EOG Resources' CEO Discusses Q4 2011 Results - Earnings Call Transcript

EOG Resources (EOG)

Q4 2011 Earnings Call

February 17, 2012 9:00 am ET


Mark G. Papa - Chairman of the Board and Chief Executive Officer

Timothy K. Driggers - Chief Financial Officer and Vice President

Gary L. Thomas - Chief Operating officer


Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

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

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Arun Jayaram - Crédit Suisse AG, Research Division

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Pearce W. Hammond - Simmons & Company International, Research Division

Unknown Analyst



Good day, everyone, and welcome to EOG Resources Fourth Quarter and Full Year 2011 Earnings Results Conference Call. As a reminder, this call is being recorded. 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 G. Papa

Good morning, and thanks for joining us. We hope everyone has seen the press release announcing fourth quarter and full year 2011 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.

The SEC 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 at the Eagle Ford, may contain potential reserves or other 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 in the Investor Relations page of our website.

With me this morning are Bill Thomas, President; Gary Thomas, COO; Tim Driggers, Vice President and CFO; Maire Baldwin, Vice President, Investor Relations; and Jill Miller, Manager of Engineering and Acquisitions.

An updated IR presentation was posted to our website last night, and we included first quarter and updated full year 2012 guidance in yesterday's press release.

This is our 50th quarterly earnings call since we became a fully public company, and fittingly, we have a lot of positives to discuss this morning, including exciting news from several Texas-based liquids resource plays. I'll discuss topics in the following order: I'll first review our 2011 fourth quarter and full year net income and discretionary cash flow. Then I'll provide operational results, followed by reserve replacement and our 2012 business plan. Tim Driggers will then discuss financials and capital structure and I'll follow with our macro hedge position and finish with concluding remarks.

As outlined in our press release, for the fourth quarter, EOG reported net income of $120.7 million or $0.45 per diluted share and $1.091 billion or $4.10 per diluted share for the full year 2011. For investors who focus on non-GAAP net income to eliminate mark-to-market impacts in certain nonrecurring items as outlined in our press release, EOG's fourth quarter adjusted net income was $309 million or $1.15 per diluted share and $1.0 billion or $3.79 per diluted 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 $1.3 billion and $4.57 billion for the full year.

I'll now address our 2011 operational results and key plays.

For both the fourth quarter and full year, our liquids and total company production exceeded the midpoint of our guidance. For the full year 2011, we achieved 52% total company crude oil growth with a 61% increase in U.S. crude oil production. Total company liquids increased 48%, all organic. This is clearly best in class for a company our size and is right on top of the 49% total liquids growth projection we provided you exactly 1 year ago on this same earnings call. Since 2007, EOG's crude and condensate growth and total liquids growth have each increased at a compounded annual growth rate of 38%.

Our 2011 North American gas production declined 7% versus 2010 from a combination of asset sales and lack of drilling. Total company overall production growth was 9.4%, again very close to the 9.5% estimate we provided last February. Also for the full year, our aggregate unit lease and well, transportation and DD&A costs were lower than the aggregate midpoint guidance.

As I've said on multiple earnings calls, EOG's focus is on year-to-year, year-over-year increases in EPS, EBITDAX and discretionary cash flow and our path to achieve this goal is strong liquids growth. For 2011 compared to 2010, our GAAP EPS growth was 551%. Non-GAAP EPS growth was 227%, adjusted EBITDAX growth was 55% and discretionary cash flow growth was 52%. And based on current NYMEX prices, we expect continued growth in these metrics in 2012.

In 2011, 67% of our total company well head revenues came from liquids. In North America, 72% of wellhead revenues came from liquids. This strong liquids growth is generated by the first move of positions we captured in horizontal, domestic oil plays. We presently have 4 of these, each of which we believe is world-class. I'll now discuss each of these 4 plays starting with the Eagle Ford.

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