EOG Resources Inc., Houston, reported a first-quarter net loss of $169.7 million, down from $660.9 million in net income during first-quarter 2014.
The company says lower commodity prices more than offset increased liquids production volumes, higher cash settlements from commodity derivative contracts, and lower operating expenses.
During the quarter, EOG’s combined expenditures for exploration, development, and other property, plant, and equipment exceeded discretionary cash flow by $486 million due to low commodity prices and service contract commitments. EOG's capital spending plan remains on schedule to post a 40% year-over-year decrease in 2015 (OGJ Online, Feb. 20, 2015). The company maintains that it has no interest in accelerating oil production at the bottom of the commodity cycle.
"As expected, our first-quarter capital spending was higher than levels planned for subsequent quarters,” commented William R. Thomas, EOG chairman and chief executive officer. “For the remainder of the year, with cost reductions and service contract roll-offs, we have the flexibility to adjust and control spending as needed. We believe current oil prices will continue to drive supply and demand changes, and the global oil markets will rebalance.”
Excluding production from EOG's Canadian operations, which were sold in fourth-quarter 2014, crude oil and condensate production increased 16% compared with first-quarter 2014. Overall total company production—excluding divested Canadian operations (OGJ Online, Dec. 9, 2014)—rose 8% year-over-year, driven by gains in the Eagle Ford shale and Delaware basin plays.
EOG will direct 85% of its 2015 capital spending to its top oil plays, comprising the Eagle Ford, Delaware basin, and Bakken shale. In the first quarter, the company says it continued to make significant improvements in well productivity in these plays through integrated completions technology.
High-density completions are planned for about 95% of EOG's Eagle Ford wells in 2015. The company, meanwhile, continues to test multiple zones and various well-spacing patterns in the Second Bone Spring Sand of the Delaware basin, and has focused activity on its Parshall core acreage in the Bakken where 500-ft spacing results were seen as very encouraging.
EOG says it’s also making substantial progress in reducing well and operating costs through operational efficiencies and service cost reductions. The combination of increased well productivity and lower costs will substantially improve the company's capital returns, it notes.
The company says its primary goal for the year is to position itself to resume strong oil growth when oil prices improve, and as a result, has deferred what it describes as a significant number of well completions. EOG explains that by deferring completions until prices improve, it increases capital returns and builds an inventory of uncompleted wells to prepare for strong growth in a better price environment.
If prices continue to improve, EOG will begin to increase well completions in the third quarter, resulting in a "U" shaped production profile in 2015. Second- and third-quarter production will be the low point for the year. Fourth-quarter growth will build momentum heading into 2016. If oil prices recover and stabilize at the $65/bbl level, EOG says it’s prepared to resume strong double-digit oil growth in 2016 with balanced capital spending and discretionary cash flow.