EOG Resources Update from Truist Financial- Oct 5

[dan_s]

EOG Resources, Inc. (EOG)
Reiterating Estimates and $160 Price Target
By Neal Dingmann

South Utica Combo Becoming Premium Development Play
EOG continues to delineate its South Utica Combo play with solid results as judged by
acreage prices in the area. We believe the company has potentially delineated ~100,000
acres with leases in regions of the company’s Utica play now fetching $4000-$8000 per
acre versus just $50-$2000 a couple of years ago. EOG has fortunately leased a sizable
position potentially above and beyond the ~405,000 acres previously reported. We believe
incremental Utica production should provide a solid complement to the company’s other
premium oil plays in the Delaware Basin, South Texas, and Rocky Mountains.

Attractive Utica Oil Potential
EOG appears to continue to be active in its Utica Combo play, especially in the black oil/
volatile oil portions of its southern area. We believe oil in the play could be in the range of 42
API gravity, which should result in better prices than condensate that has largely been seen
in the play. EOG appears to be actively permitting in the play suggesting to us company
confidence in recent/future well results. We continue to wait to see how far west in the black
oil window productive wells will be reported as we believe much of EOG’s acreage east of
the trend line is better known. EOG appears to have the dominant position in the area where
a number of successful oily Utica wells have been drilled along with a number of privates.

Most Free Cash Flow in the Sweet 16
We forecast the latest incremental Utica oil production to add to EOG’s already strong FCF
that we forecast could reach north of $6B next year. We estimate the company continuing
to return ~60% of FCF annually to investors through dividends and buybacks, though the
payout will vary quarterly. We forecast a material increase in FCF next year even with an
assumed moderate commodity price increase (~$83/barrel through FY24) as we forecast
deflationary gains in equipment or materials costs to be realized when annual contracts are
relatively soon renewed and rolled into their 2024 program. EOG remains steadfast in its
disciplined planning, and we forecast the company to only have a moderate CAPEX increase
this year unlike many peers who are realizing material YOY capital spend increase. We
reiterate our $160 price target derived from two equally weighted methodologies with the
first being our ’24 EV/EBITDAX multiple of 5.5x (4.9x peer group average) applied to our
2024E EBITDAX estimate of $16,378MM ($13,399MM consensus) and the second being a
FCF/ EV Yield assumption of 10.0%.

[ChuckGeb]

Sweet!