We maintained our recommendation on
EOG Resources, Inc.
) at Neutral on May 30, 2013. The company's large portfolio of
high-return projects and strong technical competence are the key
factors that would lead to its success over the long term.
EOG - major independent oil and gas exploration and production
(E&P) company - continues to demonstrate solid execution in
its key growth assets, particularly in the Eagle Ford and Bakken
plays. An attractive growth profile, huge inventory of drilling
opportunities, upper quartile returns and a disciplined
management team remain the company's key positives.
Notably, EOG's key skills lie in early identification of
prospective areas through its engineering technical expertise at
low acreage prices, thus driving organic growth and delivering
attractive returns on capital employed. Further, redirecting
capital from non-operated assets to its premier play appears
logical to us.
EOG Resources' increasing interest in oil is appreciable in a
favorable price environment. It will be augmented by its deep
focus on major oil and liquids rich plays, while holding core
natural gas and combo acreage in the Barnett, Leonard and
Wolfcamp plays for the long term.
The company made a meaningful increase by 600 MMBoe to 2.2
billion barrels of oil equivalent (BBOE) in its Eagle Ford
resource potential based on downspacing success. Owing to
downspacing, EOG estimates having 4,900 Eagle Ford drilling
locations. This reflects enough drilling inventory for more than
EOG set its full-year 2013 crude oil production growth target
at 28%, indicating that this will be the third successive year of
double-digit volume growth. On the strength of its high-margin
domestic crude oil production, the company also expects total
production to grow 4% on a year-over-year basis.
However, EOG's results are particularly exposed to
fluctuations in the U.S. natural gas markets, since natural gas
accounts for almost half of the company's reserves. Though EOG
has made some progress in expanding internationally, it is still
largely a North American producer, lacking substantial
Other Stocks to Consider
While we prefer to remain on the sidelines for EOG, there are
other stocks in the sector that appear rewarding. Among these
Gulfmark Offshore, Inc.
) are expected to outperform the broader market over the next few
months and carry a Zacks Rank #1 (Strong Buy).
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EOG RES INC (EOG): Free Stock Analysis Report
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GULFMARK OFFSHR (GLF): Free Stock Analysis
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