EOG Resources Q1 2010 Earnings Call Transcript

EOG Resources Q1 2010 Earnings Call Transcript
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EOG Resources (EOG)

Q1 2010 Earnings Call

May 04, 2010 9:00 am ET

Executives

Mark Papa - Chairman of the Board and Chief Executive Officer

Timothy Driggers - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

Brian Singer - Goldman Sachs

David Tameron - Wachovia

David Heikkinen - Tudor, Pickering, Holt

David Kistler - Simmons & Company

Irene Haas - Canaccord Adams Ltd.

Leo Mariani - RBC Capital Markets Corporation

Benjamin Dell - Sanford C. Bernstein & Co., Inc.

Ray Deacon - BMO Capital Markets

Michael Jacobs - Private Investor

Presentation

Operator

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Previous Statements by EOG
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Good day everyone, and welcome to EOG Resources 2010 First Quarter Earnings Conference Call. At this time, for opening remarks and introductions, I would now 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 First Quarter 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 disclosures on this conference call and webcast, including those for the South Texas, Eagle Ford, North Dakota, Bakken, Three Forks, Barnett Shale, Haynesville-Bossier and Horn River place may include potential reserves, or estimated reserves, not necessarily calculated in accordance with or contemplated by the SEC's latest reserve reporting guidelines. We incorporate by reference, the cautionary note 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; Bob Garrison EVP Exploration; Tim Driggers, Vice President and CFO; and Maire Baldwin, Vice President of Investor Relations. An updated IR presentation was posted to our website last night, and we included second quarter and updated full year 2010 guidance in yesterday's press release. We remain on track to achieve 13% total company organic production growth this year, dominated by U.S. liquids production.

I'll now review our first quarter net income and discretionary cash flow and then I'll provide some operational highlights. Tim Driggers will provide some financial details and I'll close with some macro comments and concluding remarks.

As outlined in our press release, for the first quarter, EOG reported net income of $118 million or $0.46 per share for investors who follow the practice of industry analysts who focus on non-GAAP net income, to eliminate mark-to-market impacts and certain one-time adjustments as outlined in the press release. EOG's first quarter adjusted net income was also $118 million or $0.46 per share. For investors who follow the practice of industry analysts and focus on non-GAAP discretionary cash flow, EOG's DCF for the first quarter was $765 million.

I'll now address a few operational results. Our report today will be brief, since it's been only a few weeks since our April 7 Analyst Conference. The bottom line is that everything is on track, consistent with the information we provided at the conference. We still expect to grow total production 13% this year, with year-over-year liquids growth of 47%. Our projected CapEx level is unchanged, and we still expect to sell $1 billion to $1.5 billion of North American gas properties by year end. Also, we're investigating joint venture possibilities for our Marcellus and Horn River Shale gas acreage. The only new data since April 7 are a series of individual well results in some of our key plays. Most of these well results simply reinforce the overall Analyst Conference theme, but one well may have particular significance. This well was in the Barnett Combo play where we've completed our best producer to date. The Settle B #1H well began producing at a rate of 1,852 barrels of oil per day, with 3.7 million cubic feet a day of liquids rich gas and we yield reserves considerably higher than our model horizontal well. This well was significant because it was drilled in the eastern portion of the play in the 25,000 acres we had designated for vertical drilling.

The rock quality in this 25,000-acre area is the best in the play, which is why vertical wells are economic. However, if we can replicate the Settle results with additional horizontal wells, and these 25,000 acres can be exploited at a higher ROR and reserve recovery than we projected for vertical wells, we'll soon be drilling additional horizontals here and we'll apprise you of the results later this year.

In addition to the Settle well, we've also completed a number of horizontal wells in the Barnett combo play. The Alamo #1H, #2H and #3H wells were drilled on 55-acre spacing in Montague County. The wells began producing at a combined rate of over 900 barrels of oil per day, with 2.4 million cubic feet a day, and we have 97% working interest in these wells.

Our other well results are simply further confirmations of our key oil plays. In the Eagle Ford, we've completed our 17th oil well, the Harper #4H, which IP'd at 602 barrels of oil per day with 650 Mcf of gas per day. Not only we delineated our 120-mile Eagle Ford acreage, we're going to moderate our drilling activity for a few months until we have our 3D seismic shock and interpret it. So don't expect constant Eagle Ford news flow from EOG until late this year. Remember that our analyst conference data showed we expect to average only 6,000 barrels of oil equivalent per day from the Eagle Ford this year, factoring in the lag period for the 3Ds.

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