EOG Resources, Inc. ( EOG Quick Quote EOG - Free Report) is well poised to grow on the back of significant U.S. shale presence.
Headquartered in Houston, TX, EOG Resources is primarily involved in exploring and producing oil and natural gas. It has a market capitalization of $49 billion. The leading upstream energy player’s operations are spread across the United States, China and Trinidad. In the next five years, the company’s profit levels are expected to rise 9.4%.
Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
What’s Driving the Stock?
The upstream energy player has an attractive growth profile, huge inventory of drilling opportunities, upper quartile returns and a disciplined management team. The company has significant acreages in oil shale plays like Permian, Bakken and Eagle Ford. Most importantly, EOG Resources is among the leading players in the Bakken play and the largest in the Eagle Ford. The upstream player’s extensive reach to these key shale resources will likely support long-term production growth.
In the promising shale plays, EOG Resources has identified 9,500 undrilled premium wells that could provide access to 9.2 billion barrels of oil equivalent estimated potential reserves. In the Eagle Ford alone, the company identified 2,300 undrilled premium locations with significant oil equivalent barrels of estimated potential reserves.
EOG Resources has been focusing on consistently returning cash to its shareholders. Since 2017, the company has managed to increase annual dividend by 72%. It is targeting dividend yield growth of 2% from the current level of 1.6%. Moreover, the company is committed to strengthen the balance sheet and lower its debt burden by $3 billion in the 2018-2021 period to retain its dividend and financial strength. Additionally, the company’s agreement to sell natural gas for roughly 15 years to Cheniere Energy, starting early 2020, has secured significant future cash flows.
There are a few factors that are impeding the growth of the stock lately.
EOG Resources produces more than 93% of its crude equivalent volumes from the United States, with insignificant exposure to Trinidad and other international resources. With the business scenario in U.S. plays being very competitive, the company is losing the opportunity to capitalize on profitable international exploration and production operations.
Rising lease and well operating expenses are hurting its bottom line. Notably, from 2016 to 2018, EOG Resources’ lease and well operating costs had increased nearly 40%. Moreover, in the first nine months of 2019, the company’s lease and well expenses had increased more than 10%, and gathering and processing costs were up 8.3%.
Importantly, although the phase-one Sino-U.S. trade agreement has solved a few issues of the United States, there are still many areas, including energy, that need attention. This raises concerns that the tariff war may again escalate and hurt commodity prices, in turn affecting EOG Resources’ profits. Also, the company’s operations in China can be affected by escalating tensions between the two governments.
To Sum Up
Despite significant prospects as mentioned above, higher lease and well expenses are a concern. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Some better-ranked stocks in the energy sector include CNX Resources Corporation (
CNX Quick Quote CNX - Free Report) , Antero Midstream ( AM Quick Quote AM - Free Report) and Frank's International N.V. ( FI Quick Quote FI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
CNX Resources’ earnings for the current year have witnessed four upward revisions in the past 60 days versus no movement in the opposite direction.
Antero Midstream’s fourth-quarter 2019 earnings growth is expected to be 130%.
Frank's International’s bottom line for 2019 is expected to rise 23.8% year over year.
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