EOG Resources Q2 Results - Solid as a Rock

[dan_s]

EOG beat my Q2 forecast and they are raising guidance.

HOUSTON, Aug. 4, 2016 /PRNewswire/ --
•Increases Net Premium Inventory to 4,300 Locations and Total Net Premium Resource Potential to 3.5 BnBoe •Premium Inventory Well-Level Rates of Return Exceed 30 Percent at $40 Crude Oil Price

•Beats All U.S. Production and Operating Cost Targets
•Raises 2016 U.S. Crude Oil Production Guidance
•Announces $425 Million in Proceeds from Asset Sales
•Provides Crude Oil Production Growth Outlook through 2020

EOG Resources, Inc. (EOG) today reported a second quarter 2016 net loss of $292.6 million, or $0.53 per share. This compares to second quarter 2015 net income of $5.3 million, or $0.01 per share.

Adjusted non-GAAP net loss for the second quarter 2016 was $209.7 million, or $0.38 per share, compared to adjusted non-GAAP net income of $153.1 million, or $0.28 per share, for the same prior year period. Adjusted non-GAAP net income (loss) is calculated by matching hedge realizations to settlement months and making certain other adjustments in order to exclude non-recurring items.

[dan_s]

In the second quarter 2016, EOG increased its inventory of net premium drilling locations from 3,200 to 4,300. Premium inventory is defined by a direct after-tax rate of return hurdle rate of at least 30 percent assuming $40 flat crude oil prices. Total premium net resource potential increased from 2.0 billion barrels of oil equivalent (BnBoe) to 3.5 BnBoe. These additions were the result of advances in completion technology, precision targeting, longer laterals and cost reductions.

[dan_s]

I have updated my forecast model for EOG and it will be posted to the EPG website late today.

I have increase my valuation of EOG by $6.00/share to $97.00. This compares to First Calls price target of $89.36. After analysts update their forecast models with all of the guidance EOG provided today, I am sure First Call's price target will go higher.

To say EOG is poised for a rebound in oil prices is an understatement. They have focused on improving well completions and high-grading their drilling locations. My valuation assumes 10% YOY production growth in 2017, but they can easily double that if commodity prices improve.

NONE of EOG's liquids are hedges and only a small amount of their gas is hedged. With a "Super Strong" balance sheet they do not need to hedge, so they will fully participate in a commodity price rebound. Obviously, if you believe oil & gas prices are heading down, then EOG is not for you.

CapEx for the 2nd half of 2016 s/b fully funded by cash flow from operations.

EOG's production mix: 35.5% natural gas, 50.0% crude oil and 14.5% NGLs < This company will get a big revenue boost from rising gas and NGL prices.