Overview
The gas and petroleum industry is one of the fastest growing sectors in the global economy. The reason is that a growth in the economy relies heavily on energy from fuel and other sources. Fluctuations in the price of gas and petroleum in the world market have far reaching implications on the global economy. Consequently, some of the best performing companies in the contemporary world economy are to be found in this sector. Many investors have shown their interest in this industry.
In this report, the author will analyse two major companies in the gas and petroleum industry. The two are EOG Resources Inc. and Advantage and Gas Company. The aim of the report is to analyse the performance of the two firms in relation to their ratios. The best company to invest in between the two will be identified using the financial analysis.
Recent 10-K for EOG and Advantage Oil and Gas Company Ltd
EOG Resources, Inc., together with its subsidiaries, was started in 1985. An assessment made for non-integrated crude oil and natural gas companies in the continent rates the firm as one of the largest in the sector. The company majors mainly on exploration and production. Its primary market is the United States of America, although it has spread out its branches to other countries, such as the United Kingdom, Republic of Trinidad, China, and Tobago. The paper will explain the recent 10-K of EOG. The focus will be on both 2014 and 2015 financial years (Grant 45).
In 2014, the net income was totalled $2,915 million; this was in comparison with 2013 fiscal year where the net income was $2,197 (Tanton 34). At December 31, 2014, the estimated loss reserve was $2,497 million barrel of oil. There was an increase of 378 MMBoe from that of December 31, 2013. In 2014 a financial year closed on December 31, 2014, the subsequent growth and increase were recorded. Crude oil, natural gasses liquids reserves had an increase of 329 million barrels (MMBoe) and 298billions cubic feet respectively.
December 31, 2015, the estimated total reserves were 2118 million BPD of oil equivalent (MMBoe). This was composed of; crude oil and condensed reserves 1,098 million barrels, 383 MMBbl natural gas liquids reserves and 3825 billion cubic feet were natural gas reserves. 97% net proved reserves were located in the United States while the remaining 3% in Trinidad. A ratio is used to determine the crude oil equivalent, 1:0 barrel of crude oil and condensate. 6:0 thousand cubic feet of natural gas ratio proposition can also be used. As of December 31, 2015, EOG had employed approximately 2,760 persons. These were both local and international employees (Richards and Brozell 8).
Advantage Oil and Gas Limited is a growth oriented corporation. The company is located in western Canada. It is mainly focusing on growth and development of Montney natural gas play. The main point of concentration of the company is Glacier and Alberta. The approximated capital over the life exceeds $2.5 billion. In the same region, production has grown to over 100mmcfd. The company’s share price is $7.30 as per the analysis that was done lately.
Advantage Oil and Gas Ltd P/E ratio is 406.45 in this quarter of economic assessment. This is attributed by the company raise in the diluted earnings per share, $0.02. The set period was twelve months a quarterly 2016 that ended in Sep. 2016 (Berman and Bui 499). For a set period of 13 years, the highest P/E ratio of the company was 439.00. Advantage Oil and Gas Ltd. once recorded the lowest P/E of8.07 and medium of 20.97. The P/E of the business is calculated after getting the results of the past performance of the enterprise. These results mainly were as a product of performance of the year ended Sep. 2016 (“Advantage Overview” 8).
Advantage Oil and Gas Ltd for the three months ended Sep. 2016 earnings per share which were calculated without non-recurring items was 0.003. The company earning per share did in the same period was $0.002. The company recorded a -91.90% per year average earnings per share growth rate. For an analysis done over a period of 13 years, the company has earned the highest 3-year average income per share. The company had a growth rate of 313.60% per year. In the same timeline, the lowest was -21.50 and the medium being 22.95% per annum (Tanton 6). The companys basic earnings per share were named to be $0.03. This was recorded in a period of 3 months in a year that ended in Sep. 2016 (Berman and Bui 498).
Advantage Oil and Gas Limited was selected for this report because it has recorded a significant growth in oil and gas production. Consequently, it is one of the best crude oil production companies in the world. In addition, it has a P/E ratio of 353.75, which is higher than that of any other oil firm. It will compare well with EOG (Richards and Brozell 9).
Management Discussion and Analysis
The company can disclose its financial situation efficiently and collect. A successful method of accounting is used in EOG. This accounts for its crude oil and natural gas exploitation and production activities. The capitalisation of lease acquisition costs of oil and gas are capitalised is taken into accounts when incurred. The aggravations of the unproved properties of which they have acquisition costs are not individually significant. The cost of drilling exploitation wells is obtained. This is an effort of the company determining whether they have discovered proved commercial reserves. In this case, if it is established that the reserves are not found, drilling cost are expensed.
In such exploratory, well-drilling costs might continue to be capitalised if the reserve quantity is well enough to qualify its completion as a producing well (Grant 234). Also, there must be sufficient progress in assessing the reserves and the economic and operating project being in the process of being made. Cost incurred to develop proved reserve is capitalised. Depreciation and depletion and amortisation of the cost of refined oil and gas properties are assessed using the unit of production method. During the production procedure, the following are taken in to account; estimated future dismantlement, restoration and abandonment costs, and net of salvage value.
The criteria that are used to group oil and gas properties revolve around the extraction procedures employed (Audus 219).
Table 1: Financial statements for EOG Resources, Inc. and Advantage Gas and Oil.
Sources: “Advantage Overview” (8) and Richards and Brozell (13).
The company has a growth ratio of AAV $7.15. Advantage Oil and Gas LTD had been holding a standard paying rate in the past six months. The months were up to September where the ratio was 0.00. In a period of the past 13 years, the highest recorded pay-out ratio has been 7.50 while the lowest being 0.00 (Grant 59).
Table 2: Liquidity of short term assets.
Source: Richards and Brozell (11).
EOG Resources Inc., the debt-to-equity ratio being assessed from 2013 to 2014 improved meanwhile it deteriorated significantly in the year 2014 to 2015. Debt-to-capital ratio recorded an improvement from the year 2013 to 2014 but declined substantially in the year 2014 to 2015. The companys interest coverage ratio recorded an increase in the year 2013 to 2014. The subsequent year i.e. 2014 to 2015, EOG recorded a significant deterioration (Audus 221).
Analysis and Ratio Calculations
Activity Efficiency of EOG Resources Inc.
In the first quarter of 2016, EOG reported a net loss of an accumulated amount of $471.8 million, which translates to $0.86 per share. This is higher than what was recorded within the same period in 2015. In the previous year, the loss stood at $169.7 million, which translated to $0.31 per share (Tanton 5). The company also recorded an amended non-GAAP loss within the same period in 2016. The loss was $455.4 million, or $0.83 per share. In contrast, the amended non-GAAP net income stood at $16.8 million. The figure represents $0.03 per stock for the same trading period.
In the basis of the first quarter 2016, the company had reinforced strategic standards. This was in the effort to focus capital in the area which generated premium rates of return. The attribute significantly contributed to EOGs high production rates in the first quarter 2016. On top of the great production that the company implied, the company also improved capital efficiency. For the first quarter 2016, EOG decreased 61% of exploration and development expenditure (Grant 201). A 10% decline in crude oil and condensate production was also experienced in the first quarter 2016 as compared to the first quarter 2015. A reduction in output of natural gas for the first three months was 3% as compared to the previous year period.
Organic growth capabilities EOG Resources Inc. was seen as from the state of the company reducing the percentage output. This is attributed to the company being able to discover a new geologic concept in an existing point. The idea came in hand with Austin Chalk drilling point which was created in many years, but the company turned it into high ranking assets that have gain competition with other EOG S top-tier assets. EOG has high expectations of Austin Chalk making a significant contribution in the future. EOG has a continued improvement in wells and completion designs in the Delaware Basin. This attribute leads to an increased well production in the first quarter 2016 (Richards and Brozell 9).
EOGs total debt outstanding at March 31, 2016, was $7.0 billion with a debt-to-total capitalisation of 36%. EOGs cash on the balance sheet at the end of the first quarter 2016 was $668 million. The net debt was $6.3 billion with a net debt-to-total capitalisation ratio of 34% (Berman and Bui 500).
Summaries of EOG Activities in Ratios
Table 3: EOG Resources, Inc. Financial Report. (Unaudited; in millions, except per share data)
Source: Tanton (15).
Table 4: Summary Income Statements.
Source: Richards and Brozell (21).
Operational Highlights Summary
Exploration and development expenditure received a decrease of 42% for the full year 2015. The U.S crude oil and condensate production was said to record an overall performance of a flat and a decline of 4% respectively. The companys total worldwide production of natural gas decreased by 7% in the fourth quarter of 2015. This was versus the prior year. There was a restrained capital expenditure in the company.
This was a result of a low commodity price environment in their fourth quarter 2015. As compared to the same prior year, the total exploration and development and investment made degrees of 56%. In comparison with full year end 2014, U.S crude oil and condensation and total accumulated company production decreased by 7. The company has enhanced its operational efficiency and leverage. This is as a result of higher investment in infrastructure. This has reduced the company’s cost reduction across the operations. Lease and well expenses during the fourth quarter 2015 recorded a decrease of 30%. Transitional cost also received a reduction of 8% as compared fourth quarter 2015. Both analyses were made by per-unit. In the same basis, general and administrative expenses received a decrease of 17% in comparison to the fourth quarter 2014 (“Advantage Overview” 8).
Results Explanation and Discussion
Activity Efficiency of Advantage Oil and Gas Ltd
The company had a consolidated report on Nov 3, 2016, that it had raised a corporation strategy to maintain a profitable and sustainable growth plan. This is demonstrated by the third quarter 2016. The production per share had an increase of 33% while cash flow per share made an increment of 20%. Advantage Oil and Gas Ltd made a greater growth rate by reducing the total debt by 37% since year-end 2015. Advantages continued production growth with advanced improvement in its industry-leading capital and operating efficiencies. The outcome of this turned into the year-to-date surplus cash flow of $14 million. The company also includes $9 in the third quarter of 2016.
The excess liquidity of the company has further reduced the corporations total debt to a significant amount of $184 million at the end of the third quarter of the year 2016. The reduction comes from previous $294 million in 2015. Advantage Oil and Gas Ltd recorded this achievement despite a 20% decrease in the AECO daily natural gas price to Cdn $.32/mcf as compared to Cdn $2.90/mcf registered in the same period of 2015. Advantage Oil and Gas lid based on the current commodity price is expecting its annual surplus cash flow to record a growth of approximate $36 million by the year-end 2016 (“Advantage Overview” 18). If the excess cash flow ends as the companies estimate, the company will see its year-end 2016 total debt-to-training cash flow of 1:0 times.
The third quarter of 2016, production of the company increased 44% to 215 mmcfe/d (35,760 boe/d) while the corporate cash cost reduced to 27% to $0.58/mcfe ($3.48/boe. The results helped the company drive a money flow up to 31% to $45.1 million ($0.24/share). This is in comparison to the third quarter of 2015. The company’s cash flow also gained their support by hedging gains of $11.9 million. This cash amount was recorded during the third quarter of 2016. The backbone of Advantage Oil and Gas Ltd is operational excellence. The performance was demonstrated by production outperformance. The performance was of its Glacier Montney wells and also the continued cost reduction. The resulting factor of the corporation solid foundation of the company led to the announced expansion of its 100% owned Glacier gas plant to 350 mcf/d (58,330 boe/d). Advantage Oil and Gas Ltd is planning to disclose its development plan details. The plan will be e that of 2017 to 2019 which will be done before year-end 2016 (“Advantage Overview” 5).
Table 4: Third Quarter 2016 Operating and Financial Summary of Advantage Oil and Gas Ltd.
EOG profitability within 2014-2015
Source: Richards and Brozell (5).
Major Findings of EOG as Compared to Advantage Oil and Gas Ltd
Competition of EOG and Advantage Oil and Gas LTD in oil, gas (liquid), and gas is greater in the market. On the level of the sales, EOG has reported a total revenue decrease of -2.48% in the third quarter of the year 2016. In comparison with Advantage Oil and Gas Ltd which recorded a decline of -10.29% which is registered in the same quarter (Richards and Brozell 3). Acquisition of license and leases is a major point where the two companies are levelled. EOG has escaped the ferocious attack that has for a long time have kept the spigots open in hopes of decimating shale industry in the United States over the years an action that Advantage Oil and Gas Ltd had not been able to do.
EOG have played a greater role concerning achieving their goals. The company does this by cheaply drilling and completing their wells (Richards and Brozell 14). This makes sure that they quickly come into production which leads to maximising production from each well while minimising the production cost. Advantage Oil and Gas Ltd have not been able to achieve the said goal. EOG also strive to maximise the price earned for the barrel of oil. The company does this by delivering to underserved markets. Shorting of the EOGs drill to production cycle provides the higher rate of the dollars spent (Richards and Brozell 8).
EOG reduces the cost of the wells drilling. Due to competition created by Advantage Oil and Gas producing companies in the Northern America, EOG had to lessen the cost of safe drilling. Agility of the company has made it have the largest number of barrel equivalent per day per employee. EOG is at 200. This makes the company make the highest production per employee. Advantage Oil and Gas Ltd has trolled behind in this (Richards and Brozell 8). In an effort to make the best return on every capital that the company employ, EOG have correctly aligned its operating model in a perfect manner in a way to achieve great. Company has also hired some cost-saving operations. The well cost of the enterprise is among low rated in their peer group. Also, there is the low overhead due and pad drilling. Many of the companies inclusive of Advantage Oil and Gas Ltd
Accounting Treatment of EOG
In the company on the compensation program the EOGs committee considered the impacts that can come with some tax and accounting provisions. EOGs committee is committed to cord section 162(m). This is by preserving the deductibility of compensation which highlighted under the said section whenever practicable but also does grants awards that are non-deductible. This rule that was restated by the committee is under the interest of the company and the stakeholders (Grant 20). The company also have set the principles of setting of their compensation programs which still included in their constitution.
EOG Recognition of Revenue and Related Expenses
EOG aim and drive are to get the best rates of returns. The company does this by controlling the operating and capital costs. EOG also maximises reserves recoveries. The firm adopts these measures to enhance cash flow. The measures also improve earnings from units of production.The aspect makes the company to deliver a long-term shareholder value (Richards and Brozell 14). By achieving this EOG maintains a strong balance sheet. The maestro emphasis of the company is fermented by making a strong internally generated prospect.
This prospect will see EOG find and develop low-cost reserves. EOG has the great set business strategy that proves the opportunity. The company focuses on the high rate of return which includes premium drilling activities. Capturing new mover significance in the primary resources play has made EOG rise above many competitors. They also maintain a strong balance sheet at every level of production. EOG has recorded an increment in the following field, crude oil and condensate production, total liquid output and cash dividends per shares announced. This aspect has promoted EOG growth making it hold a market cap of $61.31B.
Accounting Policies of EOG Changes
The firm has prepared its financial statements by adhering to the rules and regulations set by the country’s Security and Exchange Commission. They reflect the standard recurring adjustment of the company in a proper manner. The process is in regards to the option of the management. The aim is to provide a fair presentation of the financial results of the interim period. With effect from January 1, 2016, the company upgraded its accounting standards to 2015-03 (Richards and Brozell 2). Also, the company adopted interest-computation of interest. The two acts simplified the presentation of debt insurance cost.
Possible Investment in EOG
OEG in this year has placed in a resilient performance in Stoke market this year. An improvement in crude oil prices was recorded after the company past mid calendar. The companys stoke had been flat to the mid of the financial year. The companies’ shares have held the ground this year. This is as a result of EOG Resources Inc., being able to counter the end-market weakness correctly. The factor is brought in due to the companies reduction moves. EOG focus on operating efficiently and productivity is an aspect that can attract any investor. The company has been on the look of the higher density wells with precision lateral targeting. EOG has employed this to improve its operational efficiency and also generate more of the production on at a lower cost. The important characteristic of EOG is that it is focused on more production from the areas where it can produce more. This is achieved despite EOG investing less (Grant 10). EOG refers to these regions as excellent locations.
Over the past few days, EOG has been able to lower their cost at an impressive rate. The act has made the company able to minimise the decline in its gross margin. EOG has been able to keep its margin in a relatively better shape despite the drastic drop in oil prices (Audus 217). This is as a result of the company decline in its operating and capital expenditure. The results are attributed to the focus on premium locations and advanced completion techniques.
Table 5: EOG Balance Sheet as for 30 September 2016.
AN INCOME STATEMENT OF EOG RESOURCE, INC
Source: Richards and Brozell (9).
Conclusion and Recommendations
EOG Resources Inc., average inventory processing period decreased from 2013 to 2014 but rate improved in the preceding years, 2014 to 2015, although not reaching 2013. Still in the state of financial inclement, the companys average payables payment period increased from 2013 to 2014 although it declined in 2014 to 2015. Payable turnover decreased from 2013 to 2014 which later made an increase from 2014 to 2015 that exceeded the level established in 2013. Inventory turnover deteriorated from 2013 to 2014 but recorded an increment in from 2014 to 2015 although the level did not reach the value made in 2013. The cash conversion cycle of the company improved from 2013 to 2014 but later recorded a decrease in the preceding year of 2014 to 2015.
EOG Resources is a company that has achieved most of its growth targets. The firm has grown both locally and internationally, increasing its market considerably. As seen in the report, the company has tried to maintain its balance sheet over the years, a feat that many businesses are unable to achieve. Although the organisation faces competition from other undertakings, such as Advantage Oil and Gas Ltd., it still records outstanding progress and achievements. The major strategy employed by the company helps it to move forward no matter the expenses of the risks incurred.
Works Cited
Advantage Overview. Advantage Oil & Gas Ltd., 2016. Web.
Audus, Harry. “Greenhouse Gas Mitigation Technology: An Overview of the CO2 Capture and Sequestration Studies and Further Activities of the IEA Greenhouse Gas R&D Programme.” Energy, vol. 22, no. 3, 1997, pp. 217-221.
Berman, Eli, and Linda Bui. “Environmental Regulation and Productivity: Evidence from Oil Refineries.” The Review of Economics and Statistics, vol. 83, no. 3, 2001, pp. 498-510.
Grant, Robert. Contemporary Strategy Analysis. John Wiley & Sons, 2010.
Richards, John, and Todd Brozell. Ambient PM4 Crystalline Silica Sampling October 2012 Through December 2013: EOG Resources, Inc. EOG Resources Inc., 2014. Web.
Tanton, Thomas. Key Investments in Greenhouse Gas Mitigation Technologies from 2000 through 2012 by Energy Firms, Other Industry, and the Federal Government. T2 and Associates, 2013. Web.