Energy Prospectus

EOG is the largest company in the Sweet 16. My pre-release valuation was $140/share. Q4 results beat my forecast and higher commodity prices will push my valuation higher. I will finish updating my forecast/valuation model this afternoon.

Fourth Quarter Highlights

Record quarterly adjusted net income of $1.8 billion, or $3.09 per share, and $2.0 billion of free cash flow < My forecast was net income of $1,686 million.

Capital expenditures in-line with guidance while oil production above guidance mid-point

Declared regular dividend of $0.75 per share and special dividend of $1.00 per share

Full Year 2021 Highlights

Record annual adjusted net income of $5.0 billion, or $8.61 per share

Generated record $5.5 billion of free cash flow

Reduced well costs 7%

Identified 700 new net double premium locations, replacing 170% of double premium wells drilled in 2021

Replaced more than two times 2021 production at $5.81 per Boe finding and development cost

Achieved significant improvements in methane emissions, water and safety performance

2022 Capital Plan

Capital plan of $4.3 to $4.7 billion returns oil production to pre-pandemic levels, maintains flat well costs, lowers per-unit cash costs and funds investments to further improve the business

Cash from operations before working capital funds capital plan at $32 WTI

From Ezra Yacob, Chief Executive Officer

"The outstanding fourth quarter results cap off a tremendous year for EOG – record earnings, record free cash flow, and return of cash that places EOG among the leaders in our industry and across the broader market. Reflecting these results, we are continuing to deliver on our long-standing free cash flow priorities with another $1.00 per share special dividend while further strengthening the balance sheet. Strong returns due to our premium investment standard and levered by our high-performance culture drove the results.

Double-premium, the latest increase to our investment standard that we formalized at the start of 2021, is just beginning to flow through to our bottom-line financial performance. The best is yet to come.

"The strong fourth quarter performance was also a hallmark of our consistent operational execution, as we once again delivered on our production and capital targets. Exploration efforts continued to move forward, as we progressed multiple domestic oil prospects that stand to further improve the quality of our large inventory of future drilling locations. We applied technology and innovation towards continuing improvements in our ESG performance during 2021, including methane emissions, water and safety. We are aiming to do even better this year.

"Looking to 2022, our disciplined capital plan reflects an oil market that is in position to rebalance during the year. It is focused on investments in high-return double premium wells along with exploration and infrastructure projects to further improve the business. Combined with our low cost structure and an improved commodity price environment, EOG is positioned to once again generate significant free cash flow. We remain firmly committed to our long-standing free cash flow and cash return priorities. EOG has never been better positioned to generate significant long-term shareholder value."

I have updated my forecast/valuation model for EOG based on the midpoint of their production guidance. Keep in mind that EOG regularly beats their guidance.
My valuation increases by $11 to $151/share.

EOG was trading at $116 at the time of this post.

EOG should generate operating cash flow in 2022 of $11.0 to $11.5 billion.
This compares to their CapEx budget of $4.3 to $4.7 billion, so I expect lots of debt repayment and rising dividends this year.

EOG should be a "Core Holding" for any fund manager that can invest in upstream oil companies.

My forecast model will be posted to the EPG website this afternoon.