EOG Resources Reports 2005 Net Income

EOG Resources, Inc. (NYSE: EOG) reported fourth quarter 2005 net income available to common of $461.8 million, or $1.88 per share. This compares to fourth quarter 2004 net income available to common of $204.1 million, or $0.85* per share. For the full year 2005, EOG reported net income available to common of $1,252.1 million or $5.13 per share as compared to $614.0 million, or $2.58* per share, for the full year 2004.

The results for the fourth quarter 2005 included the following previously disclosed items: a one-time tax expense of $23.6 million ($0.10 per share) related to the repatriation of accumulated foreign earnings, an $11.4 million ($7.3 million after tax or $0.03 per share) gain on the mark-to-market of financial commodity price transactions and a one-time interest charge of $7.5 million ($4.9 million after tax or $0.02 per share) related to the early retirement of EOG's 2008 Notes. During the quarter, there was no cash realized related to financial commodity contracts. Consistent with some analysts' practice of matching realizations to settlement months and to exclude the impact of the above one-time items, adjusted non-GAAP net income available to common for the quarter was $482.9 million, or $1.97 per share. Last year's fourth quarter results included a $2.8 million ($1.8 million after tax, or $0.01* per share) gain on the mark-to-market of financial commodity price transactions. The net cash outflow from the settlement of financial commodity price transactions was $12.7 million ($8.1 million after tax, or $0.03* per share). Reflecting these items, fourth quarter 2004 adjusted non- GAAP net income available to common was $194.2 million, or $0.81* per share. On a similar basis, eliminating the one-time items detailed in the attached table, adjusted non-GAAP net income available to common for the full year 2005 was $1,271.5 million, or $5.21 per share and for the full year 2004 was $576.6 million, or $2.42* per share.

     * Fourth quarter and full year 2004 per share amounts are restated for
       the two-for-one stock split effective March 1, 2005.

    2006 Production Growth Target Increased

"Without a doubt, 2005 was EOG's strongest year to date. Through the consistent, successful execution of our drilling program, we exceeded our goals for total company production growth and increased North American natural gas production beyond our target while reducing net debt. Even though we are coming off a higher 2005 production base than we had targeted, we have the confidence to increase our 2006 production growth goals from the previously stated 9.5 percent to 10.5 percent. We expect a disproportionate amount of this 2006 production increase to emanate from our higher margin natural gas activities in the U.S. and Canada where we are targeting 16.5 percent growth," said Mark G. Papa, Chairman and Chief Executive Officer.

Operational Highlights

For the full year 2005, total company production increased 16.2 percent on a daily basis as compared to 2004, exceeding the most recently stated production growth target of 15.5 percent. In the United States and Canada, where EOG posted outstanding operational results, natural gas production increased 12.2 percent. The largest production increases were reported from the Fort Worth Basin Barnett Shale Play, East Texas, North Louisiana, the Mid-Continent and the Rocky Mountains.

EOG holds more than 500,000 total acres in the Barnett Shale where it currently operates 12-rigs. Over the course of 2006, EOG plans to expand its drilling program across the play to a 22-rig program.

In Johnson County, the Raam Unit #1H well began natural gas production in January at an initial rate of 10 million cubic feet per day (MMcfd). After 10 days of sales, the well, in which EOG has a 100 percent working interest, is producing 8 MMcfd. In northeastern Johnson County, the Scottie Dog #2H, in which EOG has an 88 percent working interest, was completed in late December at an initial gross rate of 7.0 MMcfd. The well is currently producing 3.9 MMcfd, gross of natural gas. In western Johnson County, EOG has a 100 percent working interest in the Brown Unit #1H that began flowing to sales in January and is now producing 3.8 MMcfd.

"The Raam #1H is one of the best natural gas wells completed by any operator in the entire Barnett Shale Play, not just in Johnson County," Papa said. "With the results of our down spacing tests and the strength of our drilling activity, in 2006 we plan to pursue development in Johnson County on 500-foot spacing."

In the western counties of Jack, Erath and Hood, EOG is doubling its drilling activity to a four-rig program in the first quarter of 2006.

"We believe that the completion techniques that further improved our drilling economics in Johnson County can be applied to our acreage in the western counties where we have seen improved drilling results over the past three months," Papa said. "This provides the assurance to actively pursue development in these areas."

During 2005, total daily production increased 40 percent from 2004 in the United Kingdom North Sea and offshore Trinidad. EOG reported its first full year of production from the United Kingdom North Sea.

In Trinidad, total 2005 daily production increased 25 percent over the previous year. During 2005, EOG commenced natural gas production to supply two new long-term contracts. EOG is supplying natural gas that is being used as feedstock for the M5000 Methanol Plant, which began operation in September, and for Atlantic LNG Train 4, which started taking gas in December prior to plant commissioning. During the fourth quarter 2005, EOG's natural gas deliveries to the two plants exceeded expected volumes. EOG also reported exploration success from its first well, the 4(a) E-1, drilled on Block 4(a) offshore Trinidad, which encountered 399 feet of net gas pay from multiple sands. EOG has a 90 percent working interest in the block where it plans to immediately drill a second well, the E-2, into an adjoining fault block.

"Based on the drilling results from the E-1, we expect that together the E-1 and E-2 wells will prove up 200 to 400 net billion cubic feet of gas on Block 4(a). We intend to commence development work by mid-2006 and are targeting mid-2009 for on-line production," said Papa.


At December 31, 2005, total company reserves were approximately 6.2 trillion cubic feet equivalent, an increase of 548 billion cubic feet equivalent (Bcfe), or almost 10 percent higher than 2004. From drilling alone, EOG added 1,046 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 204 percent.

"In the current rising cost environment, we consider the all-in unit reserve replacement costs, which are essentially flat with those of 2004 to be excellent," said Papa.

For the 18th consecutive year, internal reserve estimates were within 5 percent of those prepared by the independent reserve engineering firm of DeGolyer and MacNaughton. The firm prepared an independent engineering analysis of properties containing 82 percent of EOG's proved reserves on a Bcfe basis.

Capital Structure

At December 31, 2005, EOG's total current and long-term debt outstanding was $985 million, and cash on the balance sheet was $644 million for net debt of $341 million. The company's debt-to-total capitalization ratio was 19 percent at December 31, 2005, down from 27 percent at December 31, 2004.

"In 2005, we executed a dynamic drilling program, posted a 16.2 percent daily production increase, achieved a 35.5 percent return on equity and a 30 percent return on capital employed, while paying down debt to end the year with a 7 percent net debt to total capitalization ratio," said Papa. "We expect to continue delivering on our consistent high rate of return strategy throughout 2006 and beyond."

Dividend Increase Announced

Following a 33 percent increase in 2005, EOG's Board of Directors again has increased the cash dividend on the common stock. Effective with the dividend payable on April 28, 2006 to record holders as of April 13, 2006, the quarterly dividend on the common stock will be $0.06 per share. This reflects a 50 percent increase to an indicated annual rate of $0.24 per share, the sixth increase in seven years.