EOG Resources Will Retain Its Title As The Top U.S. Oil Producer

Aug.21.14 | About: EOG Resources, (EOG)


Given the shale oil boom, EOG Resources has emerged as one of the top U.S. oil producers. Additionally, it is positioned to deliver double digit growth in the long term.

The company’s strength can be seen in multiple areas and includes increasing production and potential for growth from its core positions at Eagle Ford and Bakken field.

The company has been accumulating significant acreage in five oil producing regions. It has been putting efforts into developing the Leonard shale and the Second Bone Spring Sand play.

The production growth is supported by more than 15 years of oil-focused inventory which signifies ample production in the years to come.

EOG Resources (NYSE:EOG) has become one of the top U.S. oil producers primarily due to the shale oil boom, and it just keeps getting better. The company's crude oil production has been steadily rising over the last couple of years. It increased from 55,000 barrels per day to 220,000 b/d between 2009 and 2013. At the most fundamental level, the company's strength can be seen in increasing production and potential for growth from its core positions at the Eagle Ford shale in South Texas and the Bakken formation in North Dakota. In addition, the company's management has been impressive and has established a strong history of favorable decision making and shareholder returns.

The company's success can be traced back to the management's decision to grow as a pure play oil producer. The decision was considered a solid move as the company has witnessed more growth opportunities than if it remained committed to natural gas.

Lucrative Position in Lower 48 Continues to Benefit in the Long Term

There are already many players in the region. However, given the extensive exposure in the key Bakken and Eagle Ford shale areas, EOG has emerged as the biggest producer in the Lower 48 region. The company has been able to post higher production growth. On the other hand, its rivals, Occidental Petroleum (NYSE:OXY) and Chevron (NYSE:CVX), hardly managed to grow their production rates. The average daily production of EOG in comparison with other major players can be seen in the figure below.

Click to enlarge

Source: Investor Presentation

During the second quarter, the company's revenue from the sale of hydrocarbons increased by approximately 27 percent to $3.37 billion. The higher revenues were primarily due to a 17 percent increase in production bringing the production to 591,000 barrels of oil equivalent per day. Going forward, the company is determined to deliver an increase of 29.5 percent in its oil production by the end of this year.

Similarly, in the long term, the company is all set to deliver double digit production growth by the end of 2017. It is of worth mentioning here that despite the fact that the company is well positioned to grow production by a double digit rate it is also supported by more than 15 years of oil-focused drilling inventory. Therefore, it is appropriate to assume that the company is most likely to retain its title as top oil producer of the Lower 48 region in the years to come.

EOG has been consistently putting efforts into fueling its production growth in the long term. It has been trying to accumulate significant acreage in five oil producing region. The company recently talked about two areas: the Leonard shale and the Second Bone Spring Sand. The addition of the Second Bone Spring Sand to the company's portfolio is a step that ensures bright long-term prospects. The play is below the company's Leonard shale and above the Wolfcamp in the Delware Basin. Currently, the company is evaluating and is in the process of deciding the quantity of wells to be drilled. However, the company expects to spend approximately $6 million to complete wells in the play. Upon successful completion of these wells the play is expected to produce almost 500,000 barrels of oil equivalent per day.

Concluding Remarks

EOG continues to enjoy its lucrative acreage position in the top oil producing shales in the U.S. In addition to bright long term-prospects in the Lower 48 region, the company is also putting efforts into capitalizing on the opportunities in the Leonard shale and Second Bone Spring Sand. With respect to production growth the company has beaten all the major oil producing companies. Moreover, with more than 15 years of oil inventory EOG has ample potential for production growth.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.