EOG Grows Production with Acquisitions, Drilling
Houston-based EOG Resources Inc. nearly doubled its earnings in the fourth quarter, while its annual income soared on higher commodity prices, strategic acquisitions and strong production growth in North America and Trinidad.
Quarterly net income was $71.8 million (61 cents/share), compared with $41.7 million (36 cents) for 4Q2002. For the year, net income reached $419.1 million ($3.60/share), significantly higher than 2002's $76.1 million (65 cents).
"In 2003, we increased the dividend, substantially added to our reserve base by replacing 249% of production, executed our drilling plan, made strategic acquisitions and paid down debt, all with internally generated cash flow," said CEO Mark G. Papa. "It was a record year in terms of operating earnings and cash flow."
Like other producers in recent weeks, EOG took special care to explain its production reserve picture, and to stress that they had been externally audited. At the end of 2003, EOG had approximately 5.2 Tcfe in reserves, a 13% increase (614 Bcfe) over 2002. Total production reserve replacement worldwide was 249%, and total finding costs were $1.28/Mcfe.
On drilling alone, EOG replaced 183% of its production base at a cost of $1.21/Mcfe. And, for the 16th consecutive year, EOG reported that its internal reserve estimates were within 5% of external reserve estimates prepared by an independent engineer.
In North America, EOG achieved 259% reserve replacement at a total finding cost of $1.36/Mcfe. This finding cost is approximately 4% lower than in 2002 and below the three-year average of $1.44, EOG noted.
"During 2003, we had excellent drilling results from our singles and doubles program in North America and we made two Canadian acquisitions of undercapitalized producing properties," Papa said. "This combination provides us with longer term opportunities in North America."
In Trinidad, total natural gas production increased 13% for the year, primarily reflecting a full year of sales to the CNC Ammonia Plant. In the fourth quarter 2003, EOG began a nine-month drilling and exploration campaign aimed at finding significant additional reserves on its acreage offshore Trinidad. Construction also progressed during 2003 on the Nitro 2000 Ammonia Plant in Trinidad, which is scheduled to start up in the second half of 2004. EOG will supply 47 MMcf/d net of natural gas to this facility under a 15-year contract.
Papa called 2003 a "pivotal year" for EOG. "We set up our operations and an inventory of drilling prospects to provide vigorous, visible total company production growth for the next three years, targeting 6.5, 10 and 7% increases for 2004, 2005 and 2006, respectively. We expect to accomplish this growth without stressing the balance sheet."
Papa noted that while EOG's focus "remains North American gas, we see an increasing linkage between North American gas demand and Trinidad supply. We anticipate our existing position with the supply contracts to the two ammonia plants and the new methanol plant will continue to prove positive, giving our portfolio an even broader exposure to North American natural gas fundamentals, the cornerstone of our company.
The preliminary capital expenditure program for 2004 is estimated to be approximately $1.1 billion, excluding acquisitions, said Papa. EOG will hold a conference call with analysts to discuss earnings and its forecast at 9:30 EST on Thursday.