Tuesday, August 19, 2014

EOG Resources, a Shale-Powered Growth Story, Continues to Impress

This article was originally published by TheStreet on August 11, 2014. 
NEW YORK (TheStreet) – EOG Resources (EOG_) has become one of the top U.S. oil producers on the back of the shale oil boom, and it just keeps getting better.  
Last Tuesday, the company posted stellar quarterly results, with another double-digit increase in production, that reaffirm its growth story. The company also increased its dividend by 34% following a 33% increase earlier in February. This shows the management’s confidence in the company’s future growth. So far, over the last 15 years, EOG increased its dividend at an average of 23% in each year.
EOG shares are up 29.3% this year, currently hovering near $108. The company’s shares could continue to go higher on the back of increasing production and potential for growth from outside its core positions at Eagle Ford in South Texas and Bakken formation in North Dakota.

That said, bargain hunters should wait for a sell-off before buying EOG stock. The company’s shares currently yield 0.62%, despite the big jump in dividends, considerably lower than the average yield of 1.7% in the industry, as per data compiled by Thomson Reuters. The company’s shares are also trading 24.5 times its trailing earnings for the past 12 months, twice as high as the industry’s average.
During its second quarter, EOG posted 7.1% increase in income from the same quarter last year to $706.3 million, thanks to increase higher production from Eagle Ford and Permian Basin shale formations in Texas.  The company’s revenue from sale of hydrocarbons increased by 27.2% to $3.37 billion on the back of 17% increase in production to 591,000 barrels of oil equivalents per day.
Excluding the impact of one-off items, EOG earnings increased by 38% from the same quarter last year to $1.45 a share, better than analysts’ expectations of $1.37 a share, as per data compiled by Thomson Reuters.
EOG Resources is the biggest producer and acreage holder at the prolific Eagle Ford formation, ahead of Pioneer Natural Resources (PXD_), ConocoPhillips (COP_), Murphy Oil(MRO_) and Devon Energy (DVN_).  
EOG Resources has risen to become one of the biggest American oil producers on the back of the shale oil and gas boom. The company, like its oil-focused peer Continental Resources(CLR_), has been one of the biggest beneficiaries of the shale revolution. However, unlike Continental Resources which is focused producing from just the Bakken formation, EOG has amassed significant acreage in five oil producing regions, including Eagle Ford and Bakken formation.
During the earnings conference call, EOG talked about two new areas: the Leonard Shale andSecond Bone Spring Sand located on the company’s 73,000 net acres spread across Texas and New Mexico. Although these two plays, part of the larger Permian Basin, haven’t made any significant contribution to the company’s production, EOG believes that they can fuel the company’s growth in the long term. EOG is currently evaluating these assets but initial test results have been positive.
EOG's crude oil production has been rising steadily over the last couple of years, from 55,000 barrels a day to 220,000 b/d between 2009 and 2013. As a result, EOG has become the biggest producer in the Lower 48 States, ahead of its bigger rivals Occidental Petroleum (OXY_) andChevron (CVX_) that managed between little to no growth in the corresponding period.
Moreover, EOG forecasts a 29.5% increase in its output of oil this year and “best in class” double-digit growth of oil and other liquids production in the subsequent years through 2017. This growth will be supported by more than 15 years of oil-focused drilling inventory. Consequently, the company will likely retain its title of the top player in the Lower 48 states in the coming years.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.