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

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 and Second 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) and Chevron (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.

TheStreet Ratings team rates EOG RESOURCES INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate EOG RESOURCES INC (EOG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, good cash flow from operations, solid stock price performance and increase in net income. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 9.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • EOG RESOURCES INC has improved earnings per share by 6.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, EOG RESOURCES INC increased its bottom line by earning $4.03 versus $1.05 in the prior year. This year, the market expects an improvement in earnings ($5.69 versus $4.03).
  • Net operating cash flow has slightly increased to $1,934.58 million or 2.31% when compared to the same quarter last year. In addition, EOG RESOURCES INC has also modestly surpassed the industry average cash flow growth rate of -7.19%.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 35.78% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Oil, Gas & Consumable Fuels industry average. The net income increased by 7.1% when compared to the same quarter one year prior, going from $659.69 million to $706.35 million.
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