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On Feb 28, we reaffirmed our long-term Neutral recommendation on EOG Resources Inc. (EOG - Analyst Report) − a major independent oil and gas exploration and production (E&P) company. The reiteration was based on an attractive growth profile, solid execution in key growth assets, in particular the Eagle Ford and Bakken plays as well as growing emphasis on liquids-oriented production that were somewhat tempered by a weaker natural gas price.

Why the Reiteration?

EOG Resources reported solid fourth quarter and full-year 2012 financial results on Feb 13. The strength in adjusted results were attributed to a striking improvement at its high margin organic crude oil production. Quarterly adjusted earnings of $1.61 per share exceeded the Zacks Consensus Estimate by 17.5% and were 40% higher than the year-ago adjusted earnings level.

EOG Resources’ key growth assets continue to show strength. The company’s Eagle Ford resource potential increased by 600 million barrels of oil equivalent (MMBoe) to 2.2 billion barrels of oil equivalent (BBoe) based on continued production improvements and successful downspacing pilots. Owing to downspacing, EOG Resources has approximately 4,900 Eagle Ford drilling locations. This reflects enough drilling inventory for more than a decade.

Again, the company is busy expanding its liquid rich production level. Although it expects to cut North American gas volumes by 15%, total liquid production is likely to surge 23% in 2013. The primary driver will likely be production in Eagle Ford, Barnett and Permian.

EOG Resources expects its production from crude oil to grow 28% for 2013, reflecting the third successive year of significant double-digit increase in volumes. It is again supported by strong natural gas liquids growth of 23%. Although projected natural gas declines will impact overall production, the boost in higher margin products are expected to drive the underlying cash flow.

Although we view EOG Resources as a favorable pick, the risk-reward pay-off for the company is still uncertain in the near future due to its natural gas weighted production. Unless the outlook for natural gas prices improves, we expect the stock to perform in line with the market as well as the sector in the coming quarters.

Over the last 30 days for the first quarter of 2013, the Zacks Consensus Estimate has gone down by 13.8% from $1.30 to $1.12 per share. The Zacks Consensus Estimate for the first quarter reflects a year-over-year decrease of 3.9%. For full-year 2013, the Zacks Consensus Estimate is $5.88 per share, reflecting a year-over-year increase of 3.7%. Over the last 30 days, the Zacks Consensus Estimate for 2013 moved south by 5.8% from $6.24 per share.

Other Stocks to Consider

Currently, the shares of EOG Resources retain a Zacks Rank #3 (Hold).

However, there are certain other E&P companies like Range Resources Corporation (RRC - Analyst Report), and EPL Oil & Gas, Inc. and Linn Co, LLC (LNCO - Snapshot Report) that offer value and are worth buying now. The companies carry a Zacks Rank #1 (Strong Buy).

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