For the energy sector, it appears to be a perfect storm of confluent trends: abundant production from North American shale fields, OPEC’s inability to curtail production, and lesser demand from struggling economies are combining to push down the price of oil to its lowest level in five years.
And yet, in its panic, the investment herd seems to have forgotten that nothing in the foreseeable future will change the world’s addiction to fossil fuels. Houston-based EOG Resources Inc (EOG) is an oil and gas exploration and production (E&P) company that’s a particularly strong play now on the energy sector’s eventual revival.
To be sure, West Texas Intermediate crude oil has tumbled below $66 per barrel; Brent North Sea Crude has dropped to about $70.
That’s good news for holiday-traveling consumers and many energy-dependent industries, of course, but decidedly bad news for energy producers, especially smaller ones without the wherewithal to tough out the turmoil.
But no U.S.-based E&P outfit is in a better position to weather the inevitable ups-and-downs of the energy markets than EOG Resources.
By virtue of its holdings in North Dakota and Texas, EOG sits on some of the most coveted land for energy production on the planet. According to recent figures from the U.S. Energy Information Administration (EIA), five states and the Gulf of Mexico produce more than 80% of U.S. crude oil. EIA reports that total U.S. crude oil production grew 15% in 2013 to 7.4 million barrels per day.
Texas and North Dakota are in the vanguard of that growth, on the strength of prolific shale plays in the Eagle Ford in Texas and the Bakken in North Dakota. From 2010 to 2013, North Dakota’s crude oil output jumped 177% and Texas’s output 119%, the fastest in the country.
U.S. oil production has increased by about 80% over the past six years, from 5 million barrels per day in 2008 to 9 million per day this year.
EOG has methodically accumulated major acreage in the most productive areas of four major North American shale oil plays: the Eagle Ford, the Bakken shale, the Barnett Combo, and the Wolfcamp and Leonard shale plays in the Permian Basin.
According to EOG’s own figures, the company sits on a mammoth volume of reserves. The company’s estimated net proved crude oil, condensate and natural gas liquids reserves are approximately 745 million barrels and its estimated net proved natural gas reserves are 7.8 billion cubic feet. EOG has a total reserve of about 2 billion barrels of oil equivalent.
EOG is the largest U.S. horizontal crude oil producer by a 2-to-1 ratio and its Eagle Ford wells continue to produce above expectations, putting it in a far superior position for sustainable long-term growth than smaller competitors such as Carrizo Oil & Gas, Inc. (CRZO).
EOG also remains an enticing acquisition target for any “super oil” E&P seeking to significantly boost its footprint in the continental U.S., an outcome that would greatly boost EOG stock.
EOG Stock: Betting on the Future
EOG seems confident of the energy sector’s future prospects, especially in relation to shale oil. On Nov. 24, EOG submitted plans to the U.S. Bureau of Land Management (BLM) to drill up to 1,500 oil wells along the Campbell-Converse county line in northeast Wyoming. The acquisition is pending an environmental study by the BLM.
Meanwhile, EOG is thriving, despite the energy sector roller coaster. EOG reported third quarter 2014 earnings of $1.1 billion, or $2.01 in earnings per share (EPS), compared to earnings of $462.5 million, or EPS of 85 cents in the same period a year ago.
EOG management upped its full year 2014 crude oil production growth target to 31% from 29% and total production growth target to 16.5% from 14%, as well productivity in the Eagle Ford and Bakken continues to rise.
EOG Stock: Bottom Line
Investors who want a stake in the energy sector but remain skittish about the market’s gyrations would be hard-pressed to find a better bet than EOG stock. With a trailing 12-month price-to-earnings ratio (P/E) of only about 16, EOG is attractively priced in light of its impressive growth prospects and leading role in America’s energy revolution.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
