Cambrian Capitalist's  Instablog

During one of the greatest energy commodity bull markets ever (i.e. occurring basically from 2001-2008), in my opinion one company stood out by being absent from the high-profile deal making, complicated capital structure optimizing activities, and piling into that month's splashy acquisition into the most trendy play. That company was EOG Resources.

DVN and CHK have spent the last decade plus doing deals to get involved in plays, but have always had mediocre success when it came thru the drillbit. DVN recognized and quickly acquired a dominant position in the largest natual gas play in the country--the Barnett Shale. EOG quietly acquired acreage that extended the play and optimized drilling techniques that led to increased productivity and lower cost. Indeed, over the past decade EOG routinely scores the lowest finding, development, and operating costs among its large-cap peers.

Virtually all growth has occurred organically. Nearly all their assets are in North America--no political risk to deal with as you have with other independents who look offshore for growth. Almost all their assets are onshore--no hurricanes or multi-million dollar dry hole risk.

Finally, management has leveraged its horizontal shale-gas drilling techniques by applying them to emerging oil plays--most notably the Bakken in North Dakota. The senior management team is among the most professional and understated group out of any of the independents.

What's the catch? The stock typically trades at a premium to most of the other large-cap independents. In my opinion, its worth it! It is an easy to understand story, with a simple, lean capital structure and excellent history of under-promising and over-delivering. Most investors are finally waking up to the fact that this formerly natural gas pure play is morphing into a 50/50 North American oil/gas play. If you believe higher prices for energy commodities are ahead like I do, you should turn first to EOG as a place to put that speculative capital.