Yahoo Finance How Can Lower Production Impact EOG Resources?
How Could Lower Production Affect EOG, CHK, APA, and SWN?
EOG Resources’ 4Q15 operating revenues
For 4Q15, EOG Resources (EOG) reported operating revenues of ~$1.8 billion, which is lower by ~51% when compared with its 4Q14 operating revenues of ~$3.67 billion. EOG’s 4Q15 operating revenues are lower mainly because of the YoY (year-over-year) decline in production volumes as well as lower realized prices for its production. To learn more about EOG’s 4Q15 results, please refer to Weak Energy Prices Took a Toll on EOG Resources’ 4Q15 Earnings.
Excluding the effect of hedges, EOG’s average realized crude oil (USO) price in 4Q15 was $40.32 per barrel, down ~45% from $72.74 per barrel in 4Q14. In 4Q15, EOG’s average realized price for natural gas (UNG) production decreased by ~44% to $1.88 per Mcf (thousand cubic feet), compared to $3.38 per Mcf during 4Q14.
Effect of EOG’s production volumes on its operating revenues
As seen in the above chart, EOG’s operating revenues have been declining since 4Q14, mainly due to the lower YoY production volumes and lower realized prices for its production. EOG’s production volumes topped in 3Q14, and that’s when even its operating revenues topped. Since their peaks, EOG’s production volumes and operating revenues are down by ~13% and ~60%, respectively.
EOG’s 1Q16 operating revenues estimates
For 1Q16, Wall Street analysts expect EOG to report operating revenues of ~$1.64 billion, which is lower by ~27% when compared with 1Q15 revenues of ~$2.24 billion. The lower operating revenues estimates can be attributed to the EOG’s lower 1Q16 production guidance and substantially lower energy prices today, compared to 1Q15.
EOG’s capex
Lower production guidance results in reduced drilling activities. According to its lower production guidance, EOG decided to reduce its drilling activity in 2016. For 2016, EOG expects capex in the range of $2.4 billion–$2.6 billion, a midpoint reduction of ~47% over 2015.
Other upstream players
Due to the steep downward trend in energy prices, almost all S&P 500 (SPY) upstream companies like Devon Energy (DVN), Marathon Oil (MRO), ConocoPhillips (COP), and Newfield Exploration (NFX) have reported ~52%, ~41%, ~40%, and ~27%, respectively, year-over-year declines in their 4Q15 adjusted revenues.
The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) generally invests at least 80% of its total assets in oil and gas exploration companies. The Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil and gas companies.
In the next part, we will study why a natural gas producer like Chesapeake Energy (CHK) reduced its natural gas production guidance.
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