Investing: EOG

Yahoo!Finance: EOG.

4Q10, Earnings, February 18, 2011
3Q10, Earnings Report, Nov 4, 2010
2Q, 2010, Earning Report. August 5, 2010
1Q, 2010 Results, May 3, 2010
Annual report, 2009, Feb 25, 2010
Full year, 2009, Conference Call, Seeking Alpha, Feb 10, 2010
Full year, 2009, Earnings Report; Raises Dividend, Feb 9, 2010
3rd Quarter Earnings Conference Call Transcript
EOG looking at three (3) wells per pad.

News

March 7, 2011: EOG completes public share offering; raises $1.39 billion; priced at $105.50/share. 


February 18, 2011: The reason why EOG's share price is soaring. 


August 5, 2010: 2Q, 2010 earnings -- 24 cents income vs 7 cents loss one year ago. The consensus was for 25 cents. Again, the most interesting thing is that for a company with worldwide interests, the report starts out with comments on the Bakken where it has been most successful.  

"For the first time in EOG's history, during the second quarter total revenues generated from crude oil, condensate and natural gas liquids production exceeded those from natural gas," Mark Papa, EOG's Chief Executive Officer, said in a statement.

May 3, 2010: For a company operating nationwide (worldwide?), this is a most interesting way to start off their earnings call May 3, 2010, regarding operations: "Driven primarily by production growth from its North Dakota Bakken and Fort Worth Basin Barnett Combo crude oil operations, EOG reported a 25 percent increase in crude oil production compared to the first quarter 2009." Having said that, I was surprised that EOG missed estimates: one of the very few to have missed estimates.

Original Post

In my opinion, EOG has had the most success in the Bakken. I believe Burlington Resources produces more oil than EOG in North Dakota but EOG may be more profitable. EOG "owns" the Parshall oil field, currently what appears to be the most productive oil field in the Williston Basin.

Of all the oil exploration and production companies currently in the Bakken, this is probably the first company that Bakken "newbies" should consider.

EOG has 82 wells on the confidential list (December, 2009).

There is an interesting discussion going on about EOG. I may have this wrong; I heard it third- or fourth-hand. It has been suggested that EOG drills their wells but then waits until it suits them to do the fracture stimulation, sometimes waiting months. Most companies fracture their wells within days of completing their drilling.

If a company does not need the cash flow, it makes sense to hold off fracturing until the price of oil rises. If EOG has many wells they did not fracture when oil was priced at $60 and now is getting ready to fracture these wells when the trend has been toward $80 oil, it certainly makes for an interesting proposition.

My Analysis of EOG, November 14, 2009

Sources:

Yahoo!Finance: EOG, Key Statistics, Income Statements
Historical prices for natural gas.
Historical prices of crude oil.

I am having great difficulty deciding whether to buy EOG (2009/2010).

I don't follow the natural gas market as well as the crude oil market, so that puts me at a disadvantage when it comes to EOG whose fortunes may be as much on the price of natural gas as the price of oil.

I definitely think, that all things being equal, the price of natural gas will affect EOG's earnings the most.

Having said that, here are the US natural gas wellhead prices (EIA data):

Jun 10:  $4.25
Nov 09: $3.42 (winter is coming)
Aug 09: $3.14 (trend is down)
Jun 09: $3.45
Jan 09: $5.15
Aug 09: $3.14
Jan 09: $5.15
Aug 08: $8.32
Jun 08: $10.82
Jan 2008: $7.00
All of 2007: $5.50 - $7.00
All of 2006: around $6.00
All of 2005: around $6.00 (though a spike to $10.00 at end of calendar year)

Now look at the income on a yearly basis for EOG (calendar year ending Dec 31):

2006: $3.2 billion
2007: $4.2 billion
2008: $7.1 billion (corresponds with the $7.00 - $10.00 for natural gas (above)

Now look at the last few quarters for EOG (top line income)

Dec 08: $1.7 billion
Mar 09: $1.2 billion
Jun 09: $0.9 billion
Sep 09: $1.0 billion

Comment:

It looks like the calendar year income for EOG will end about $4.5 billion (same as 2007; well below 2008).  [Update: according to press release, EOG's calendar year income ended up at $4.79 billion -- so my estimate wasn't too far off the mark. Smile.]

It looks like EOG's quarterly income has stabilized, just as natural gas price has pretty much stabilized.

I follow oil more closely, and it appears that oil will either be in this trading range for quite some time ($72 - $80) with a greater downside risk than upside move. Thus, all things being equal, EOG's income should not move a whole lot in the next two quarters (unless there are spikes in natural gas price; even small moves in oil price might not make that much difference).

EOG's third quarter income did not change that much from the previous quarter despite a significant increase in the price of oil during the third quarter. And, it appears the price of oil in the fourth quarter (the current quarter) is not going to be a whole lot different than the third quarter -- perhaps up in "raw" dollars but not that much on a percentage basis.

I don't follow natural gas, so I don't know, but it's my understanding that natural gas wells don't last that long, and it almost seems supply/demand for natural gas affects the drilling program in real time, as opposed to oil, where a very good well will continue to generate income for a long time with minimal additional cost. Maybe someone can help me out on that.

With that assumption, that EOG can crank up / crank down their natural gas drilling program more quickly, then the income of EOG is affected by a) overall oil program (price of oil as well as production long term); and b) price of natural gas (production being less of an issue).

Let's say the price of oil holds steady. EOG has 79 wells on the confidential list in North Dakota ("the Bakken"). EOG currently has six rigs in North Dakota and says they will expand to 13 or 14 in 2010 and has said they will expand capital expenditures in North Dakota significantly in 2010. EOG has probably the best acreage in "the Bakken."

So, even if oil stays in current trading range or drops a bit, the oil production for EOG will be very significant.

The problem is natural gas. I didn't do the income comparison to price of crude oil above but unlike natural gas which plummeted at the end of 2008, natural gas has not yet turned around. Oil has returned back to the prices of 2006/2007 and has been in an upward trend. Natural gas, on the other hand is back at the 2003 prices and not all that far from the historical prices since 1980, and is still in a downward trend. Taking inflation into account, the price of natural gas has to be cheaper than it was 1980 - 2000.

So, I don't know.  All those confidential wells in "the Bakken," doubling the number of rigs in 2010, and with oil in its current trading range, it gets me interested in EOG. [Also, just after posting this long note, a story that EOG's estimate of ultimate recovery in the Texas Barnett Combo might increase by 80% was posted. In this story, EOG estimates that EUR is 280,000 boe. For comparison's sake, EOG estimated back in 2007 that they could ultimately recover 750,000 boe from each well drilled in the Parshall.]

But the natural gas component is worrisome. (It will trend upward during the winter, but this will be transient.)

If I see the price of natural gas trend upward, I would jump into EOG immediately, but right now, I'm not so sure.

Update: WSJ transcript -- price of NG exits 2009 at $4.75 and will be $5.50 for full year 2010.  Not exciting. BUT, and this is the "big" but: that WSJ article states we should see a decrease in marginal cost of production across the entire U.S. landscape.  My comment: so perhaps, one could argue that might be the same as seeing a $6.00 to $7.00 price for NG taking into account the decrease in production cost. December 7, 2009.

I reviewed this February 14, 2010: this is my recommendation -- if you are interested in buying EOG, buy a small amount periodically. I guess, I'm saying this: dollar-cost average. EOG is in the right industry, and long term prospects are very good for this company.  February 14, 2010.

My only mistake in the February 14, 2010, posting above was to say "a small amount periodically."  I should have said "buy all you can afford to lose." This stock has just popped from $88 when I first posted to over $107 and continued upside potential. Awesome price move. April 9, 2010.