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EOG's Papa Sees Deliverability Still Flat
High commodity prices have been a blessing for EOG Resources, which posted record results during the third quarter after its first full year after being separated from Enron Corp. EOG, formerly Enron Oil and Gas, posted a 250% increase in third quarter net income to $113.7 million, or $0.98 per share, compared to $32.5 million, or $0.27 per share, for the comparable period a year ago.
"We remain totally unhedged on gas going forward and are still bullish long term on the commodity," said CEO Mark Papa during a conference call. "We will continue to closely watch the natural gas market and will communicate openly if we should layer in some gas hedges. We are closely monitoring supply indicators on a monthly basis from Texas, Louisiana, Oklahoma and Alberta. These indicators refer to a flattening of declines but not a deliverability uptick so far. I continue to feel that the supply response from the higher rig count will be more muted than most people expect because the prospects being drilled with the incremental rigs frankly have less bang for the buck."
"The key drivers for the quarter were volume growth, combined with our unhedged natural gas position," said Papa. "Most importantly, EOG's increase in North American production has been from the drillbit, an increasingly difficult challenge for our industry."
EOG's U.S. gas production rose to 652 MMcf/d from 642 MMcf/d in 3Q99. Its Canadian gas production grew 7% to 125 MMcf/d. Realized gas prices in the U.S. were up 73% to $4.14/Mcf.
EOG's own gas production is expected to end the year flat to down slightly, averaging between 900 and 910 MMcf/d, compared to about 938 MMcf/d in 1999. U.S. gas production is expected to average between 650 and 655 MMcf/d, which is dead even with last year. Canadian production is expected to average 130 MMcf/d, or up about 15 MMcf/d from 1999, and gas production in Trinidad is expected to average between 120 and 125 MMcf/d, flat with 1999 production averages. However, Papa said he expects to company to reach its target of 7% growth in total production for the year.
The company will have plenty of cash on hand for the job. During the third quarter, EOG's cash flow rose 79% to $283 million.
"The excellent operational results and record earnings and cash flow are reflective of our continued drilling success and focus on costs," said Papa. "We have taken advantage of the current commodity environment to position EOG for the future by expanding our exploration staff and activities, increasing capital expenditures and strengthening our balance sheet by paying down debt."
The company's crude production for the full year 2000 is expected to average 27.5 thousand barrels per day (Mbld) compared to 23.5 thousand b/d in 1999. Natural gas liquids production is expected to average 4.5 Mbld compared to 3.4 Mbld in 1999.
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