EOG Resources Reports 2004 Net Income

EOG Resources, Inc. (NYSE: EOG) reported fourth quarter 2004 net income available to common of $204.1 million, or $1.69 per share. This compares to fourth quarter 2003 net income available to common of $71.8 million, or $0.61 per share. For the full year 2004, EOG reported net income available to common of $614.0 million, or $5.15 per share as compared to $419.1 million, or $3.60 per share for the full year 2003.

The results for fourth quarter 2004 included a previously disclosed $2.8 million ($1.8 million after tax, or $0.01 per share) gain on the mark-to- market of financial commodity price transactions. During the quarter, the net cash outflow from the settlement of financial commodity price transactions and premium payments associated with certain natural gas financial collar contracts was $12.7 million ($8.1 million after tax, or $0.07 per share). Consistent with some analysts' practice of matching realizations to settlement months, adjusted non-GAAP net income available to common for the quarter was $194.2 million, or $1.61 per share. EOG's fourth quarter 2003 results included an after tax benefit of $14.1 million ($0.12 per share) from a reduction in the Canadian tax rate, a $43.1 million ($27.7 million after tax, or $0.23 per share) loss on the mark-to-market of financial commodity price transactions and the net cash inflow from the settlement of financial commodity price transactions including premium payments associated with certain natural gas financial collar contracts of $1.2 million ($0.8 million after tax, or $0.01 per share). Reflecting these items, fourth quarter 2003 adjusted non-GAAP net income available to common was $86.1 million, or $0.73 per share.

"In 2004, we reaped the benefits of EOG's consistent business and operational strategies. We executed our plan and delivered record production from the drillbit, continued to develop long-term production growth prospects and maintained our reputation as a low-debt, low-cost producer. We continue to focus on shareholder returns, posting a 25 percent return on equity and an 18 percent return on capital employed for the year," said Mark G. Papa, Chairman and Chief Executive Officer.

Stock Split and Dividend Increase Announced

The board of directors approved a two-for-one stock split in the form of a stock dividend. It will be payable to record holders as of February 15, 2005 and issued March 1, 2005. In addition, the board increased the cash dividend on the common stock by 33 percent following a 20 percent increase in 2004. Effective with the dividend payable on April 29, 2005 to record holders as of April 15, 2005, the board declared a post-split quarterly dividend of $.04 per share on the common stock. This represents the fifth increase in six years.

Operational Highlights

"In 2004, our operations performed above our original expectations, exceeding our previously stated growth targets for both North American natural gas and total company production primarily from internally generated high rate of return prospects," said Papa.

Total company production increased 10.4 percent during 2004 on a daily basis, compared to 2003. In the U.S. and Canada, natural gas production increased 5.0 percent and total production increased 7.2 percent during 2004, compared to 2003. Excluding the impact of production from the North Texas Barnett Shale Play, natural gas production in the U.S. and Canada increased 4.2 percent with the strongest increases contributed by the Rocky Mountain region and the Canadian shallow natural gas program.

"Our operations in the U.S. and Canada have expanded considerably over the past few years. These areas of our portfolio, excluding the Barnett Shale, continue to deliver steady profitable growth that we expect to continue beyond 2005," said Papa.

"In the Barnett Shale, we worked to prove the geologic concept in the non- core area where our activity centered during 2004. This year, the focal point of operations will be on increasing production and determining the play's ultimate reserve size. We continue to be very enthusiastic about the Barnett Shale and expect to have further definition before year-end regarding its aerial extent and optimum well spacing," said Papa.

Consistent with the previously stated goals for the Barnett Shale, EOG had approximately 400,000 acres under lease in the play at year-end 2004. Net natural gas production reached 30 million cubic feet per day (MMcfd) during December.

In the United Kingdom North Sea, in the fourth quarter of 2004 and in the first quarter of 2005, EOG commenced production from two Southern Gas Basin wells that represent EOG's first producing assets in that region. Current natural gas production is approximately 40 MMcfd, net.

In Trinidad, EOG began natural gas sales to the Nitro 2000 (N2000) Ammonia Plant in August 2004. Last year, total production in Trinidad increased 25 percent, compared to 2003. EOG will supply approximately 60 MMcfd, net of natural gas to the M5000 Methanol Plant, scheduled to come online in July. With a full year of N2000 sales and the startup of the M5000 Plant, EOG's production in Trinidad is expected to increase 20 percent during 2005, compared to 2004. In addition, EOG has signed a contract to supply approximately 20 MMcfd, net of natural gas to the National Gas Company of Trinidad for their input into the Atlantic LNG 4 Plant beginning early in 2006. Terms of the contract call for wellhead pricing to be a function of Henry Hub, the industry benchmark for natural gas spot and futures trading in the United States. Finally, in Trinidad, EOG announced a 10-year extension and amendments to the pricing terms of the SECC natural gas sales contract. Under the new agreement, wellhead natural gas pricing for EOG will contain a fixed price component and be linked partially to Caribbean ammonia and methanol commodity prices. Using current commodity prices, the revised pricing structure is expected to result in higher wellhead netbacks to EOG.

"EOG has never been better positioned to achieve its production growth targets and continue the momentum we have steadily built over the years. Based on our company's consistent performance and current commodity prices, we expect to achieve 13.5 percent organic production growth in 2005, which includes an 11 percent increase in natural gas production from the U.S. and Canada. To achieve this, we expect our capital expenditure budget to be approximately $1.6 billion, compared to the $1.5 billion we spent last year," said Papa. "Although production from the Barnett Shale will contribute to this production goal, the strong ongoing performance from our other assets in the U.S. and Canada remain integral to our future success."


At December 31, 2004, total company reserves were approximately 5.6 trillion cubic feet equivalent, an increase of 430 billion cubic feet equivalent (Bcfe), or 8 percent higher than 2003. From drilling alone, EOG added 850 Bcfe of reserves. For the year, total reserve replacement, the ratio of net reserve additions from drilling, acquisitions, revisions and dispositions to total production was 194 percent. (Please see attached table for supporting data.) Proved undeveloped reserves as a percentage of total reserves decreased to 25 percent at year-end 2004, down from 33 percent at year-end 2003. For the 17th consecutive year, internal reserve estimates were within 5 percent of reserve estimates prepared by the independent reserve engineering firm of DeGolyer and MacNaughton. The firm prepared independent reserve estimates on properties comprising 77 percent of EOG's proved reserves on a Bcfe basis.

Capital Structure

At December 31, 2004, EOG's total debt outstanding was $1,078 million and cash on the balance sheet was $21 million. The company's debt-to-total capitalization ratio was 27 percent at December 31, 2004, down from 33 percent at December 31, 2003. In addition to $31 million of debt pay down during the year, EOG also redeemed $50 million of a preferred issuance leaving $100 million of preferred stock outstanding.

"During 2004, we funded our capital expenditure program, increased the dividend on the common stock, paid down debt and redeemed preferred stock," said Papa. "At current commodity prices, we would expect to further reduce EOG's debt during 2005."