EOG Earnings: Firm Beats Production and Cost Guidance but Lowers Full-Year Expectations

EOG EOG delivered production of 970 thousand barrels of oil equivalent per day in the third quarter, which was 3% higher sequentially and 5% higher year over year. This compares with the previously guided range of 940-975 mboe/d. Oddly, despite this quarter’s outperformance, the firm’s full-year production forecast was lowered by 1%, and with no commensurate reduction in the capital budget. This was attributed to the deferral of the completion of some gas-focused wells in the Dorado play, with management sharing our view that 2024 is likely to be a better environment for natural gas prices than 2023 (due to activity declines among producers, rising domestic demand, and incremental LNG export capacity).

Cash costs continue to decline. There were reductions in every category, and the total was 6% lower than the guidance midpoint. However, the net improvement is not expected to be sticky, as new guidance anticipates a rebound in the third quarter. Nevertheless, the projected full-year average remains lower than it was previously. By outperforming on volumes and expenses, the firm was also able to deliver a positive surprise on its earnings. Adjusted EBITDA and adjusted earnings per share were $2,809 million and $2.49, respectively. FactSet consensus estimates were $2,741 million and $2.38. That led to over $1 billion in free cash, of which 74% was returned to shareholders, exceeding the 60% commitment ($500 million for the fixed dividend and $300 million for repurchases, executed at $108/share, which was coincidentally our fair value estimate).

We plan to incorporate these operating and financial results in our model shortly, but after this first look our fair value estimate and no-moat rating remain unchanged.