EOG Resources: Perhaps A Good Time To Move On?

Mar. 06, 2018 11:28 AM ETEOG Resources, Inc. (EOG)38 Comments


  • EOG Resources reported better than expected Q4'17 earnings and revenues. Growth guidance came in low considering the price of oil above $60.
  • Capital expenditures for 2018 are expected to range from $5.4 billion to $5.8 billion, and it was not positive news for the market.
  • I finally sold out my position at $115, and I do not believe the stock presents a sufficient potential going forward unless the stock retraces under $90.

Image: EOG rig.

Investment Thesis:

EOG Resources (NYSE:EOG) is one of the best top-tier US Shale plays. It is similar in many ways to Occidental Petroleum (OXY) which is the leader in the Permian.

The company presents a rock-solid balance sheet with a tremendous growth potential which makes the stock an excellent long-term candidate, but only at a reasonable price.

However, due to a recent high-valuation and low dividend, it was time to sell (above $115) and wait for a meaningful stock retracement. I think a much higher dividend could eventually help the stock to turn attractive again, but so far the company is not acting forcefully in this domain.

While I think the valuation was too high a few days ago, EOG is still a robust company. The business model is healthy, safe, and very efficient. It is solely a timing issue at the moment.

What makes EOG a good business?

  • The company is primarily producing oil and gas from the USA or 91.5% of the total output for 4Q'17.
Production per Region in K Boe/d 4Q'17 3Q'17 2Q'17 1Q'17
United States of America 605.6 539.2 545.6 512.6
Trinidad 51.0 54.6 54.1 55.2
Other International 5.4 4.3 4.2 5.9
TOTAL 662.0 598.1 603.9 573.7
  • The company is constantly growing its reserves and its US premium asset locations. EOG added 18% in net proved reserves in 2017 to now 2,527 MMBoe and replaced 201% of EOG's 2017 production at a finding and development cost of $8.71 per Boe.
  • EOG is turning cash flow positive at $60+ per barrel and is resuming dividend growth by increasing dividend 10% starting next quarter to $0.74 annually or 0.7% yield. Unfortunately, it is far from adequate, and hopefully, EOG will reach a more decent dividend with a 3-4% yield minimum.

This article was written by

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As an experienced investor, I will help you stay on task more efficiently.

I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.

I live mostly in Sweden with my loving wife.

I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.

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Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading.

Disclosure: I/we 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.

Additional disclosure: I intend to re-start EOG only if it trades under $90.

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