Oil Vs. Natural Gas Revenue Distributions - Part 1

 |  Includes: APA, CHK, EOG
by: Steven Weitz

When considering oil and gas companies active in the exploration and production field, have you ever wondered how much of their revenues is derived from oil and how much comes from natural gas? Isn't it important to know and understand the sales that come from each, especially during this time of high volatility in crude oil and natural gas prices? Moreover, when the price of oil or natural gas spikes or collapses, wouldn't you like to know how companies benefit relative to each other based on their oil-to-gas positioning?

When I personally answered "yes" to these questions and subsequently perused loads of articles on select oil and gas companies, to my surprise I found that any sort of insight or clarification on this topic was difficult or impossible to come by. Articles on these companies hardly ever fleshed out where the revenues were coming from. So I decided to do the dirty work myself, and dug through the fillings of oil and gas companies (no, this wasn't fun) to bring attention to something that is hardly ever focused on, yet I feel is very important. As it turns out, many companies don't break their revenues down between crude oil and natural gas in their releases, but I decided to spotlight a few that do. I plan to make this article and Part 2 valuable tools to refer back to when considering various energy companies, while taking into account recent movements in oil and gas prices.

One thing to consider beforehand: Obviously, the revenues of a certain product are driven partially by the price that product is selling at. So I have included the spot prices of West Texas Intermediate Crude Oil and Brent Crude Oil (the two major prices for oil, WTI for the U.S. and Brent for Europe), along with the Henry Hub Natural Gas spot price (the primary price for natural gas). So while oil-to-gas revenues are partially impacted by these changing prices, comparing how various companies' oil-to-gas revenues changed year over year should still be an apples-to-apples comparison.

Price Chart

Type June 30 '12 June 30 '11 Y/Y % Change
WTI Crude Oil $85.04 $95.30 (10.8%)
Brent Crude Oil $94.17 $111.71 (15.7%)
Henry Hub Natural Gas $2.74 4.28 (36.0%)
Click to enlarge

1. EOG Resources (NYSE:EOG) -- Market Cap: $29.3 Billion

EOG Resources, which was originally known for being a leading natural gas producer, has made an impressive transition over the last year to become a heavier oil play. As the price of natural gas has tanked, companies are beginning to realize that at these prices, drilling for oil provides a much more profitable outlook than natural gas provides. Mark Papa, EOG's CEO, has detailed numerous times during conference calls and interviews the great lengths the company has gone through to shift more toward a focus on crude oil production. As a result, EOG has moved from 54.5% of revenues coming from oil to 73.0%, constituting a 18.5% jump in this distribution.

EOG Revenues

3 Months Ended June 30 '12 3 Months Ended June 30 '11 Y/Y % Change
% of Revenue from Crude Oil 73.0% 54.5% 18.5%
% of Revenue from Natural Gas, LNG 27.0% 45.5% (18.5%)
Total Oil & Gas Revenues $1,886 MM $1,722 MM 9.5%
Click to enlarge

2. Apache (NYSE:APA) -- Market Cap: $33.1 Billion

Apache has been and remained heavily levered toward oil. Therefore, with the falling prices of natural gas in the last year, not much of a shift was required for the company as it was already in a good position, evidenced by the stable year-over-year revenue distribution (a change of only 2.9%). However, Apache's overall oil and gas revenues were down 9.2%. Something important to note: Both Apache and EOG Resources constitute two of the three major participants in the intriguing Kitimat LNG (liquefied natural gas) Project that will liquefy natural gas from Apache's and EOG's fields in British Columbia and Alberta. This conversion from gas to liquid will allow the product to be exported around the world. If this project is brought to fruition, both Apache and EOG will have the flexibility to ramp up natural gas production if the price environment improves.

Apache Revenues

3 Months Ended June 30 '12

3 Months Ended June 30 '11

Y/Y % Change

% of Revenue from Crude Oil




% of Revenue from Natural Gas, LNG




Total Oil & Gas Revenues

$3,956 MM

$4,355 MM


Click to enlarge

3. Chesapeake Energy (NYSE:CHK) -- Market Cap: $12.6 Billion

Chesapeake Energy has had a major transformation into an oil company as oil sales have gone from 31.4% of revenue to 76.8%, a whopping 45.4% increase in this distribution. Revenues from oil alone went from $562 million for Q2 2011 to $1.6 billion for Q2 2012, a year-over-year increase of 189%. Chesapeake has been able to ramp up its oil production through huge capital expenditures, around $14.7 billion in 2012, and plans to fund these purchases through divestitures of many of the company's natural gas assets. Chesapeake has already sold off $4.7 billion worth of assets in the first half of 2012 and announced that they plan to sell another $7 billion in assets during the third quarter of 2012. This marks a stark contrast from EOG Resources, which has been able to maintain most of its natural gas properties.

Chesapeake Revenues

3 Months Ended June 30 '12

3 Months Ended June 30 '11

Y/Y % Change

% of Revenue from Crude Oil




% of Revenue from Natural Gas, LNG




Total Oil & Gas Revenues

$2,117 MM

$1,792 MM


Click to enlarge

In summation, all three companies are heavily levered toward oil, as more than 70% of their revenues come from oil, and stand to benefit if the price of oil holds at high prices while natural gas tracks at low rates of return. Both Chesapeake and EOG Resources made remarkable transitions to oil, helping to boost their revenue, while Apache held still and resulted in revenue decline.

If the price of natural gas does continue to creep upward as it has in the last three months, EOG Resources will most likely be the best positioned to follow this move. The company has held on to most of its assets from when it was once a leading natural gas producer, and therefore will be able to bounce back to natural gas without substantial spending. EOG, along with Apache, is also a key player in the Kitimat LNG Project, which could provide abundant prospects.

Continue to Part 2 >>

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.