Will Powerful EOG Resources Blow Us Away Again?

The beat goes on in an earnings season that has had its share of both ups and downs for the energy sector. On Thursday, EOG Resources (NYSE: EOG  ) , one of the stars of the independent producer contingent, will take center stage to tell us about its most recent quarter and year.

You probably won't be surprised when I predict that we'll discover that the final quarter of 2012 was one more in a string of solid periods and that the full year topped an extremely strong 2011. After all, EOG's primary operations occur in the hotter plays onshore in the U.S., and the company is decidedly oriented to crude oil and liquids, rather than to dry gas.

Consensus gathering
For the quarter, analysts who follow EOG have reached a per-share earnings consensus of $1.35, versus $1.15 for the final quarter of 2011. That result would put the full year's per-share figure at or about $5.40, up from $3.79 a year earlier. Top-line expectations for the quarter are at approximately $3.04 billion, up from $2.77 billion a year ago. Full-year revenues are forecast to come in at about $11.62 billion, compared with $10.13 billion for all of 2011.

While we'll learn more about it on Thursday, clearly one of the major events of the quarter was the emergence of an agreement with Chevron (NYSE: CVX  ) for the sale of EOG's 30% working interest in the Kitimat LNG facility in British Columbia. Apache (NYSE: APA  ) operates the facility, in which it also holds a 30% interest. The remaining 40% stake is held by Calgary-based Encana (NYSE: ECA  ) . Consummation of the transaction is dependent upon Canadian regulatory approval, but it appears that it will occur by the end of this quarter.

In announcing the agreement to divest its stake in the facility, EOG's CEO Mark Papa said, "While we still believe in the viability of the Kitimat project, our decision to exit is consistent with EOG's focus on domestic onshore crude oil production, which is generating more immediate reinvestment opportunities." Among the domestic onshore plays to which Papa was probably referring are the prolific Bakken and Three Forks formations of the Williston Basin, primarily in North Dakota.

A leader in the top plays
The company is also is the largest crude oil producer in the Eagle Ford play of South Texas and is active in the newly revitalized Permian Basin of southwest Texas and southeastern New Mexico. Farther north, it operates in the Denver-Julesburg and Powder River basins in Colorado and Wyoming. It produces natural gas in the Haynesville Shale of northern Louisiana and eastern Texas and in the Marcellus Shale, primarily in Pennsylvania.

Internationally, the company has begun operations in the promising Neuguen Basin, an unconventional play in Argentina. It also holds a 100% working interest in a nascent operation in the East Irish Sea and is active in the Columbus Basin near Trinidad and Tobago.

Catching up on past trends
Slightly more than 90 days ago, at its report on its third-quarter 2012 results, the company announced several advances that merit continued attention when its fourth-quarter and full-year accomplishments are reported. Among them:

  • Total company crude oil production growth for the year was increased to 40% from the previous 38% through the first three periods of the year.
  • Production from the company's Eagle Ford operations reached a not-to-be-sneezed-at 109,000 barrels of oil equivalent per day during the third quarter.
  • EOG's estimated reserve potential in the Eagle Ford was raised to 1,600 million barrels of oil equivalent, net after royalty. That amounts to a 78% increase.

A half-dozen or so years ago, Chesapeake Energy (NYSE: CHK  ) might have been considered the belle of the ball among independent producers for its leadership in developing unconventional U.S. gas plays. Since that time, however, natural gas prices have dropped three- to four-fold, forcing Chesapeake and other gas-heavy producers to undertake an effort to increase the share of their total output emanating from crude and liquids.

On that basis, it's noteworthy that, at the midpoint in 2012, a whopping 86% of EOG's wellhead revenues in North America were tied to crude oil, condensate, and natural gas liquids. It'll indeed be well worth noting how that percentage may have been altered during the second half of the year.

Foolish takeaway
So in addition to cards and candy, Thursday will arrive with reports of quarterly results from EOG Resources and Apache, both of which clearly rank among the more compelling U.S.-based independent producers. I urge fools to monitor those results carefully, if only for the indications they'll provide about likely 2013 trends in the world of oil and gas production.


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