Investors: Explanation Why EOG Shares Are Soaring -- Bakken, North Dakota, USA

"Soaring" is in the eye of the beholder. But looking at the 3-month chart, shares of EOG have moved from $88 on November 23, 2010, to $108, yesterday, February 18, 2011.

It all has to do with EOGs transition from a natural gas company to an oil company.

Here are some direct quotes from EOG and others:

Because we expect almost 70% of our 2011 and 73% of our 2012 North American wellhead revenues to emanate from liquids with current prices, we have shifted our reporting from natural gas unit measurements to crude oil unit measurements using the 6:1 conversion ratio. -- EOG earnings conference call, February 18, 2011. There were two points that were made in that one sentence.

2010: natural gas accounted for 70% of EOG's production; oil accounted for 20% of EOG's production. -- Zman

EOG's debt ratio is increasing from 27% to 30%. EOG had reported earlier they hoped to retire debt (go to zero percent) but in fact, their debt is increasing. Why? They are expediting their transition to oil, away from natural gas. Putting in those horizontal Bakken and Niobrara wells are expensive. EOG is putting "money where their mouth is."

Mark Papa: "I'd also like to interject a comment here regarding using production growth as a measurement parameter. At the current 22:1 crude oil natural gas price ratio, I believe that production growth yardstick had become somewhat meaningless. In today's world, the metrics of liquids production growth and product mix change will be the focus since cash flow, returns and earnings will follow liquids growth and that's how we defined EOG strategy over the past few years."

Zman: "Liquids are expected to be 69% of total production for 2011 vs 53% in 2010. The prior estimate was that they'd be 67% liquids on average this year, another oily step in the currently right direction. You won't find another large cap E&P making the transition from gas to liquids nearly this fast." 

And that, folks, is why the share price for EOG is soaring.  EOG's trailing P/E is 54; forward P/E is 19.