EOG Resources May Breach $119 High This Year

| About: EOG Resources, (EOG)

Changing course direction in order to provide the best possible returns for investors is a sign of smart business management, and that is exactly what EOG Resources, Inc. (NYSE:EOG) has done. The company has transformed from being a natural gas producer, to making headway in two major oil plays in the Bakken Shale and the Eagle Ford Shale.

With the price of natural gas still hovering around the extremely low side, the company has turned its focus on specifically growing its oil production. With U.S. natural gas inventories about 9% higher than they were a year ago and about 8.6% higher than the five-year average, EOG Resources is not the only oil and gas company affected. Exxon Mobil (NYSE:XOM), the country's largest producer of natural gas will need to refocus efforts in other areas as well. Exxon Mobil made headlines when it purchased XTO Energy in 2010 for $26 billion.

The company has recently shifted its focus toward sites with the greatest potential for oil rather than gas, when the company's CEO finally announced this past June that they are in the red in regards to the natural gas segment.

Another major player in the natural gas world, Chesapeake Energy (NYSE:CHK) is also feeling the pinch of gas prices and at a very bad time for the company. It has been aggressively selling off assets in order to reduce its debt load and build up cash reserves.

Of course, all natural gas producers are bound to profit once prices begin a northern trend, but EOG Resources isn't going to sit and wait. The company has an aggressive approach toward oil and is succeeding in its current plays.

While natural gas prices have slumped, EOG Resources is playing it smart holding onto its gas leaseholds for when the gas market improves. I believe EOG Resources to be a buy opportunity now based on its aggressive oil plays and its ace in the hole with its firm handle on natural gas.

Often times, partnering to bring multiple resources to a combined effort for success, can be a wise business decision. As an example, EOG Resources is experiencing success in the Kitimat Liquefied Natural Gas (LNG) project, which is owned by EOG Resources, Apache (NYSE:APA), and Calgary-based Encana (NYSE:ECA). The Kitimat LNG project is expected to cost $15 billion and startup is expected in 2017, with capacity to export 10 million tons a year of LNG for about 20 years.

Approval for contracts with Asian buyers is still in the works. Apache hit it big this summer with the discovery of one natural gas well producing 22 million cubic feet per day a remote corner of northeastern British Columbia. Apache explores for and produces oil and natural gas in the United States, Australia, Canada, Egypt, Poland and China. Encana is a Canadian business that focuses on expanding the use of natural gas for power generation and transportation. All of the company's reserves are located in North America.

While this type of joint venture for EOG Resources has a focus on natural gas products, the company has been doing a pretty good job of seeking oil. The Bakken Shale is basically an oil play straddling the U.S. border with Canada and running through North Dakota and Montana, as well as the two Canadian provinces of Saskatchewan and Manitoba. EOG Resources one of the largest producers in the Bakken Shale.

In this play, the company's 90,000 net acre Core Parshall Field has proven successful due to the company drilling wells on tighter densities. Initial testing in the over-pressured Core area along with increased production rates from nearby existing wells indicate significant amounts of recoverable crude oil still remains. The company plans to further develop the Core Parshall Field on 320-acre spacing and test even tighter drilling densities.

The Bakken Shale is a popular play. Exxon Mobil recently agreed to buy from Denbury Resources (NYSE:DNR) Bakken formation assets in North Dakota and Montana covering 196,000 net acres for $1.6 billion. Denbury Resources will also receive Exxon Mobil's operating interests in Webster field in Texas and Hartzog Draw field in Wyoming.

Denbury Resources engages in the acquisition, development, and exploration of oil and natural gas properties in the Gulf Coast region located in Texas, Mississippi, Louisiana, and Alabama. The company also sells Carbon dioxide (CO2)to third-party industrial users under long-term contracts through its Jackson Dome CO2 source in Mississippi.

In the Eagle Ford Shale, EOG Resources announced last month that it is lowering the number of rigs in the Eagle Ford Shale from 24 to 20 and taking advantage of new efficiencies. The company said that it plans to complete 330 wells there this year, 30 more than originally scheduled.

CEO Mark Papa stated that, "The Eagle Ford may well be the largest net oil discovery in 40 years. The number of monster wells that we got in the second quarter that I bragged about, that was an extraordinarily high number of monster wells."

The company reported that for the second quarter 2012, total crude oil and condensate production increased 52% compared to the second quarter 2011 and total crude oil, condensate and natural gas liquids production increased 49% over the same period in 2011.

With a market cap of $30.7 billion, the company is rolling along quite nicely. EOG Resources' second quarter results reveals net income of $395.8 million, or $1.47 per share, compared to second quarter 2011 net income of $295.6 million, or $1.10 per share.

The company had second quarter 2012 revenues of $2.91 billion, 3.66% above the prior year's second quarter results. Year-on-year EOG Resources grew revenues 66.00% from $6.10 billion to $10.13 billion, while net income improved 579.18% from $160.65 million to $1.09 billion.

EOG is currently trading around $114, and there is still a lot of room for growth for this company. With its gas holdings and active plays, and its oil successes, I predict EOG Resources will break its 52-week high of $119.97 by the end of 2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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