EOG Resources Update - Sept 17
Posted: Mon Sep 17, 2018 2:09 pm
EOG is the largest company in the Sweet 16, by a wide margin. It has a market-cap over $68 Billion.
I know most of you like to invest in the small-caps because you believe they have more upside. However, small-caps do have more risk.
EOG may actually be one of the "best buys" in the Sweet 16.
1. For a company of its size, it has very strong production growth locked in. 18% YOY production growth is locked in for 2018 and at least that much growth locked in for 2019. They publicly say they expect 15% to 25% production growth per year through 2020.
2. They have a fantastic marketing team and they are getting some of the highest realized commodity prices.
EOG's actual realized prices in Q2 (net of cash settlements on hedges) were $66.04/bbl for crude oil, $27.86/bbl for NGLs and $2.69/mcf for natural gas.
3. They hold the best leasehold in the Eagle Ford and they are selling all of their Eagle Ford oil at a premium to WTI.
4. They may have the best leasehold in the Powder River Basin, the newest "Big Thing".
5. If WTI stays at $65/bbl forever, EOG will generate over $2 Billion of FREE CASH FLOW PER YEAR. Based on my forecast, EOG's Cash Flow From Operations will exceed $9.2 Billion in 2019, which compares to their 2018 CapEx budget of $5.8 Billion.
6. ~33% of their 2018 crude oil production is hedged at $60.04/bbl.
Since August 1st, eight analysts have submitted updated forecast/valuation models to Reuters. Their valuations range from $122 to $160, with an average valuation of $140. My valuation is $154.
Right now, EOG is trading for $117.26.
I know most of you like to invest in the small-caps because you believe they have more upside. However, small-caps do have more risk.
EOG may actually be one of the "best buys" in the Sweet 16.
1. For a company of its size, it has very strong production growth locked in. 18% YOY production growth is locked in for 2018 and at least that much growth locked in for 2019. They publicly say they expect 15% to 25% production growth per year through 2020.
2. They have a fantastic marketing team and they are getting some of the highest realized commodity prices.
EOG's actual realized prices in Q2 (net of cash settlements on hedges) were $66.04/bbl for crude oil, $27.86/bbl for NGLs and $2.69/mcf for natural gas.
3. They hold the best leasehold in the Eagle Ford and they are selling all of their Eagle Ford oil at a premium to WTI.
4. They may have the best leasehold in the Powder River Basin, the newest "Big Thing".
5. If WTI stays at $65/bbl forever, EOG will generate over $2 Billion of FREE CASH FLOW PER YEAR. Based on my forecast, EOG's Cash Flow From Operations will exceed $9.2 Billion in 2019, which compares to their 2018 CapEx budget of $5.8 Billion.
6. ~33% of their 2018 crude oil production is hedged at $60.04/bbl.
Since August 1st, eight analysts have submitted updated forecast/valuation models to Reuters. Their valuations range from $122 to $160, with an average valuation of $140. My valuation is $154.
Right now, EOG is trading for $117.26.