There are four big reasons to invest in EOG Resources (EOG) today. The company is discovering new ways to uncover oil, testing more drilling intervals, generating its own sand facility, and establishing greater operational control.
EOG Resources showed up for the first quarter of the game with great 2012 first quarter results. Part of the company's sparkling performance is based on its liquids plays in the South Texas Eagle Ford, the North Dakota Bakken, the Fort Worth Barnett Combo and the Permian Basin Wolfcamp and Leonard. Because of the company's greater emphasis on oil, about 85% of its North American drilling revenue came from liquids so far this year.
EOG is already outshining competitors Apache (APA), Forest Oil (FST), Sonde Resources (SOQ), and Quicksilver Resources (KWK) because of its oil finds thus far this year causing the company to increase its full-year total liquids production growth target to 33% from 30%. Based on the aggressive nature of EOG Resources and its consistent, relentless effort at oil plays, I believe this company to be a great investment and one to hold for quite some time.
Oil and gas companies use sand in the economic development of crude oil and natural gas resource plays to facilitate the flow of hydrocarbons. Because of the development of unconventional hydrocarbon resources by the crude oil and natural gas industry in recent years, there has been a decrease in sand availability as well as increased costs. To that end, EOG Resources decided to own its own sand facility in Chippewa Falls, Wisconsin. The facility allows EOG Resources to ship by rail sand to the South Texas Eagle Ford, where EOG is currently the largest crude oil producer in the play. The new Wisconsin plant is cutting about $500,000 off the cost of each well, creating an annual savings of $300 million.
But, it is the Eagle Ford play that the company is most excited about lately. With a 610,000 net acre position in there and production of about 53,000 barrels of crude oil equivalents per day, the company should be happy, as should investors. As CEO Mark G. Papa had stated during a first quarter results statement, "The Eagle Ford continues to be our 800-pound gorilla in terms of crude oil growth, and we still believe our position is the largest domestic net oil discovery in 40 years and generates the highest direct (after tax rate of return) of any current large hydrocarbon play." The company has operations in a variety of locations, including the Bakken and Marcellus areas, but its concentration of positions in Texas dominates its holdings.
In the company's Bakken play, the company is experimenting with a new drilling strategy that is beginning to pay off. The company had originally been drilling wells every 640 acres at the Parshall Field in Montrail County, ND with satisfactory results. The company only recently began drilling every 320 acres resulting in higher production rates and improved recovery from the initial wells. The three wells already drilled at 320-acre spacing produced 1,393 barrels per day, 992 bpd and 1,083 bpd with 600 thousand cubic feet per day, 300 mcf per day and 300 mcf per day of associated rich natural gas. Later this year, the company plans to test the impact of 160-acre spacing on its core acreage, as well as the impact of downspacing on its nearby Bakken Lite acreage.
EOG Resources holds 100% interest in five wells in the Antelope Extension, in McKenzie County 25 miles to the southwest of its Core Parshall Field. Also, the company completed seven wells with initial production rates between 540 and 1,100 bpd in the Diamond Point/Stateline area of western North Dakota and eastern Montana. In addition, the company is profiting from a new crude-by-rail facility in St. James, LA that should be able to move 50,000 bpd this month, and 70,000 bpd by the end of the year.
This facility allows the company to deliver Bakken crude to either St. James or Cushing, Oklahoma. The facility should be up and running at full capacity soon. It received its first shipment of Bakken crude in mid-April, allowing the company to get a $15 per barrel advantage from Light Louisiana Crude prices. EOG Resources' plan is for their rail tanker fleet to move their Bakken oil to St. James and sell their Eagle Ford in the Houston and Corpus Christi markets. This is a well-organized plan for this growing company, which only began after roughly 12 years ago after the Enron fallout.
EOG Resources reported first quarter 2012 earnings of 1.17 per share, exceeding last year's first quarter results by 72.06%. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, the company increased its bottom line by earning $4.08 versus $0.63 in the prior year. This year, the market expects an improvement in earnings ($4.90 versus $4.08).
The company had first quarter 2012 revenues of $2.81 billion, 1.21% above the prior year's first quarter results, and had revenues for the full year 2011 of $10.13 billion, 66.00% above the prior year's results. The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 141.8% when compared to the same quarter one year prior, rising from $133.97 million to $324.01 million. The gross profit margin for the company is currently very high, coming in at 80.20%, and the net profit margin of 11.90% is above that of the industry average. Net operating cash flow has increased to $1,077.61 million or 12.54% when compared to the same quarter last year, and the company has also modestly surpassed the industry average cash flow growth rate of 12.21%.
EOG Resources is picking up steam, applying old-fashioned common sense as it moves forward discovering new ways to uncover oil, testing more drilling intervals, generating its own sand facility, and establishing greater operational control. These elements all contribute to building a stable, reliable oil and gas company investment. This is one of those companies that is a no-brainer to add to your investment plan.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.