We maintain our long-term Neutral recommendation on
EOG Resources Inc.
), a major independent oil and gas exploration and production
EOG Resources has an attractive growth profile, a huge inventory
of drilling opportunities, upper quartile returns and a
disciplined management team. It continues to demonstrate solid
execution in its key growth assets, particularly in the Eagle
Ford and Bakken plays.
EOG Resources has hiked its total production growth target to
10.6% from 9% for the current year. The growth goal was raised
after the completion of each quarter, implying three increments
so far this year.
CHESAPEAKE ENGY (CHK): Free Stock Analysis
EOG RES INC (EOG): Free Stock Analysis Report
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The company is increasing its interest in major oil and liquids
rich plays, such as the South Texas Eagle Ford play and the Fort
Worth Barnett Shale Combo, as well as Colorado Niobrara, Oklahoma
Marmaton, West Texas Wolfcamp, Neuquen Basin and New Mexico
Leonard. This will aid EOG Resources in reaching its new volume
Again, its growing emphasis on liquids is reflected in the growth
of its liquid production volume. During the third quarter, crude
oil and condensate production was up approximately 42.4% from the
year-ago level. This was primarily driven by significant
contributions from the company's South Texas Eagle Ford; North
Dakota Bakken and Three Forks; and Permian Basin Wolfcamp and
Stellar drilling results and continued alteration of completion
techniques across its liquids plays encouraged EOG to increase
its full-year crude oil production growth target to 40% from 37%
and liquids production growth target to 38% from 35%. A
liquids-rich production growth is likely to facilitate
significant future cash flow for the company.
Moreover, EOG Resources, not unlike its peer
Chesapeake Energy Corporation
), is keen on its asset divestiture program. This reflects
greater focus on liquid-rich plays by both these companies.
Through September 30, the company monetized approximately $1,200
million worth of assets, which it expects will climb to
approximately $1,300 million for 2012.
Although we view EOG Resources as a favorable pick, the
risk-reward pay-off for the company is still uncertain in the
near future due to its natural gas weighted production and
reserves base, as well as cost overruns.
As of year-end 2011, about 39% of the company's net proved
reserves were crude oil and condensate and natural gas liquids
and the remaining 61% was natural gas.
Hence, we expect EOG Resources to perform in line with the
broader market. The company carries a Zacks #2 Rank, which is
equivalent to a short-term Buy rating.