EOG Resources (EOG)

Q4 2010 Earnings Call

February 18, 2011 9:00 am ET


Mark Papa - Chairman of the Board and Chief Executive Officer

Timothy Driggers - Chief Financial Officer and Vice President


Daniel Morrison - Global Hunter Securities, LLC

Brian Singer - Goldman Sachs Group Inc.

Leo Mariani - RBC Capital Markets, LLC

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc.

David Tameron - Wells Fargo Securities, LLC

Joseph Allman - JP Morgan Chase & Co

Irene Haas - Wunderlich Securities Inc.

H. Monroe Helm III

Scott Wilmoth - Simmons

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc.



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Good day, everyone, and welcome to EOG Resources Fourth Quarter and Full Year 2010 Earnings Results Conference Call. At this time for opening remarks and introductions, I would like to turn the call over to the Chairman and Chief Executive Officer of EOG Resources, Mr. Mark Papa. Please go ahead, sir.

Mark Papa

Good morning, and thanks for joining us. We hope everyone has seen the press release announcing fourth quarter and full year 2010 earnings and operational results. This conference call includes forward-looking statements. The risks associated with forward-looking statements have been outlined in the earnings release and EOG's SEC filings, and we incorporate those by reference for this call.

This conference call contains certain non-GAAP financial measures. The reconciliation schedules for these non-GAAP measures to comparable GAAP measures can be found on our website at www.eogresources.com.

Effective January 1, 2010, the SEC now permits oil and gas companies in their filings with the SEC to disclose not only proved reserves but also probable reserves, as well as possible reserves. Some of the reserve estimates on this conference call and webcast, including those for the Wolfcamp, Marcellus and British Columbia Horn River Basin, may include estimated reserves not necessarily calculated in accordance with or contemplated by the SEC's latest reserve reporting guidelines. We incorporate by reference the cautionary notes to U.S. investors that appears at the bottom of our press release and Investor Relations page of our website.

With me this morning are Loren Leiker, Senior EVP, Exploration; Gary Thomas, Senior EVP, Operations; Bill Thomas, Senior EVP, Exploitation; Tim Driggers Vice President and CFO; Maire Baldwin, Vice President, Investor Relations; and Jill Miller, Manager, Engineering and Reserves.

An updated IR presentation was posted to our website last night and we included first quarter and full year 2011 guidance in yesterday's press release. I'll discuss our business plans for 2011 in a minute when I review operations. I'll now review our fourth quarter and full year net income and discretionary cash flow, and then I'll review our year-end reserves and finding costs. I'll follow with recent operational highlights. Tim Driggers will then provide some financial details, and I'll have some concluding remarks.

As outlined in our press release, for the fourth quarter EOG reported net income of $53.7 million or $0.21 per share and $160.7 million or $0.63 per share for the full year 2010. For investors who follow the practice of industry analysts who focus on non-GAAP net income to eliminate marked-to-market impacts and certain one-time adjustments as outlined in the press release, EOG's fourth quarter adjusted net income was $92 million or $0.36 per share and $296.4 million or $1.16 per share for the full year.

For investors who follow the practice of industry analysts who focus on non-GAAP discretionary cash flow, EOG's DCF for the fourth quarter was $827 million and $3 billion for the full year.

Because we expect almost 70% of our 2011 and 73% of our 2012 North American wellhead revenues to emanate from liquids with current prices, we have shifted our reporting from natural gas unit measurements to crude oil unit measurements using the 6:1 conversion ratio.

I'll now address 2010 reserve replacement and finding costs. For the total company, we replaced 207% of our production at a $15.05 per BOE all-in costs net of reserve revisions. In the U.S., we replaced 339% of reserves at a $12.96 per BOE all-in costs net of revisions. For drilling alone in the U.S., our finding cost was $12.35 per BOE.

Total company proved reserves increased 8.5% to 1,950 million barrels of oil equivalent. Excluding the impact of producing asset sales, total company net proved developed reserves increased 9.6% overall and 12.6% in North America. Overall, 62% of the reserve adds were liquids. These are strong numbers, particularly given the rate of increase on the liquids side reflective of our 2010 drilling budget.

Overall, our natural gas reserves decreased due to producing property sales, a well that watered out in Trinidad and revisions in the Mid Continent area to reflect PUD reserves that are no longer part of our five-year drilling program.

For the 23rd consecutive year, DeGolyer and MacNaughton has done an engineering analysis of our reserves, and the overall number was within 5% of our internal estimate. Their analysis covers 77% of our proved reserves this year. Please see the schedule of accompanying earnings release for the calculation of reserve replacement and finding costs.

I'll now address our 2011 business plan, and then provide updates on several key plays. In 2010, we slightly overachieved regarding our revised production growth goal ending the year with 9.5% year-over-year overall growth compared to our 9% target articulated in November.

Our 2011 growth projection of 9.5% on an MMboe per day basis is identical to the goal that we presented in November. I'll also point out that this growth reflects all anticipated assets sales for 2011. Most importantly, the year-over-year liquids growth projection remains at 49%, although the mix between oil and NGL is slightly more oil dominated than presented in November. We expect 55% oil growth and 34% NGL growth in 2011.

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