EOG Resources Inc. (NYSE:EOG)

The period under review demonstrates a volatile financial performance as measured by economic profit. Initially, substantial economic losses are observed, followed by a gradual reduction in those losses and then a resurgence of negative economic profit in later years.

Net Operating Profit After Taxes (NOPAT)

NOPAT begins with a significant loss in 2015, followed by a substantial improvement through 2018. While remaining positive, NOPAT declines in 2019, though still exceeding the 2015 and 2016 levels. The largest year-over-year increase in NOPAT occurs between 2017 and 2018.

Cost of Capital

The cost of capital exhibits relative stability throughout the period, fluctuating between approximately 19.67% and 20.87%. A slight decrease is noted in 2019, falling to 19.86%. This suggests consistent financing conditions over the observed timeframe.

Invested Capital

Invested capital consistently increases throughout the period, rising from US$24,433,279 thousand in 2015 to US$32,663,914 thousand in 2019. This indicates ongoing investment in the business, potentially driving the NOPAT improvements observed in earlier years.

Economic Profit

Economic profit starts with a large negative value in 2015 and shows a decreasing loss through 2018. However, economic profit becomes more negative again in 2019. The magnitude of the economic loss is substantial in all years, indicating that the company’s returns are not consistently exceeding its cost of capital. Despite increases in NOPAT, the growth in invested capital and relatively stable cost of capital contribute to the continued negative economic profit.

In summary, while NOPAT demonstrates improvement over the initial years, the increasing invested capital base and consistent cost of capital prevent the generation of positive economic profit. The resurgence of negative economic profit in 2019, despite positive NOPAT, warrants further investigation into the efficiency of capital allocation.

The financial data reveals significant fluctuations in the company's profitability and operating performance over the five-year period.

Net Income (Loss)

There is a marked improvement from a substantial loss of approximately $4.52 billion in 2015 to a more moderate loss of about $1.10 billion in 2016. This negative trend reverses in 2017 when the company reports a net income of roughly $2.58 billion. The upward trajectory continues through 2018 and 2019, with net income increasing to approximately $3.42 billion and then slightly declining to about $2.73 billion, respectively. This pattern indicates a recovery and stabilization of net profitability after the initial losses in 2015 and 2016.

Net Operating Profit After Taxes (NOPAT)

The NOPAT data exhibits a similar trend to net income, with significant losses recorded in 2015 and 2016, amounting to approximately $6.84 billion and $1.42 billion, respectively. The company moves into positive territory in 2017 with a NOPAT of about $784 million, which then substantially increases to around $4.67 billion in 2018. There is a slight decrease in NOPAT to approximately $3.77 billion in 2019. These changes suggest improvements in core operational efficiency and profitability through the period, particularly from 2017 onwards.

Overall, the data indicates a transition from heavy losses to consistent profitability, reflecting either operational improvements, favorable market conditions, or other strategic adjustments that significantly enhanced financial performance starting in 2017. Both net income and NOPAT trends are aligned, reinforcing the conclusion of a robust turnaround in the company’s financial health over the observed years.

The financial data reveals several notable trends and changes over the examined periods.

Income Tax Provision (Benefit)

This item shows significant volatility throughout the years. In 2015 and 2016, the figures reflect substantial tax benefits, with values of approximately -2.4 billion and -460.8 million respectively, indicating periods of considerable tax relief or deferred tax benefits. The benefit peaked again in 2017 at nearly -1.9 billion, before reversing sharply in 2018 and 2019 to positive figures of 822 million and 810 million respectively. This shift from benefit to provision suggests a change in taxable income or tax obligations, possibly due to improved profitability or changes in tax regulations.

Cash Operating Taxes

Cash operating taxes presented a more stable but fluctuating pattern across the years. From 2015 to 2017, this expense remained positive, ranging between approximately 157.8 thousand and 173.4 thousand, indicating ongoing tax payments related to operations. Contrastingly, 2018 and 2019 show negative values of -165.6 thousand and -15.3 thousand, respectively, which could imply tax refunds, credits, or adjustments exceeding tax payments during these periods. The sharp decline and transition from positive to negative cash operating taxes in 2018 particularly highlight a notable operational or fiscal event impacting tax cash outflows.

The financial data reveals several notable trends in the company's capital structure over the five-year period ending December 31, 2019.

Total reported debt & leases

The total reported debt and leases show a consistent decline from 7,023,659 thousand US dollars in 2015 to 5,974,808 thousand US dollars in 2019. This represents a reduction of approximately 15% over the period, indicating a strategic effort to decrease debt obligations.

Stockholders’ equity

Stockholders’ equity demonstrates a steady and significant increase each year, rising from 12,943,035 thousand US dollars in 2015 to 21,640,716 thousand US dollars by the end of 2019. This growth, approximately 67% over five years, suggests retained earnings accumulation and possible additional equity issuances, strengthening the company's financial base.

Invested capital

Invested capital shows an upward trend throughout the period, increasing from 24,433,279 thousand US dollars in 2015 to 32,663,914 thousand US dollars at the end of 2019, marking a growth of about 34%. This trend indicates ongoing investments in assets, supporting the company's expansion or operational needs.

Overall, the combination of decreasing debt levels alongside increasing equity and invested capital suggests a strengthening of the capital structure with a shift towards greater equity financing. This could enhance the company's financial stability and capacity for future investment.

The economic spread ratio demonstrates a consistent, albeit decelerating, improvement over the observed period. Initially negative, the ratio moved closer to zero between 2015 and 2019. This suggests a diminishing gap between the company’s return on invested capital and its weighted average cost of capital.

Economic Spread Ratio Trend

In 2015, the economic spread ratio was -47.68%, indicating a substantial shortfall in returns relative to the cost of capital. This ratio improved significantly to -25.95% in 2016, and continued to improve to -17.92% in 2017. The rate of improvement slowed in 2018, reaching -5.40%, and further to -8.31% in 2019. While still negative, the 2019 value represents the least negative spread during the period.

The economic profit consistently remained negative throughout the period, although the magnitude of the loss decreased over time. This aligns with the improving economic spread ratio, as a less negative spread implies a smaller economic loss.

Economic Profit and Invested Capital Relationship

Invested capital increased steadily from US$24,433,279 thousand in 2015 to US$32,663,914 thousand in 2019. Despite this increase in capital employed, the negative economic profit diminished, suggesting improved capital utilization and/or operational efficiency. The reduction in economic loss did not fully offset the increased capital base, resulting in continued negative economic profit.

The observed trend suggests the company is becoming more efficient in generating returns on its invested capital, but has not yet reached a point where returns consistently exceed the cost of capital. The slowing rate of improvement in the economic spread ratio in the later years warrants further investigation to determine the underlying factors and potential limitations to future gains.

The economic profit margin exhibited significant fluctuations between 2015 and 2019. Initially negative, the margin demonstrated improvement before declining again. A consistent pattern of negative economic profit was present throughout the analyzed period.

Economic Profit Margin Trend

In 2015, the economic profit margin stood at -133.02%. A substantial improvement was observed in 2016, with the margin increasing to -89.27%. This positive trend continued into 2017, reaching -42.48%. However, 2018 saw a further, though less dramatic, improvement to -9.50%. The margin then deteriorated in 2019, ending the period at -15.61%.

Economic Profit

Economic profit remained negative across all five years. The magnitude of the loss decreased from US$11,648,979 thousand in 2015 to US$6,830,071 thousand in 2016, and further to US$4,761,133 thousand in 2017. The lowest loss was recorded in 2018 at US$1,640,835 thousand, but the loss increased again in 2019 to US$2,713,381 thousand.

Relationship between Revenue and Margin

Operating revenues and other increased significantly from 2015 to 2019, rising from US$8,757,428 thousand to US$17,379,973 thousand. Despite this revenue growth, the economic profit margin remained negative, indicating that the cost of capital consistently exceeded the returns generated from operations. The improvement in the margin between 2015 and 2018 did not fully offset the negative economic profit, and the margin worsened again in 2019 despite continued high revenue levels.

The data suggests that while revenue increased over the period, the company struggled to generate returns exceeding its cost of capital. The fluctuations in the economic profit margin highlight the sensitivity of profitability to changes in operational performance and/or cost of capital.