Summary
EOG resources reported decent Results. Q2 production was above guidance and will continue to grow. The balance sheet is sound and can absorb the Encino acquisition without major problems. Q2 profits were slightly below expectation due to low realized oil prices. Shareholder returns are decent/good.
In my 82-company oil and gas ranking, EOG sits in the top 25 at a good 20th position.
Encino acquisition
EOG is acquiring in Q3 2025 for $ 5.6 B Encino Acquisition Partner. Encino owns 675,000 acres with a production of 235 K BoE/d in the Utica in an area adjacent to EOG operations. The acquisition is to close in Q3. EOG reserves and production will increase with 18-20%.
Production
• EOG production has grown with 30.6% over the last six years from 813 K BoE/d (2019) to 1,062 K BoE/d (2024).
• EOG proven reserves (4,748 M BoE=12.5 years of 2025 production) and the high RRR (1.99) enable a continued growth of production.
• Q2 production (1,134 BoE/d) was above Q1 (1,090 K BoE/d) and above the top end of the Q2 outlook (1,096-1.133 K BoE/d). I had expected a Q2 production of 1,120 K BoE/d.
• After closing the Encino acquisition production will increase with 235 K BoE/d
• EOG Q3 outlook, including Encino, is 1,273-1,313 K BoE/d. I expect a Q3 production of 1,295 K BoE/d.
• EOG updated its 2025 outlook from 1,099-1,137 K BoE/d to 1,207-2,241 K BoE/d. I expect a 2025 production of 1,121 K BoE/d.
• After 2025 the production can grow to 1.628 K BoE/d in 2029 and to > 1,700 K BoE/d thereafter.
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Balance sheet
• EOG has a solid balance sheet
• The equity ratio (=equity/balance sheet total) changed from 63.3% (Q1) to a sound 63.2% (Q2).
• Long-term debt was almost flat with $ 3,464 M (Q1) and $ 3,458 M (Q2).
• The Q2 debt/EBITDA ratio on an annual basis is a healthy 0.3.
• Cash on hand at the end of Q2 was $ 5,216 B.
• EOG will pay the $ 5.6 B Encino acquisition in cash. The $ 5.6 B originates from $ 2.1 B cash at hand and from $ 3.5 B from new loans.
• After the closure of the acquisition the equity ratio should drop in Q3 to 54.6%, which is still at a well acceptable level. The long-term debt should increase to $ 7.7 B. The debt/EBITDA ratio will increase, but towards late 2025 can recover a healthy 0.5.
• The balance sheet is healthy and allows shareholder returns.
Profitability
• EOG is a very profitable company. The Encino acquisition will not change this.
• Q2 eps ($ 2.36) was lower than Q1 ($ 2.87) due to lower oil and gas prices.
• The Q2 eps ($ 2.36) was slightly below my expectation of $ 2.49 as realized USA oil prices ($ 64.84/bbl) were slightly below m expectation.
• Realized NGL and gas prices, and operational cost were in line with expectations.
• With WTI= $ 65/bbl I expect a 2025 eps of $ 10.16 (PE is a medium/high 10.9).
• After 2025 the eps can increase to $ 9.79 in 2029 (PE=11.8.8).
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Shareholder returns
• EOG increased after Q1 its quarterly dividend from $ 0.975 to $ 1.02.
• Assuming the dividend continues at this rate the annual dividend will be $ 4.04, equivalent to a shareholder return of 3.5%
• EOG bought back shares in Q1 for $ 778 M and in Q2 for $ 620 M.
• With less cash at hand and more loans to be repaid, I expect share buybacks in Q3/Q4 to reduce to approx. $ 300 M/quarter.
• Total 2025 returns can be a decent 7.0%.
• After 2025 shareholder returns can increase to a good 8-9%.
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EOG resources reported decent Results. Q2 production was above guidance and will continue to grow. The balance sheet is sound and can absorb the Encino acquisition without major problems. Q2 profits were slightly below expectation due to low realized oil prices. Shareholder returns are decent/good.
In my 82-company oil and gas ranking, EOG sits in the top 25 at a good 20th position.