EOG Resources Combines Natural Gas with North Dakota Oil

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Buy-recommended EOG Resources (NYSE:EOG) offers unlevered appreciation potential of 38% to estimated net present value [NPV] of $102 a share, revised up from $92 a share on May 29 when we raised long-term oil price to $66 a barrel from $60. Second quarter results reported on the night of August 2 disclosed rising unlevered cash flow (Ebitda) in line with increasing production volume.

Concentrated 79% on natural gas, NPV for the large cap producer is supported by comparison to our estimates for other stocks in our coverage. Chairman Mark Papa thinks that EOG’s most profitable near-term drilling prospects are now for oil in the Bakken Shale in North Dakota where the company may have scored an economic breakthrough applying the technology it refined as a leader in the Barnett Shale natural gas development in Texas.

Usually upbeat on the natural gas outlook, Mr. Papa acknowledges that better than expected natural gas supply has been holding natural gas price low. Nonetheless, we see that from a wide gap compared to oil, long-term natural gas price appears to be in an uptrend. EOG stock also has positive momentum as it trades above its 200-day average.

Originally published on August 3, 2007.

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