EOG Earnings: Beats First-Quarter Estimates but Maintains Guidance

EOG EOG surpassed expectations on most metrics in the first quarter of 2023. Firmwide output was 943 mboe/d, exceeding the high end of guidance. While firmwide crude volumes and Trinidad natural gas volumes were both above the midpoint of guidance, the outperformance was primarily driven by higher-than-expected NGL and natural gas production in the United States. Accrued capital expenditure was within budget, and unit operating costs were generally lower than expected (for the latter, lower commodity prices were a contributing factor, but the release also highlighted better pipeline utilization and lower compensation expense). As a result, the firm’s financial results were ahead of Street estimates (adjusted earnings per share was 8% higher than consensus according to Factset).

Free cash flow in the period was $1.1 billion, which matched the dividend payout (of which, $500 million was fixed, and $600 billion was a discretionary distribution). On top of that, the firm repurchased $310 million of its own stock, which we see as value destructive given the price was consistently above our $97 fair value estimate throughout the period, and it also retired $1.25 billion of maturing debt. These incremental outflows were partially offset by a working capital build, resulting in a net outflow of about $1 billion. However, the firm still has plentiful liquidity, with $5 billion remaining in cash on hand.

We intend to incorporate these results shortly but after this first look our fair value estimate and narrow moat rating are unchanged.