EOG Resources: Eagle Ford Key To Surviving Low Oil Prices
- EOG Resources is one of the lowest cost shale producers in the world.
- In the Eagle Ford, EOG Resources can still make at least a 10% ATROR on its wells when WTI is $40.
- Faster drilling times, self-sourced sand, and more productive wells will keep pushing down EOG's break-even price in the Eagle Ford.
EOG Resources Is Well-Positioned To Face The Challenges Of The Oil And Gas Market
- The company has assets in the Eagle Ford area where companies can remain profitable even if crude oil falls to $40 per barrel.
- The sale of Canadian assets will allow the company to increase focus on the U.S. assets, which are cost efficient and have high productivity.
- The majority of EOG's assets will continue to return 10% after tax even if crude prices fall to $40 per barrel.
- EOG Resources will remain cash-flow neutral if oil stays at $60 per barrel over a period of 12 months.
- Unprecedented growth in company's oil production should take a backseat to cash conservation.
- Production uplift and lower completion costs will help somewhat offset lower crude prices.
- EOG is very strongly positioned to weather a most severe oil price trough.
- If oil price remained at $65 per barrel level, EOG would still be able to post oil production growth in 2015, without increasing debt level.
- Given weak hedge protection in 2015, the company’s financial results will be volatile quarter to quarter.
- EOG’s Eagle Ford and Bakken shale formations as well as its Delaware basins are generating triple digit returns despite low crude oil prices.
- These assets are expected to continue generating growth even if oil prices fall below $40 as EOG is currently involved in rigorous efforts which will cut costs even further.
- The company has discovered over 700 locations rich in crude oil content which have added a decade of high return drilling possibilities and potential to generate a 45% return.
- The company can generate positive synergies for investors as it has the power to drive share prices upwards. Investors stand to gain highly by buying into EOG Resources’ stock.
Bakken Update: EOG Antelope Well Has One-Year Payback At $50/Bbl WTI
- EOG continues to be the top US shale operator in the United States.
- In its core acreage, EOG wells still provide excellent returns at today's realized oil prices.
- Improvements of well design have been significant even in timeframes as short as one year.
Building A Core Investment Portfolio For The Next 20 Years: EOG Resources
- EOG Resources is a low-cost oil producer with premium assets in the Eagle Ford, Bakken and Delaware Basin.
- The company can weather any continued downward pressure on oil prices.
- Every investor should have a core portfolio that they can rely on for steady gains without wild fluctuations.
How Did EOG Resources' Earnings Rise Despite Lower Crude Oil Prices?
- For the 3rd quarter of the fiscal year 2014, EOG Resources reported revenues of $5.1 billion, up almost 46% from $3.5 billion in the year ago quarter.
- EOG’s net income for Q3 amounted to $1.1 billion, more than doubling over the course of the year from $462.5 million in Q3 2013. Earnings per share amounted to $2.01.
- Total increased 17% year on year. EOG’s oil production during the quarter was even higher, rising 29% over and above the year ago quarter.
- The surge in oil production was led by massive production gains in the Eagle Ford, North Dakota Bakken and the Delaware Basin.
- The company expects total production to increase 16.5% during the full fiscal year 2014. It had previously forecasted 14% growth during the year.
EOG Resources Has Transformed The Wolfcamp Into A Triple-Digit Play
- EOG Resources is now guiding to generate 100% ATROR from the Delaware Basin portion of the Wolfcamp.
- Boosting its average crude production mix to 50% from 31% translated into much higher returns.
- Even if crude prices fall to $40 a barrel, EOG will still make a 10% ATROR from the Wolfcamp Oil Window.
- The Conwy project continues to be pushed back, delaying a catalyst for EOG's oil production.
EOG Resources Remains Overvalued Relative To Future Earnings Growth
- Despite a recent 20% correction, EOG Resources still trades at a premium P/E multiple to other large cap North American energy companies.
- While EOG boasts a solid balance sheet and impressive land position in the Eagle Ford shale, its lack of free cash flow generation leads to an insignificant dividend yield.
- Relative to analysts' future earnings expectations, EOG Resources appears overvalued to up to 25% based on its current share price.
- EOG Resources raised its guidance once again, boosting company-wide and crude/condensate growth projections for 2014.
- To keep this momentum going, EOG is moving more aggressively into the Delaware Basin.
- The Second Bone Spring and the Leonard plays offer EOG Resources a chance to generate triple-digit returns from its wells.
- EOG reported its 16th consecutive quarterly beat.
- The company offers the best combination of almost 100% U.S. unconventional exposure with top-tier debt adjusted production and cash flow growth.
- EOG's resilient portfolio can generate strong returns even in a low oil prices world.
EOG Reported Solid Production Metrics, But The Market Is Neglecting A 2015 Gamble
- EOG recently announced solid Q3 results.
- 2014 full year total production growth increased to 31%.
- Oil production growth is outpacing gassy growth, as oil is now 48% of production.
- Management announced hedging through 2015, but is it enough?
EOG Resources Q3 Earnings Preview: Delaware Basin, Second Bone Spring, Leonard Shales
- EOG could add hundreds of millions of BOE to its resource potential as it actively explores the Second Bone Spring interval.
- Investors should look out for the production results of EOG's new Second Bone Spring wells.
- If results continue to be strong in the Second Bone Spring interval, EOG will be justified in its plan to ramp up drilling activity next year.
- Downspacing in the Leonard shale above the Second Bone Spring will also help EOG grow its drilling inventory and reserve base.
- Due to the Leonard being on top of the Second Bone Spring, techniques used in the Leonard could possibly be applied to the Second Bone Spring interval.
Is EOG Resources Reaching Success In The Eaglebine?
- ZaZa Energy reported strong well performance for its EOG-operated joint venture in the Eaglebine play area.
- ZaZa indicates that drilling returns may exceed 50%, assuming $80 per barrel WTI and $3.70/MMBtu Henry Hub.
- The read-across may be relevant to SM Energy and Contango Oil & Gas.
EOG Resources: A Best-Of-Breed Selling Below Fair Value
- The market has been most unkind to EOG Resources stock; shares are off 23% from a recent high.
- At these price levels, do EOG shares present investors with an asymmetric risk-reward profile?
- How closely is the price of EOG stock aligned with the movement in WTI spot crude?
Wed, Jan. 21, 3:59 PM
- Credit Suisse thinks it is still too early to buy E&P equities but the picture should brighten by late in Q1, when the firm suggests the time could be right to make a play for the strong balance sheets offered by the likes of Anadarko Petroleum (NYSE:APC), Devon Energy (NYSE:DVN), EOG Resources (NYSE:EOG), Marathon Oil (NYSE:MRO) and Pioneer Natural Resources (NYSE:PXD).
- E&P stocks historically have been highly anticipatory, the firm says, with the stocks moving ahead of crude oil, adding that the key leading indicator of U.S. drilling and completion activity is U.S. drilling permits.
Thu, Jan. 15, 10:25 AM
- North Dakota oil production rose to a new record even as energy companies drilled fewer wells and the rig count dropped to a near five-year low.
- The state's oil output hit a record 1.19M bbl/day in November, the most recent month available, according to data released yesterday by North Dakota’s Department of Mineral Resources.
- Despite the new record, the head of the department warned the state’s crude production will peak and decline later this year if oil prices don’t rebound; the current price of North Dakota sweet crude is ~$29.25/bbl, the lowest since Dec. 2008.
- The latest drilling rig count is 158, the lowest in nearly five years and down from a high of 218 rigs in 2012, but the department says production may not start to drop until the rig count falls to 130 or lower.
- Gregor McDonald argues that the North Dakota data confirming that Bakken drilling activity has slowed meaningfully has sparked the snapback rally in crude oil prices.
- Top Bakken producers: CLR, EOG, WLL, HES, XOM, OAS, NOG, EOX, MRO
- ETFs: USO, OIL, UCO, SCO, BNO, DTO, DBO, UWTI, USL, DWTI, DNO, SZO, OLO, TWTI, OLEM
Wed, Jan. 14, 2:35 PM
- Barclays downgrades the large-cap E&P sector to Negative from Neutral and the small- and mid-cap E&P group to Negative from Positive, arguing that downside risk outweigh potential gains even if oil prices recover.
- Equity investors are pricing in WTI crude assumptions of close to $75/bbl in 2016 compared to current strip prices of ~$57, Barclays says, also noting that an abundance of relatively cheap oil supply from U.S. producers could further delay a price recovery.
- Among specific names, the firm downgrades CHK, SD, REN and HK to Underweight; DVN, CLR, KOS, MRO, RSPP and WLL are cut to equal weight.
- At the same time, Barclays picked a few favorites, upgrading Range Resources (NYSE:RRC) to Overweight from Equal Weight, and maintained Overweight ratings on large-cap E&P companies CNQ, EOG and NBL; among small- and mid-cap E&P names, the firm favors AR, CXO and XEC.
- ETFs: XOP, IEO, PXE
Tue, Jan. 13, 3:23 PM
- J.P. Morgan's Joseph Allman is “mildly bullish” on oil and gas E&P companies in 2015, as short-term nervousness about the oil market’s oversupply is outweighed by the benefits of low oil prices, declining service costs and a more balanced oil market.
- Allman’s favorite picks among big-cap names are EOG, APC and NBL, among mid-caps are XEC and PXD, plus PDCE in the small-cap space; his least favorite stocks are APA, AREX, GDP and JONE.
- Among majors, JPM analysts Phil Gresh and John Royall initiate SunCor (NYSE:SU) at Overweight, citing "top tier sustainable dividend coverage and leverage, with some underlying growth potential"; the pair also downgrade Cenovus (NYSE:CVE) to Neutral, tags ConocoPhillips with an Underweight rating, and are neutral on Exxon (NYSE:XOM) and Chevron (NYSE:CVX).
- Earlier: Valero Energy upgraded, Marathon Petroleum downgraded at J.P. Morgan
- ETFs: XLE, ERX, VDE, OIH, XOP, ERY, DIG, DUG, IYE, IEO, PXE, FENY, PXJ, RYE, FXN, DDG
Mon, Jan. 12, 7:22 PM
- The number of drilling rigs operating in North Dakota's oil fields has dropped to 159, the lowest level since November 2010.
- The state lost eight rigs overnight, according to state data, a steep one-day drop not seen for years in the second-ranked U.S. oil producer.
- The drop comes after Continental Resources (NYSE:CLR), Oasis Petroleum (NYSE:OAS) and other companies announced capital spending cuts for 2015, admitting they planned to use fewer rigs this year.
- Other major North Dakota producers include EOG, WLL, HES, XOM, NOG, EOX and MRO.
Mon, Jan. 12, 3:17 PM
- Goldman Sachs upgrades a few energy stocks even as it cast a pall of gloom over most of the sector today (I, II, III), raising Chesapeake Energy (CHK -3.6%) to Buy from Neutral and Parsley Energy (PE -4.2%) to Neutral from Sell as potential "shale sale" winners.
- Despite PE's relative vulnerability to lower oil prices because of its weak balance sheet and negative projected free cash, Goldman has more confidence that its core Permian Basin position makes it an attractive M&A target.
- Among potential "shale scale" winners - companies that either can build positions in the core and reduce costs of capital - the firm's favorites remain EOG Resources (NYSE:EOG), Range Resources (NYSE:RRC), Pioneer Natural Resources (NYSE:PXD), Cabot Oil & Gas (NYSE:COG) and Concho Resources (NYSE:CXO).
- However, Goldman cuts Bill Barrett (BBG -8.3%) to Sell from Neutral, seeing greater downside risk to its production in a lower oil price environment, and lowers Eclipse Resources (ECR -1.5%) to Neutral from Buy due to a persistently wide funding gap through 2017 coupled with a weak balance sheet.
Mon, Jan. 12, 12:28 PM
- Wolfe Research’s Paul Sankey prefers EOG Resources (EOG -4%) as the best positioned among well exposed U.S. unconventional energy players that have the balance sheet to survive the current volatility.
- ConocoPhillips (COP -2.8%) has terrific unconventional exposure but enforced capital discipline that effectively forces the company to return cash to shareholders and shrink its size in an orderly manner.
- On Devon Energy (DVN -2.1%): "If EOG is the new Saudi Arabia of global oil, then Devon Energy is its Kuwait."
Fri, Jan. 9, 10:56 AM
- North Dakota needs an oil price of $55/bbl and a fleet of at least 140 rigs to sustain production at the current level of 1.2M bbl/day, according to a presentation from the state's chief mineral resources regulator.
- Breakeven rates for new wells range from $29 in Dunn county and $30 in McKenzie to $36 in Williams and $41 in Mountrail; these four counties account for 90% of drilling in the state.
- The number of rigs operating in the state already has fallen to 165, down from 191 in October.
- The projections confirm North Dakota's oil output will start to fall by year's end unless prices rise from current depressed levels.
- Top Bakken producers: CLR, EOG, WLL, HES, XOM, OAS, NOG, EOX, MRO
Thu, Jan. 8, 3:29 PM
- News reports about crude oil futures prices plunging through $50/bbl have been plentiful but many U.S. physical crude producers are receiving far less and would be thrilled if they could get $50, Reuters' John Kemp writes.
- Case in point: Prices received by oil producers in North Dakota's Williston Basin have averaged less than $34/bbl so far this month, according to Plains Marketing, falling by almost two-thirds since June when Plains posted an average price of nearly $92/bbl for Williston Sweet.
- The recent decline has been almost as rapid and brutal as 2008-09 when Williston prices crashed from $116 to less than $17.
- Kemp says past experience suggests extreme prices tend be relatively short-lived phenomena and followed by at least a partial correction, and thinks some sort of rebound is likely this time around in the next 2-3 months.
- Top Bakken producers: CLR, EOG, WLL, HES, XOM, OAS, NOG, EOX, MRO.
Mon, Jan. 5, 12:18 PM
- Energy stocks severely underperform the broader market, with the sector -4.2% vs. the S&P 500's -1.4%, as U.S. oil prices briefly slip below $50/bbl for the first time since April 2009; Nymex crude recently was -4.4% at $50.37, while Brent crude -5.9% at $53.08.
- Among the day's biggest losers: DNR -9%, RIG -7.6%, NBR -4.8%, CHK -5.9%, SDRL -9.1%, SD -12.3%, NOV -5.9%, PSX -6.2%, APA -5.9%, DVN -4.4%, EOG -6%, SU -5.2%, OXY -4.2%, APC -8.7%, PWE -9%, ECA -5.5%, MRO -5.3%.
- Global oil majors, which have been seen as less vulnerable to falling oil prices, are posting big losses: XOM -2.7%, COP -4.5%, CVX -3.8%, BP -5.8%, RDS.A -4.6%, TOT -6.5%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, FCG, DIG, PBW, BNO, GASL, DTO, DBO, DUG, IYE, XES, IEO, QCLN, IEZ, UWTI, PXE, USL, PXI, FENY, DWTI, PXJ, DNO, PSCE, RYE, SZO, PUW, FXN, OLO, DDG, HECO, TWTI, OLEM
Dec. 22, 2014, 10:45 AM
- Natural gas prices fall 9.5% to near two-year lows at $3.133/mmBtu, in the biggest one-day percentage loss since February and the lowest intraday price since January 2013, on mild weather forecasts and inventory that is above year-ago levels.
- Prices are now down more than 15% in three straight losing sessions and are 30% lower than the six-month high closing price of $4.489/mmBtu it hit just a month ago.
- Weather has been unseasonably warm for December, limiting demand for home heating and allowing relatively low stockpiles to catch up to where they were a year ago and encouraging traders to sell based on the belief that supply is relatively healthy.
- Gas producers are among the biggest early decliners: XOM -1.1%, CHK -7.3%, APC -2.6%, SWN -6%, DVN -2.2%, COP -2.3%, BP -1.5%, COG -4%, BHP -1.9%, CVX -1.3%, ECA -5.1%, EQT -4.3%, RDS.A -1.7%, UPL -12%, WPX -6.9%, EOG -1%, OXY -1.1%, RRC -6.1%, APA -2.3%, AR -3.2%, CNX -3%, QEP -4.8%, LINE -4.9%, NBL -1.6%, SM -2.6%, XEC -4.2%, PXD -2.9%, NFX -5.1%.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, NAGS, DCNG
Dec. 20, 2014, 1:29 PM
- The super majors are probably the first place to look when oil prices fall, writes Avi Salzman, as their stocks tend to slide less drastically than smaller players, and maintenance of dividends is a priority for management. Favorites: Shell (RDS.A, RDS.B) and Chevron (NYSE:CVX).
- While smaller producers appear risky, Occidental (NYSE:OXY) came into the price plunge well-positioned with one of the industry's cleanest balance sheets.
- EOG Resources (NYSE:EOG) could be the pick among shale drillers, says Salzman, as it's chosen drilling spots carefully and its break-even price is among the lowest in the industry. "[The] best management team in Houston," says one fund manager.
- Oil service stocks look especially vulnerable with capex budgets being cut, but Schlumberger (NYSE:SLB) "should have protection in the downturn," writes Salzman, noting the company repurchased 1% of the float in Q3 and at 1.8% yields more than (soon to-be-merged) Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).
- See also: Barron's: Five oils to be wary of (Dec. 20, 2014)
Dec. 17, 2014, 2:20 PM
- New York Gov. Cuomo's administration says it will ban fracking statewide, citing health concerns and what it considers as limited economic benefits to drilling.
- NY's acting health commissioner said at a cabinet meeting in Albany today that studies on fracking’s effects on water, air and soil are inconsistent, incomplete and raise too many “red flags” for the state to allow it; the state Department of Environmental Conservation will now issue a legally-binding recommendation prohibiting fracking.
- The state has had a de facto moratorium on fracking for more than six years, so nothing really changes with today's decision.
- Parts of New York sit atop the gas-rich Marcellus shale formation, whose top producers include CHK, RRC, RDS.A, RDS.B, TLM, APC, ATLS, COG, CVX, CNX, EQT, EOG, XOM, WPX, XCO, CRZO, SWN, AR.
Dec. 16, 2014, 7:21 PM
- "Low oil prices cure low oil prices,” meaning that low oil prices will take supply off line - primarily shale oil production in North America - and eventually prices will recover; if that maxim becomes reality, then it could be time pick up select energy stocks today at cheap prices, some analysts say.
- U.S. Global Investors' Brian Hicks, who believes oil is oversold, favors Devon Energy (NYSE:DVN) for its low-cost Eagle Ford acreage purchased earlier this year, solid cash flow, and significant hedges in place on 2015 production; he also likes oil services companies Noble Corp. (NYSE:NE) and Helmerich & Payne (NYSE:HP).
- Hodges Capital's Michael Breard likes North American oil producers that have the flexibility to shift to natural gas - where prices are more likely to hold up, he says - such as Matador Resources (NYSE:MTDR), Comstock Resources (NYSE:CRK) and Panhandle Oil and Gas (NYSE:PHX).
- Deutsche Bank analysts like companies with the balance sheet strength to survive, but also the budget flexibility, asset quality and performance record to suggest they can return to growth when energy prices go back up, including Anadarko (NYSE:APC), EOG Resources (NYSE:EOG), Cimarex (NYSE:XEC) and Concho Resources (NYSE:CXO).
Dec. 16, 2014, 5:22 PM
Dec. 11, 2014, 10:58 AM
- U.S. energy companies are wasting little time in starting to cut drilling, jobs and spending in the wake of declining oil prices, WSJ reports.
- In recent days, ConocoPhillips (NYSE:COP) said it would spend 20% less next year on drilling wells; EOG Resources (NYSE:EOG) said it would shed many of its Canadian oil and gas fields, close its Calgary office and lay off employees; and Matador Resources (NYSE:MTDR) said it may temporarily leave the Eagle Ford Shale area in Texas, where drilling recently fell to 190 rigs after hitting 210 rigs in July.
- Analysts say companies with a lot of debt, low rates of return and little chance of drilling their way to better profitability will be hurt if crude remains below $75/bbl; Global Hunter cites Triangle Petroleum (NYSEMKT:TPLM) as an example, although CEO Jon Samuels says the company is profitable at current oil prices.
- "A contraction is unavoidable,” says an economist for the Texas Alliance of Energy Producers.
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