EOG Resources (EOG) Update - June 7

EOG Resources (EOG) Update - June 7

Postby dan_s » Mon Jun 07, 2021 10:56 am

Zacks Equity Research
Mon, June 7, 2021, 8:59 AM

EOG Resources, Inc. EOG recently flexed its muscle in the Bernstein Strategic Decisions Conference, where it highlighted its massive free cash flow generation abilities. It is planning to significantly increase dividends. The company also intends to reduce well costs by 5% in 2021, which will boost the bottom line.

From Premium to Double Premium
This year, the Houston, TX-based upstream company introduced "double premium drilling capabilities", more attractive than premium drilling opportunities. Premium drilling created a low-cost structure for EOG Resources with 30% minimum return at WTI Crude price of $40 per barrel and Henry Hub natural gas at $2.50 per million British thermal unit. At same price points, double premium drilling opportunities improve the return rate in the range of 30-60%, thanks to higher production and lower declining rates.

Rising FCF to Boost Shareholder Value
This year, the company expects to generate $3.4 billion in free cash flow at WTI Crude price of $60 per barrel, signaling a significant jump from the 2020 level of $1.6 billion. The rising cash generating abilities will enable it to consistently increase shareholders’ value. It plans to increase regular dividend by 10% and pay a special dividend worth around $600 million. Due to higher cash returns, the company is eyeing to return $1.5 billion cash to shareholders in 2021.

Balance Sheet Improvement
Generation of more cash is expected to help it in further increasing balance sheet strength. Notably, the company’s cash balance of $3,388 million is more than sufficient to pay the current debt of only $39 million. It had a long-term debt of $5,094 million at first quarter-end. This represents a net debt to capitalization of 19.8%. Impressively, the company’s debt-to-capitalization ratio has consistently been lower than the industry over the past five years.
Dan Steffens
Energy Prospectus Group
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