EOG rated Top Pick by Morgan Stanley
Posted: Tue Feb 25, 2014 11:12 am
Evan Calio – Morgan Stanley
February 25, 2014
EOG posted a strong 4Q13, beating Consensus earnings for the 13th straight quarter, dimensioning a bigger Eagle Ford, raising its dividend, and reiterating its top-tier oil growth. We believe E&Ps will outperform as Street commodity views “thaw” and EOG is poised to lead. Raising PT to $220.
An even bigger Eagle Ford for EOG: The net recoverable reserve estimate was increased by 45% to 3.1 BBoe from 2.2 BBoe. On continued downspacing success (~40 acres), EOG increased its type curve estimates by 12.5% to 450 MBoe net, from 400 MBoe, and increased the remaining locations to 6,000. We estimate that a 12.5% increase to EF type curves and an additional 1,600 net locations (+1,100 remaining and ~470 drilled) increases our NAV estimate by 13% and 12%, respectively.
EOG’s 2014 program reiterates top-tier oil growth: EOG’s FY14 oil guidance of ~268-292 MBoe/d (~27% YoY) and FY14 total guidance of ~547-591 MBoe/d (11.5% YoY) were in-line with our expectations and the Street’s; however, budgeted capex of $8.1 - $8.3 Bn was higher than our estimate of $8Bn and Street’s $7.4Bn, reflecting higher midstream spending ($770-810MM vs. ~$400MM budget in 2013) on facilities construction. As management alluded to before, there will be a step up in Eagle Ford and Bakken activity, with Permian activity shifted more towards the Delaware Basin Leonard play.
Our US Equity Strategist upgraded Energy and added EOG on 2/24/14. MS Equity Strategist Adam Parker upgraded the Energy sector to EW from UW on relative valuation, where Energy is the cheapest sector in the market on forward earnings amid mounting belief that oil could stay relatively bid short-to-medium term; Parker added a 3% EOG position to his model portfolio. We believe that Energy remains a largely UW sector, while sentiment is bottoming and oil markets are much tighter than Consensus views in 2014. Although Majors are an easier way to increase energy weighting, we see better value in E&P with our top pick EOG.
February 25, 2014
EOG posted a strong 4Q13, beating Consensus earnings for the 13th straight quarter, dimensioning a bigger Eagle Ford, raising its dividend, and reiterating its top-tier oil growth. We believe E&Ps will outperform as Street commodity views “thaw” and EOG is poised to lead. Raising PT to $220.
An even bigger Eagle Ford for EOG: The net recoverable reserve estimate was increased by 45% to 3.1 BBoe from 2.2 BBoe. On continued downspacing success (~40 acres), EOG increased its type curve estimates by 12.5% to 450 MBoe net, from 400 MBoe, and increased the remaining locations to 6,000. We estimate that a 12.5% increase to EF type curves and an additional 1,600 net locations (+1,100 remaining and ~470 drilled) increases our NAV estimate by 13% and 12%, respectively.
EOG’s 2014 program reiterates top-tier oil growth: EOG’s FY14 oil guidance of ~268-292 MBoe/d (~27% YoY) and FY14 total guidance of ~547-591 MBoe/d (11.5% YoY) were in-line with our expectations and the Street’s; however, budgeted capex of $8.1 - $8.3 Bn was higher than our estimate of $8Bn and Street’s $7.4Bn, reflecting higher midstream spending ($770-810MM vs. ~$400MM budget in 2013) on facilities construction. As management alluded to before, there will be a step up in Eagle Ford and Bakken activity, with Permian activity shifted more towards the Delaware Basin Leonard play.
Our US Equity Strategist upgraded Energy and added EOG on 2/24/14. MS Equity Strategist Adam Parker upgraded the Energy sector to EW from UW on relative valuation, where Energy is the cheapest sector in the market on forward earnings amid mounting belief that oil could stay relatively bid short-to-medium term; Parker added a 3% EOG position to his model portfolio. We believe that Energy remains a largely UW sector, while sentiment is bottoming and oil markets are much tighter than Consensus views in 2014. Although Majors are an easier way to increase energy weighting, we see better value in E&P with our top pick EOG.