The 4Q Numbers (see earnings report here):
As you can see in the table above:
4Q volumes came in just over the mid point of the guidance range
The natural gas, oil and NGL split was as expected
Guidance:
2011 volume guidance:
Was 10% YoY
Now 9.5% vs 2010 levels, but that's not a bad thing since ...
...the delta is attributable to slightly lower planned North American natural gas production (now expected to decline 5% this year. I'm pretty OK with that and they can ratchet that activity back up when it is worth selling the incremental gas volumes).
Liquids production is still set to rise a whopping 49%, which is what people were concerned about going into the quarter - that EOG would trim liquids guidance again over delays in the Eagle Ford program and potentially elsewhere.
Liquids are expected to be 69% of total production for 2011 vs 53% in 2010. The prior estimate was that they'd be 67% liquids on average this year, another oily step in the currently right direction. You won't find another large cap E&P making the transition from gas to liquids nearly this fast.
Note that the 1Q11 guidance range is a little light to the quarter just passed, which may get some attention on the conference call, but will probably turn out to be management being conservative.
Balance Sheet:
Net to debt to cap is 30% vs 27 % last quarter
The comment on near term goals is that they stay below 35% at the end of 2011 and 2012; the prior commentary was 30 to 35%, and before that they were looking to stay under 25%. And way before that, the goal was to be debt free.
Not a critique as things change and higher costs are part of getting oilier.
Operational Highlights:
West Texas Wolf Camp - Not really new, but they haven't been talking about it.
120,000 net acres with "potential" reserves starting out at > 40 mm BOE.
Drilled 4 wells to date here (Irion and Crockett counties)
Highlighted two, one with a 30 day average rate of 490 BOEpd,
First EUR estimate is 270,000 BOE per well, thinks reserves are 77% liquids (55% oil)
Niobrara - increased confidence in the play.
300,000 net acres (focused on 80,000 at present in Colorado)
Added 1 more set of well results with a 748 BOEpd IP, want to see longer range IPs here.
3 rig program for 2011
On the conference call, look for them to flesh out their comment in the press release that they have made progress in converting the play from fracture to matrix flow. If Papa is saying that EOG has cracked the completion code here, making it act more like good reservoir rock instead of the shale it is - which will be hit and miss in terms of productivity/recovery due to more or less localized natural fracturing, then that is a truly big deal.
Eagle Ford
With a total position of 595,000 net acres, that's up from 505,000 net acres at last report so they've seen more than healthy growth in recent months. 520,000 net acres are in the mature oil window. I would like to hear on the call where and what they've been paying of late.
2010 - drilled 96 net wells
2011 - plan to drill 250 net wells
Their "captured reserve estimate" for the play still sits at 900 MM BOE, but they continue to comment that well results are outperforming their original models so we should be hearing the "caputured" number rise beyond the 1 billion barrel mark some time this year.
Bakken
49.4 MMBOEpd gross production at YE10; biggest oil producer in North Dakota
Acreage still at 600,000 net acres,
Planning 10 rig program for 2011 so they should be able to add 100 to 120 wells
Still thinking 2 Bakken and 2 TFS wells per unit, which is light compared to some other operators' recent drilling driven comments.
Barnett Combo
Acreage now at 175,000 net acres vs 160,000 net at last count (basically the southern half of Montague county)
Plan to drill 230 net wells in 2011
Leonard Shale - not much to update here, still working a small slice of the acreage, 1 rig program for 2011.
Reserves:
Proved reserves up 8.5% to 1,950 MMBOE
Reserve replacement of 207% at an all in F&D of $15.05 BOE (not too high considering the liquids growth)
Proved reserves are valued at an EV / BOE = $15.33, not high at all and obviously doesn't include the vast majority of the total "potential" reserves of their 5 big oily plays that total another 1,800 MMBOE.
Nutshell: Solid quarter, essentially a reiteration of 2011 guidance, with natural gas production falling a little faster than before and liquids rising at about the same rate. Not only have they rapidly transitioned - especially given their size - from gassy to oily (they were 71% gas in 2008), but they continue to slide the scale in the liquids direction this year and next while helping gas prices out by actually showing the discipline (ability) to allow themselves to intentionally decline their gas volumes. On the operations front, it's good to see that they are on top of the Permian and encouraged by their matrix comments regarding the Niobrara. I continue to own the common in the ZLT.
