A major player in the oil and gas industry, EOG Resources Inc. (NYSE: EOG) has seen its share prices declining over the course of the previous 5 months as declining crude oil prices are dampening investor confidence. However, the company has remained resilient despite unfavorable market conditions and has continued to generate impressive financial performances. There a number of factors driving the company's growth. The company's shares are currently trading near the $92 mark on the NYSE. Here are a few reasons why the company still has positive long term growth prospects going forward and how it could be a fruitful long term investment.
Low-Cost/High-Productivity Oil resources
EOG Resources Inc. has placed itself ideally for further growth as it owns some of the best crude oil assets in the US. EOG's Eagle Ford and Bakken shale formations as well as its Delaware basins are generating triple digit returns despite low crude oil prices. It is important to note that these are the lowest cost crude oil sources that EOG has on offer. It was mainly a result of these assets that EOG was able to generate a more than twofold year on year increase in net income as shown in its earnings report for the third quarter of 2014. 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 is involved in continuous improvement of its operations so it can operate at the most efficient level possible. It is because of EOG's desire for efficiency that costs will be driven even lower. This can be seen by the fact that even at the very least; EOG's oil wells are offering a 30% return.
Prowess in Exploration and Energy-Generation Potential
EOG's exploration program will surely be a key driving force behind the company's future growth. It is also expected to garner substantial investor confidence and push share prices upwards. The company's prowess in exploration has allowed it to gain access to the best oil fields and it has given share prices a push whenever it was needed. The company has recently discovered several new oil resources which have added a decade of high return drilling possibilities. The company has discovered over 700 locations rich in crude oil content which have the potential to generate a 45% return at the very least. Exploration will allow EOG Resources Inc. to discover new avenues of growth and provide high return drilling prospects even beyond the 10 year horizon. Moreover, the company's current holdings are also key drivers for future growth. EOG's assets are located on lands that are most suited to energy production in the US. EOG has holdings in Texas, North Dakota and the Gulf of Mexico, which are among the areas that contribute 80% towards crude oil production in the US and are also globally recognized for their energy production potential.
Potential for Lucrative Divestments
EOG Resources Inc. has massively productive assets under its belt which are generating triple figure returns. However, if we move towards EOG's relatively lower tier holdings such as those in the Midlands Basin, they have the potential to generate a 35% return even at lower oil prices. However, the company is not focusing on these areas as they have much higher return prospects such as the Delaware Basin as well as their Eagle Ford and Bakken shale formations which are generating incredible returns. However, it is important to note that on a standalone basis, returns of 35% are impressive that too in unfavorable economic conditions. EOG Resources can therefore sell off these resources and streamline its portfolio in order to make maximum gains from its highest return holdings. As a result of their high return, productive potential assets in the Midlands Basin can fetch a good price for EOG. This will allow EOG to generate additional cash which the company can use to repurchase shares or invest in the exploration of further high return oil sources thereby pushing share prices upwards.
EOG Resources Inc. has shown some of the most incredible growth that the oil and gas industry has seen in the last couple of years at least. The company has generated solid growth on the back of incredibly high cost efficiency which has also allowed the company to weather a falling oil-price storm. Investors have been cautious as of late and their confidence has faltered a bit but we can see clearly that EOG Resources' solid business model will allow them to sustain their growth and weather economic storms in the future as well. The company can generate positive synergies for investors as it has the fire power required to drive their share prices upwards. Investors stand to gain highly by buying into EOG Resources' stock.
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