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EOG Resources Reports 2011 Results, Increases Eagle Ford Reserve Potential and Increases Dividend
FOR IMMEDIATE RELEASE: February 16, 2012
- Achieves 9.4 Percent Year-Over-Year Total Company Production Growth
- Reports 52 Percent North American Annual Crude Oil, Condensate and Natural Gas Liquids Growth with 48 Percent Increase in Total Company Liquids Volumes Year-Over-Year
- Delivers Strong Year-Over-Year Growth in EPS, EBITDAX and Discretionary Cash Flow
- Increases Eagle Ford Potential Recoverable Reserve Estimate by 78 Percent — from 900 MMboe to 1,600 MMboe, Net After Royalty
- Realizes Continued Drilling Success in Permian Basin Wolfcamp and
- Raises Total Company Proved Reserves 5.3 Percent at Attractive Finding Costs
- Increases 2012 Total Company Organic Liquids Growth Target from 27 Percent to 30 Percent
- Raises Dividend on Common Stock for 13th Time in 13 Years
Consistent with some analysts' practice of matching realizations to settlement months, and making certain other adjustments in order to exclude one-time items, adjusted non-GAAP net income for the quarter was
On a similar basis, eliminating the items detailed in the attached table, adjusted non-GAAP net income for the full year 2011 was
"EOG had an exceptional year in 2011 with a 551 percent increase in earnings per share versus 2010. This solidifies the completion of our goal of becoming an oil company. These strong returns are one of the traditional hallmarks of EOG," said
Through its focus on higher margins and returns, EOG posted strong financial metrics year-over-year in adjusted non-GAAP earnings per share, adjusted EBITDAX and discretionary cash flow. Compared to 2010, adjusted non-GAAP earnings per share increased 227 percent, adjusted EBITDAX increased 55 percent and discretionary cash flow rose 52 percent. (Please refer to the attached tables for the reconciliation of adjusted non-GAAP net income per share to GAAP net income per share, adjusted EBITDAX (non-GAAP) to income before interest expense and income taxes (GAAP) and non-GAAP discretionary cash flow to net cash provided by operating activities (GAAP).)
2011 Operational Highlights
For the full year 2011, total company production increased 9.4 percent compared to 2010, driven by 52 percent organic growth in North American crude oil, condensate and natural gas liquids, and a 48 percent increase in total company liquids production. During the fourth quarter,
Crude Oil and Liquids Activity
2011 marked a significant year in the development of EOG's single largest asset, the South Texas Eagle Ford. Production at year-end was 66 thousand barrels of oil equivalent per day, net, 78 percent of which was crude oil.
Starting 2011 with a 12-rig drilling program that ramped up to 26 rigs in December, EOG drilled and completed 244 net wells during the year with a focus on optimizing completion techniques, in addition to reducing drilling days and overall well costs. Moving into development mode early in 2011, EOG began shifting its attention to increasing recovery of the oil-in-place in the field. To test the impact of well spacing on reserve recoveries, EOG drilled eight pilot programs that included 33 total wells. Based on production analysis from these pilots and reservoir modeling, EOG is now pursuing development drilling on 65 to 90-acre spacing, significantly tighter than the original density of 130 acres between wells.
After taking into account both the excellent results from the 375 wells it has drilled to date across its 120-mile acreage position and the results from the down-spaced drilling tests, EOG has increased its estimated potential reserves in the Eagle Ford from 900 million barrels of oil equivalent (MMboe) to 1,600 MMboe, net after royalty (NAR). The 700 MMBoe, NAR, or 78 percent increase represents an estimated 6 percent recovery factor. On its 572,000 net acres in the prolific oil window, EOG has identified approximately 3,200 remaining drilling locations and increased its average per well estimate to 450 thousand barrels of oil equivalent (MBoe), NAR.
EOG's well results in the Eagle Ford continue to lead the industry. In
"With tremendous resource potential still remaining on our acreage, we continue to test and apply techniques that will increase the oil recovery and potential of the Eagle Ford, our crown jewel. This strategy takes us into the next inning of development. By concentrating our efforts on getting more oil out of the ground early in the development phase, we are taking a good asset and making it great," Papa said. "Looking across the industry, we believe EOG's Eagle Ford position represents the largest domestic net oil discovery in 40 years and the highest rate of return play in
In the Fort Worth Barnett Shale Combo, EOG's second largest driver of liquids growth during 2011, total liquids production increased 107 percent compared to 2010, driven by a 124 percent increase in crude oil and condensate production. In
During 2011, EOG expanded its core holdings in the Barnett Combo by approximately 25,000 acres to 200,000 net acres. Following the success of its drilling program last year, EOG expects the Barnett Combo to be its second largest liquids production growth contributor again in 2012.
Consistent with its game plan to increase recovery rates in existing fields, during 2011 EOG continued infill drilling on its core acreage in the North Dakota Bakken Parshall Field, which it discovered in 2006. Although originally developed on 640-acre spacing, EOG has successfully tested 320-acre down-spacing in various areas and around the perimeters of the field. A recent well in Mountrail County, the Fertile 48-0905H, in which EOG has a 96 percent working interest, was completed at an initial rate of 1,324 Bopd. Also in Mountrail County, the Liberty 24-2531H and Liberty LR 20-26H were drilled on 320-acre spacing. The wells, in which EOG has 82 and 95 percent working interest, respectively, were turned to sales at initial crude oil rates of 1,507 and 1,165 Bopd, respectively. Over the course of 2012, EOG will continue its efforts to increase recovery of the oil-in-place on its Bakken acreage through further down-spacing tests and the initiation of a secondary recovery pilot project.
EOG's total company net proved reserves for 2011 increased 5.3 percent over the prior year from 1,950 to 2,054 MMBoe, all organic. Total liquids proved reserves increased 39 percent year-over-year. Excluding the impact of property dispositions, total company and total North American net proved developed reserves increased 8.8 percent and 8.2 percent, respectively. Total liquids proved reserves, as a percentage of total company proved reserves, increased from 28 percent to 36 percent.
- Total reserve replacement from all sources — the ratio of net reserve additions from drilling, acquisitions, total revisions and dispositions to total production — was 167 percent at a total reserve replacement cost of
$19.68per barrel of oil equivalent (Boe), based on exploration and development expenditures of $6,466 million. (For the calculation of total reserve replacement and total reserve replacement costs, please refer to the attached tables.)
- Total liquids reserve replacement from all sources — the ratio of net reserve additions from drilling, acquisitions, total revisions and dispositions to total production — was 465 percent. (For the calculation of total liquids reserve replacement, please refer to the attached tables.)
- Reserve replacement from drilling — the ratio of extensions, discoveries and other additions to total production — was 248 percent. (Pease refer to the attached tables.)
the United States, total reserve replacement from all sources was 216 percent at a reserve replacement cost of $18.00per Boe based on exploration and development expenditures of $5,969 million. (For the calculation of U.S. total reserve replacement and total reserve replacement costs, please refer to the attached tables.) In the United States, 72 percent of the reserve additions were liquids.
For the 24th consecutive year, internal reserve estimates were within 5 percent of those prepared by the independent reserve engineering firm of DeGolyer and MacNaughton (D&M). For 2011, D&M prepared a complete independent engineering analysis of properties containing 85 percent of EOG's proved reserves on a Boe basis.
Natural Gas Activity
EOG is continuing to de-emphasize dry natural gas drilling activity on its Haynesville, Marcellus and
During 2011, total cash proceeds from asset sales were
"EOG hit a series of home runs during 2011. We exceeded our crude oil production growth targets and increased the estimated reserves in the Eagle Ford by increasing individual per well reserves and improving the overall recovery factor in the field," Papa said. "The business model we set in motion several years ago is working, evidenced by the outstanding operational and financial metrics EOG achieved in 2011."
2012 Operational Plans and Targets
EOG is targeting total company production growth of 5.5 percent in 2012 and has increased its total organic liquids production growth forecast from the previously stated 27 percent to 30 percent. Total liquids growth is expected to be comprised of a 30 percent increase in crude oil and condensate production and a 30 percent increase in natural gas liquids production. In
Estimated exploration and production expenditures for 2012 are expected to range from
EOG has hedged approximately 23 percent of its North American crude oil production for 2012. For the period
For 2012, EOG has hedged approximately 45 percent of its North American natural gas production. For the period
Following an increase in the common stock dividend in 2011, EOG's Board of Directors has again increased the cash dividend on the common stock. Effective with the dividend payable on
Conference Call Scheduled for
EOG's full year 2011 results conference call will be available via live audio webcast at
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including, among others, statements and projections regarding EOG's future financial position, operations, performance, business strategy, returns, budgets, reserves, levels of production and costs and statements regarding the plans and objectives of EOG's management for future operations, are forward-looking statements. EOG typically uses words such as "expect," "anticipate," "estimate," "project," "strategy," "intend," "plan," "target," "goal," "may," "will" and "believe" or the negative of those terms or other variations or comparable terminology to identify its forward-looking statements. In particular, statements, express or implied, concerning EOG's future operating results and returns or EOG's ability to replace or increase reserves, increase production or generate income or cash flows are forward-looking statements. Forward-looking statements are not guarantees of performance. Although EOG believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, EOG's forward-looking statements may be affected by known and unknown risks, events or circumstances that may be outside EOG's control. Important factors that could cause EOG's actual results to differ materially from the expectations reflected in EOG's forward-looking statements include, among others:
- the timing and extent of changes in prices for, and demand for, crude oil, natural gas and related commodities;
- the extent to which EOG is successful in its efforts to acquire or discover additional reserves;
- the extent to which EOG can optimize reserve recovery and economically develop its plays utilizing horizontal and vertical drilling and advanced completion technologies;
- the extent to which EOG is successful in its efforts to economically develop its acreage in, and to produce reserves and achieve anticipated production levels from, its existing and future crude oil and natural gas exploration and development projects, given the risks and uncertainties inherent in drilling, completing and operating crude oil and natural gas wells and the potential for interruptions of development and production, whether involuntary or intentional as a result of market or other conditions;
- the extent to which EOG is successful in its efforts to market its crude oil, natural gas and related commodity production;
- the availability, proximity and capacity of, and costs associated with, gathering, processing, compression and transportation facilities;
- the availability, cost, terms and timing of issuance or execution of, and competition for, mineral licenses and leases and governmental and other permits and rights-of-way;
- the impact of, and changes in, government policies, laws and regulations, including tax laws and regulations, environmental laws and regulations relating to air emissions, waste disposal and hydraulic fracturing and laws and regulations imposing conditions and restrictions on drilling and completion operations;
- EOG's ability to effectively integrate acquired crude oil and natural gas properties into its operations, fully identify existing and potential problems with respect to such properties and accurately estimate reserves, production and costs with respect to such properties;
- the extent to which EOG's third-party-operated crude oil and natural gas properties are operated successfully and economically;
- competition in the oil and gas exploration and production industry for employees and other personnel, equipment, materials and services and, related thereto, the availability and cost of employees and other personnel, equipment, materials and services;
- the accuracy of reserve estimates, which by their nature involve the exercise of professional judgment and may therefore be imprecise;
- weather, including its impact on crude oil and natural gas demand, and weather-related delays in drilling and in the installation and operation of production, gathering, processing, compression and transportation facilities;
- the ability of EOG's customers and other contractual counterparties to satisfy their obligations to EOG and, related thereto, to access the credit and capital markets to obtain financing needed to satisfy their obligations to EOG;
- EOG's ability to access the commercial paper market and other credit and capital markets to obtain financing on terms it deems acceptable, if at all;
- the extent and effect of any hedging activities engaged in by EOG;
- the timing and extent of changes in foreign currency exchange rates, interest rates, inflation rates, global and domestic financial market conditions and global and domestic general economic conditions;
- political developments around the world, including in the areas in which EOG operates;
- the timing and impact of liquefied natural gas imports and exports;
- the use of competing energy sources and the development of alternative energy sources;
- the extent to which EOG incurs uninsured losses and liabilities;
- acts of war and terrorism and responses to these acts; and
- the other factors described under Item 1A, "Risk Factors", on pages 14 through 20 of EOG's Annual Report on Form 10-K for the fiscal year ended
December 31, 2010and any updates to those factors set forth in EOG's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
In light of these risks, uncertainties and assumptions, the events anticipated by EOG's forward-looking statements may not occur, and, if any of such events do, we may not have anticipated the timing of their occurrence or the extent of their impact on our actual results. Accordingly, you should not place any undue reliance on any of EOG's forward-looking statements. EOG's forward-looking statements speak only as of the date made and EOG undertakes no obligation, other than as required by applicable law, to update or revise its forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.
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