Planning For The Next Growth Phase At EOG Resources

| About: EOG Resources, (EOG)

Summary

EOG has industry leading liquid growth for large oil exploration firms.

New oil plays set EOG up for more expansion.

Stock gains of the last few years still don't leave the valuation stretched.

After a few years of watching the stock of EOG Resources, Inc. (NYSE:EOG) soar from under $35 to over $115, the company appears amazingly poised for more gains. With the market valuation now touching the scale at over $60 billion, the next leg of growth won't be that easy.

EOG Resources falls in the group of domestic majors similar to Apache Resources (NYSE:APA) that are quickly approaching the valuations of the old majors like ConocoPhillips (NYSE:COP) that is only valued at $100 billion. Can the domestic shale plays push these EOG and Apaches' of the world into the scale of global oil players?

New Shale Plays

The key growth drivers for the likes of EOG Resources and Apache Resources are the continued growth in domestic shale plays. EOG continues to lead the way with discovery of new oil rich plays while Apache is improving at exploiting existing plays.

In the case of EOG, it recently released new Rocky Mountain shale plays in the DJ Basin and Powder River Basin with combined estimated net resource potential of 400 MMboe. The plays include the following:

  • Codell formation has estimated potential reserves of 125 MMboe at 78% oil on 72,000 net acres. Another 13,000 acres were added during Q2.
  • Niobrara shale has 235 net identified drilling locations with estimated potential reserves of 85 MMboe with current production averaging 71% oil.
  • Parkman formation has estimated potential reserves of 75MMboe of which approximately 69% is oil on 30,000 net acres.
  • Turner formation has potential net reserves of 115 MMboe on 63,000 net acres with current production only 34% oil.

Though these plays fit comfortably into the existing resources of EOG, each one could individually establish an independent oil company.

Leading Liquids Growth

For a company that reported 45% YoY production growth in domestic oil and condensate in Q1 followed by 33% growth in Q2, it is remarkable that EOG was able to find several additional plays with the ability to add to that growth. Total domestic oil and condensate production in Q2 reached 274,600 boe/d, compared to only 214,400 boe/d in the prior year period.

For its part, Apache is trying to keep pace with North American liquids production growing 18% in Q2. The company is seeing significant growth from the Permian Region with record production averaging 155,000 boe/d. Along with EOG, the companies are seeing natural gas volumes flat to down with the push towards liquids production.

ConocoPhillips is generating the same levels of growth in the domestic shale plays with a focus on the Eagle Ford and Bakken generating 38% production growth in Q2. The combined production of 208,000 boe/d pales compared to the amount of oil production alone achieved by the relatively smaller EOG Resources especially when the shale plays exploded in importance a few years back.

Going forward, EOG Resources expects production growth to reach around 12% for 2014 while ConocoPhillips is getting limited growth outside the domestic shale plays limiting growth to only 4% on average. Apache is actually seeing reduced production due to the sales of some GOM and international properties to shift the focus on onshore.

Bottom Line

With industry leading production growth focused on liquids, EOG Resources appears set to outpace the industry for years to go. While the soaring stock price is a concern, the stock still appears set to gain with the company finding more and more oil.

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

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