EOG Resources Surges Past NPV

Gaining 42% in price in 2008, the stock of buy-recommended EOG Resources (EOG) has surged past estimated net present value [NPV] of $115 a share. That prompted us to scale back to a one-and-a-half unlevered weight from a double weight in the illustrative McDep Energy Portfolio.

First quarter results released after the market close on May 1 scored higher volume, cash flow and earnings than in our estimates of three months ago. Hedging losses left out of ongoing cash flow and earnings diminish the results somewhat. Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda).

NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Finally, oil price continues in an uptrend and there is catch up potential for natural gas.

Originally published on May 2, 2008.