, and debt and equity offerings.
How concentrated is EOG's reserve base and customer base?
About 92% of year-end 2012 net proved reserves were in the United States, 6% in Trinidad and 2% in Canada. A single purchaser accounted for 19.8% of 2012 wellhead and marketing revenues, but EOG does not believe losing any single purchaser would have a material adverse effect.
What are the main risks flagged in the filing that investors should monitor?
The main risks are sustained declines in crude oil and natural gas prices, which could trigger further impairments; the 2013 funding gap; uncertainty around future federal and state regulation of hydraulic fracturing and greenhouse gas emissions; the cost and timing of pipeline and rail takeaway capacity; and foreign operating risks in Trinidad, the U.K., China and Argentina. Management also disclosed an open NDDH air emissions consent agreement in North Dakota.
06—Continue