EOG Resources: Buy This Energy Stock Now For 2013 Earnings

| About: EOG Resources, (EOG)
This article is now exclusive for PRO subscribers.

Current shareholders should hold EOG Resources (NYSE:EOG) as a long-term defensive position while interested investors may consider initiating a position before the upcoming earnings release. As 2012 US natural gas prices remain under pressure from oversupply driven by the shale boom and weak demand from mild winter weather, EOG has been successfully increasing liquid production. The main proponent driving the successful transition has been EOG's success in the Eagle Ford play throughout 2012. EOG is one of the most successful E&Ps on Eagle Ford. This play is projected to be the most abundant source for boe in the US for future decades. EOG should realize increases in earnings with strong production from Eagle Ford, increasing production on its worldwide assets and once commodity prices start to rebound.

Apache (NYSE:APA), Statoil (TSO), ConocoPhillips (NYSE:COP) and Chevron (NYSE:CVX) are the most comparable firms to EOG Resources. Chevron is one of the premier energy firms worldwide. Both EOG and Chevron currently trade for around $115 per share. Chevron has a project pipeline consisting of large-scale multi-year projects, a favorable balance sheet and enough capital for an acquisition in the near term. Apache and EOG Resources' market caps are slightly over $30 billion. Statoil, ConocoPhillips and EOG Resources are all major E&Ps currently leading Eagle Ford production. EOG's price is around 22 times earnings; this is more than double of each of the aforementioned firms. EOG's price is 2.7 times sales and 2.3 times its book value; these are also both higher than of these firms.

EOG Resources' EPS is around $5.12, it's increased 549% in 2012 and is projected to increase 17.4% in 2013. This projected growth is the highest among these firms. EOG Resources' 20.8% sales growth over the past 5 years is also the highest among these firms. Its ROE is around 10.8%, its operating margin is around 22% and its profit margin is around 12.1%. Its current ratio is around 1.1 and its debt-to-equity ratio is around 0.38 and its annualized dividend is currently $0.68 per share. EOG's beta is the closest to one while its average trading volume of around 1.8 million is the lowest among the firms. EOG stock is up 17.7% YTD but has decreased 0.4% in the past month. Its stock has increased 13.7% since its last earnings release.

On EOG Resources' latest earnings release, net operating revenues totaled $2.90 billion, increasing 13%, YOY. EOG allocates the majority of its capital expenditures to liquid production. It projects 2012 capital expenditures to range from $7.4 billion to $7.6 billion. EOG is also focused on divesting non-core assets to compensate for any short fall. In first half 2012 EOG divested $1.1 billion in assets. Its projection for the full year 2012 ranges from $1.2 to $1.25 billion. Second quarter wellhead revenues totaled $1.88 billion, increasing 9%, YOY. EOG increased its total growth production target to 9%, up from the initial projection of 7% in 2012.

EOG Resources also increased its total crude oil production target from 33% up to 37% for the year 2012. Second quarter wellhead crude oil revenue totaled $1.37 billion, increasing 47%, YOY. Well deliveries totaled $503 million, increasing 52%, YOY. In the first half 2012, liquid production accounted for 44% of second quarter total production, increasing from 33%, YOY. EOG believes its horizontal drilling techniques utilized in natural gas will be highly effective in uncovering unconventional crude oil and liquids-rich reservoirs. The increase in deliveries was primarily due to the success EOG has had in Eagle Ford.

In North America, liquid production accounted for 51% of total production, increasing from 39%, YOY. EOG completed its St. James unloading facility in the second quarter. Its capacity is around 100 mbbld, and it can accommodate multiple trains simultaneously. EOG now has access to the Gulf Coast market and the Cushing, Oklahoma market as well. EOG began shipping oil production from Eagle Ford and other plays during the second quarter 2012. Second quarter net income totaled $395.77 million, increasing from $295.57 million, YOY.

The Eagle Ford play is projected to support current drilling rates for another 40 to 300 months. The Eagle Ford play is expected to be an abundant source for boe production for a few more decades at a minimum. EOG Resources, Statoil and ConocoPhillips have been the primary benefactors due to the locations of their assets in the play and by effectively utilizing technologies to increase efficiencies and production rates. Statoil has a joint venture asset in the eastern section of the play and expects to be at full production in the near term. EOG's initial production of 4,000 barrels per day is the highest among the firms on the Eagle Ford play. Aggregate production on the Eagle Ford play is projected to increase 1.5 to 2 mmboe per day from its current rate of over 600 mboe per day.

The combination of the unrest in the Middle East and the bailout in the Eurozone has recently helped support higher oil prices. The OECD, EIA, OPEC and IEA all project oil demand to increase throughout 2012 and 2013. The consensus is oil consumption increases by a range of 0.8 to 1 million barrels per day, totaling an annual averages around 88.8 to over 90 millions of barrels per day, respectively. Demand is expected to be soft in the US, Japan, and Europe but strong in Brazil, the Middle East, and Russia. Growth in emerging markets is expected to support oil demand outpacing global output.

EOG's revenue growth is higher than the 1.2% average revenue growth for the E&P industry. EOG's EPS increased 33.6%, YOY primarily due to increasing revenues. EOG's net income growth was also higher than the S&P 500 as well as the Oil, Gas and Consumable Fuels industry. EOG's 35.42% net operating cash flow increase also exceeded the industry average of a 5.27% deficit, YOY. EOG stock has increased over 51% in the past year and outperformed the S&P. EOG's strong financials and improving oil production throughout 2012 justify the significant capital appreciation thus far. The potential for increased gains in the near term is certainly feasible.

Disclosure: I 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.