Energy Prospectus

down 3+%

Nothing is wrong with EOG, yesterday all of the upstream stocks moved lower on a dip in the price of oil.

Since EOG released Q4 results and fresh guidance on February 26, seven analysts have submitted new reports on the company to Reuters. Their valuations range from $100 to $132 per share with an average valuation of $116.

As a way to boost my returns, I typically buy options into the earnings call and sell before the call. EOG is usually one name you can count on to gain some momentum going into earnings. For this last earnings announcement, there was none. That was the case for most of the energy companies going into earnings. Even after solid reports, there was very little uplift for companies that beat earnings. Just no market interest.

In my opinion, the only way momentum will return is if M&A accelerates. If valuations are so attractive, prove it to me by discontinuing stock buybacks and using those funds to actively acquire other companies. I don't want a stock for stock exchange. Use the money to cash buy and send the signal to the market that the best use of funds is take advantage of these undervalued assets. With a stock buyback, they're just telling the market everything is still overvalued.

Not sure if you can say this, but M&A/consolidation would also have the benefit of controlling more land by fewer companies so that drilling plans could be adjusted to match supply/demand factors. Right now it's just a free-for-all.

There were some nice mergers last year:
> Concho + RSP Permian
> Diamondback + Energen

M&A always slows in Q1 because everyone is up to their gills in getting out year-end reports. The annual 10-K is a super big job.

Plus, year-end reserve reports that are reviewed by 3rd party engineering firms are also needed to begin the task of evaluating a potential target. My team at Hess did this stuff.

I think there is a good chance that M&A picks up this summer.