Energy Prospectus

EOG Resources Reports Excellent First Quarter 2021 Results; Declares $1.00 per Share Special Dividend

First Quarter 2021 Highlights

Declared special dividend of $1.00 per share and regular quarterly dividend of $0.4125 per share, an indicated annual total cash return to shareholders of $1.5 billion

Earned an adjusted $1.62 per share, second-highest quarterly EPS in EOG history < Compares to my Q1 EPS forecast of $1.03.

Generated $1.1 billion of free cash flow, a quarterly record

Capital expenditures 6% below guidance midpoint driven by sustainable efficiency improvements

Oil production above high-end of guidance range

Made significant progress toward 5% well cost reduction goal in 2021

Reached agreement to divest China assets

From William R. "Bill" Thomas, Chairman and Chief Executive Officer
"Our outstanding first quarter results and special dividend announcement reflect the power of EOG's returns-focused strategy. True to the EOG culture, our employees have embraced the higher hurdle rate with the shift to double-premium, which drove record returns in the first quarter. EOG continues to deliver sustainable improvements in operating performance, once again exceeding expectations.

"Our robust operating performance translates into financial results that allow us to deliver on our cash flow priorities. Earlier this year we raised the regular dividend and reduced debt outstanding. Our long-standing financial discipline now positions EOG to return additional cash to shareholders through a special dividend, bringing total expected return of cash to shareholders in 2021 to $1.5 billion.

"EOG is off to a great start in 2021 and I am confident that we will continue to get better going forward."

From my friend at Stifel. IMO Michael is a "Super Star" energy sector analyst, because his analysis is usually very close to my valuations.

EOG Resources Inc. (EOG, $76.98, Buy; Target $109.00)
- Special Dividend Boosts Yield, FCF Beats - Michael S. Scialla

We view the release as positive. The positives include: i) 1Q21 FCF was 27% above consensus as cash flow/capex were 7% above/3% below the Street; ii) a special dividend of $1/share boosts the 2021 dividend yield to 3.4% from 2.1%. The negatives include: i) 2Q21 capex/production guidance were 13% above/2% below consensus. We note that FY capex and 2Q21 oil guidance remained unchanged. Lower production guidance was attributable to a divestiture of Chinese natural gas assets. In summary, the special dividend should be well-received in stark contrast to the 4Q20 release, when investors expressed concern over the management's long-term growth ambitions (8%-10% annual production growth).

My updated forecast/valuation model for EOG will be posted to the EPG website this afternoon.

My valuation increases by $11.50 to $109.00, primarily to higher realized natural gas and NGL prices. ($5.12/mcf and $28.03/bbl in Q1) and because I have dropped 2020 results from my valuation formula. Looking ahead to 2022, EOG has a shot at $130 per share. None of their oil is hedged beyond Q3 2021.

FCF should top $4 Billion this year. Higher dividends are coming.