EOG Resources, Inc. (NYSE: EOG) reported full year 2012 net income of $570.3 million, or $2.11 per share, as compared to $1,091.1 million, or $4.10 per share, for the full year 2011. For the fourth quarter 2012, EOG reported a net loss of $505.0 million, or $1.88 per share. This compares to fourth quarter 2011 net income of $120.7 million, or $0.45 per share. Adjusted non-GAAP net income for the full year 2012 was $1,535.6 million, or $5.67 per share, and for the full year 2011 was $1,008.5 million, or $3.79 per share. Adjusted non-GAAP net income for the fourth quarter 2012 was $437.0 million, or $1.61 per share, and for the fourth quarter 2011 was $309.0 million, or $1.15 per share.
Consistent with some analysts' practice of matching realizations to settlement months and making certain other adjustments in order to exclude one-time items, the results for the fourth quarter 2012 include $849.4 million, net of tax ($3.13 per share) of impairments of certain Canadian natural gas assets, net losses on asset dispositions of $35.6 million, net of tax ($0.13 per share) and a previously disclosed non-cash net gain of $66.4 million ($42.5 million after tax, or $0.16 per share) on the mark-to-market of financial commodity derivative contracts. During the fourth quarter, the net cash inflow related to financial commodity derivative contracts was $155.5 million ($99.5 million after tax, or $0.37 per share). (Please refer to the attached tables for the reconciliation of adjusted non-GAAP net income to GAAP net income/loss.)
Reflecting EOG's higher revenue and production weighting to crude oil for the full year 2012, adjusted non-GAAP net income per share increased 50 percent, adjusted EBITDAX increased 26 percent and discretionary cash flow increased 26 percent as compared to 2011. (Please refer to the attached tables for the reconciliation of adjusted non-GAAP net income per share to GAAP net income per share, adjusted EBITDAX (non-GAAP) to income before interest expense and income taxes (GAAP) and non-GAAP discretionary cash flow to net cash provided by operating activities (GAAP).)
In the United States, crude oil and condensate production increased 46 percent for the full year 2012 compared to the prior year. Total United States liquids (crude oil, condensate and natural gas liquids) production increased 42 percent for full year 2012 over the same period a year ago. On a total company basis, total crude oil and condensate production increased 39 percent and total liquids production increased 37 percent for the full year compared to 2011. Overall total company production increased 10 percent year-over-year.
"We accomplished all of EOG's 2012 goals. We generated high margin organic crude oil production growth and delivered excellent year-over-year increases in EOG's financial metrics. We maintained our net-debt-to-total cap ratio below 30 percent and recorded strong crude oil reserve replacement rates at attractive finding costs," said Mark G. Papa, Chairman and Chief Executive Officer. "In addition, we added the Delaware Basin Wolfcamp, a promising new liquids resource play to our portfolio and significantly increased the potential recoverable reserves of our largest and highest rate of return asset, the South Texas Eagle Ford. These add high-value inventory to EOG's already prolific asset base."
EOG's stellar crude oil production in 2012 was primarily driven by drilling and completion activity in the Eagle Ford where the company drilled and completed 305 net wells, operating an average of 23 drilling rigs. In the North Dakota Bakken/Three Forks, positive results from downspaced drilling tests, together with significant modifications in drilling and completion techniques, further boosted EOG's crude oil production growth. Breakthroughs in geologic modeling in the Leonard/Wolfcamp horizontal shale plays in southeastern New Mexico and West Texas also contributed to EOG's excellent performance.
EOG made strides in increasing the amount of crude oil recoverable from both its Eagle Ford and Bakken resources by testing various drilling densities and further refining completion practices. In the Eagle Ford, EOG increased the estimated recoverable potential reserves by 38 percent from 1.6 billion barrels of oil equivalent (BnBoe) to 2.2 BnBoe, net to EOG. Numerous spacing pilots across EOG's 569,000 net acres in the crude oil window point to optimal resource development on 40-acre well spacing in the east and 65 acres in the west. At current activity levels, EOG has a 12-year Eagle Ford drilling inventory.
The revised Eagle Ford reserve potential is indicative of an estimated 8 percent recovery of the estimated 26.4 net BnBoe in place on EOG's acreage. Since discovering the Eagle Ford in 2010, EOG has raised the overall estimated captured reserve potential from 900 MMBoe (million barrels of oil equivalent) to 2.2 BnBoe, net to EOG.
EOG's best Eagle Ford well to date is the Burrow Unit #2H, which had an initial production rate of 6,330 barrels of oil per day (Bopd) with 713 barrels per day (Bpd) of natural gas liquids (NGLs) and 4.1 million cubic feet per day (MMcfd) of natural gas. Offsetting the Burrow Unit #2H, the Burrow Unit #1H was completed to sales at a maximum rate of 5,424 Bopd with 600 Bpd of NGLs and 3.5 MMcfd of natural gas. Two other prolific wells, the Boothe Unit #1H and #2H, began initial production at 5,380 and 3,810 Bopd with 625 and 525 Bpd of NGLs and 3.6 and 3.0 MMcfd of natural gas, respectively. EOG has 100 percent working interest in these Gonzales County wells.
In McMullen County, southwest of EOG's Gonzales County sweet spot, the Naylor Jones Unit 59 East #1H and West #4H had initial peak production rates of 1,670 and 1,150 Bopd with 225 and 138 Bpd of NGLs and 1.3 and 0.8 MMcfd of natural gas, respectively. EOG has 100 percent working interest in these wells that were completed in early January 2013.
"The Eagle Ford's potential reserves of 2.2 billion barrels of oil equivalent represent the largest domestic crude oil find net to one company in 40 years. Not only is 600 million net barrels a meaningful increase, this onshore U.S. oil field is readily accessible to premium markets," Papa said. "With both the technical acumen and high-quality assets, EOG is at the forefront in developing this world-class shale oil resource."
Over the course of 2012, EOG's North Dakota wells showed marked productivity improvement following the implementation of new completion techniques. On its 90,000 net acre Bakken Core, EOG confirmed that 320-acre well spacing is economically sound, and it is very encouraged by 160-acre results. Recent downspaced tests reflect a gain of approximately 30 percent to 70 percent in cumulative production over earlier wells drilled in the field. The Fertile 51-0410H, in which EOG has a 94 percent working interest, had a maximum initial production rate of 1,800 Bopd with 850 thousand cubic feet per day (Mcfd) of rich natural gas. The first 160-acre spaced wells in the Core area, the Wayzetta 022-1509H and 149-1509H, had maximum rates of 1,185 and 1,265 Bopd, respectively. EOG has 68 percent working interest in these wells.
Southwest of the Bakken Core in the Antelope Extension, the Hawkeye 01-2501H and 102-2501H were completed to sales in early January 2013. These McKenzie County wells, in which EOG has 75 percent working interest, were turned to sales at 2,445 and 2,945 Bopd, respectively. In the Stateline area near the North Dakota/Montana border, the Garden Coulee 001-1410H had an initial production rate of 1,415 Bopd with 1,260 Mcfd of rich natural gas. EOG has a 74 percent working interest in this Williams County, N.D., well.
On the Texas side of the Delaware Basin, EOG confirmed a new shale play with the completion of two horizontal Wolfcamp wells on its 114,000 net acre position. In Reeves County, the Harrison Ranch #56-1002H and #56-1001H tested at rates of 377 Bopd with 602 Bpd of NGLs and 3.9 MMcfd of natural gas and 635 Bopd with 480 Bpd of NGLs and 3.1 MMcfd of natural gas, respectively. EOG has 100 percent working interest in these wells. Based on the geologic characteristics of the formation and the potential to drill multiple laterals combined with data from over 200 previously drilled vertical wells on EOG's acreage, estimated net potential reserves are approximately 800 MMBoe, a mix of crude oil and liquids-rich natural gas.
In southeastern New Mexico, the overall economics and size of EOG's horizontal Delaware Basin Leonard Shale play improved last year due to strong well results and decreased drilling costs. The Vaca 14 Fed #6H was completed in Lea County at an initial rate of 1,290 Bopd with 255 Bpd of NGLs and 1.4 MMcfd of natural gas. EOG has 100 percent working interest in this well. EOG has increased the total net reserve potential on its 73,000 net acres from 65 MMBoe to 550 MMBoe, predicated on better well results and a 50 percent crude oil yield. Total potential reserves on EOG'sDelaware Basin horizontal Wolfcamp and Leonard Shale plays are estimated to be 1.35 BnBoe, net.