Energy Prospectus

EOG Resources, Inc. (EOG) reported a first quarter 2015 net loss of $169.7 million, or $0.31 per share. This compares to first quarter 2014 net income of $660.9 million, or $1.21 per share. Adjusted non-GAAP net income for the first quarter 2015 was $16.8 million, or $0.03 per share, compared to the same prior year period adjusted non-GAAP net income of $767.7 million, or $1.40 per share. < Compares to my forecast of $0.07 EPS for Q1.

•Remains on Track to Achieve 40 Percent Year-over-Year Capital Expenditure Decrease
•Directs 85 Percent of Capital to High-Return Eagle Ford, Delaware Basin and Bakken Plays
•Reduces Well Costs Below 2015 Plan Levels
•Improves Well Productivity through Integrated Completions Technology
•Generates Better-than-Expected Well Results and Exceeds First Quarter 2015 Production Guidance
•Positions Itself to Resume Strong Growth as Prices Improve

2015 Capital Plan Update

EOG's capital spending plan remains on schedule to achieve a 40 percent year-over-year decrease in 2015. As previously stated, the company has no interest in accelerating oil production at the bottom of the commodity cycle. EOG's primary goal for 2015 is to position the company to resume strong oil growth when oil prices improve. Therefore, the company chose to defer a significant number of well completions. By deferring completions until prices improve, EOG increases capital returns and builds an inventory of uncompleted wells to prepare for strong growth in a better price environment. If prices continue to improve, EOG will begin to increase well completions in the third quarter. This will produce a "U" shaped production profile in 2015. Second and third quarter production will be the low point for the year. Fourth quarter growth will build momentum heading into 2016. If oil prices recover and stabilize at the $65 level, EOG is prepared to resume strong double-digit oil growth in 2016 with balanced capital spending and discretionary cash flow.

"EOG is on track to deliver a disciplined 2015 capital program that is focused on achieving strong returns on capital invested. We continue to adjust to the lower oil price environment by reducing well costs and operating expenses and by making significant well productivity improvements through technology advancements," said William R. "Bill" Thomas, Chairman and Chief Executive Officer. "EOG is focused on creating long-term shareholder value through disciplined, high-return investments. We are resetting the bar to be successful in a lower commodity price environment."

Stifel confirms their BUY rating on EOG with a price target of $110/share.

Morgan Stanley likes EOG's focus on lowering well costs and so do I. - Dan

MS: "EOG results were in-line yet costs and efficiencies impress. We believe higher efficiencies carry the most potential value into the next up-cycle.
Costs and efficiencies beating expectations. CWCs for Eagle Ford, Delaware (Second Bone Spring), and the Bakken are already trending lower than initial 2015 targets. Current Eagle Ford CWC of $5.5MM is 10% lower than the 2014 average and 4% lower than EOG’s initial 2015 target of $5.7MM. Consequently, EOG cut the target another 4% to $5.3MM. Efficiencies in the Eagle Ford also improved with spud-to-TD times down 17% to 7.4 days from the 8.9 day average in 2014. The Eagle Ford's 4.3 day reported spud-to-TD record and historical parallel drawn with Barnett Combo improvements (in earnings call slides), clearly imply additional scope for efficiency improvement. In our view, presence of realizable efficiencies in more mature plays like the Eagle Ford bodes well for potential of EOG's other (especially younger) plays. In the Bakken, current CWCs of $8.0MM are down 14% vs. the 2014 average and 2% below EOG’s initial 2015 target level of $8.2MM. EOG lowered its Bakken CWC target by 8% to $7.4MM. While there was no Bakken update on efficiencies, we expect that may have been due to seasonality and could see further improvement below 10.4 Spud-to-TD 4Q14 average in 2015. In the Second Bone Springs, EOG reduced their CWC to $6MM, which is 22% lower than the 2014 average and 8% bellow EOG's initial target level of $6.5MM, driving a new target of $5.7MM. In our view, improved efficiencies will translate to better profitability in an up-cycle while service costs deflation will revert at a moderate pace as activity ultimately resumes."

An updated forecast model for EOG will be on the website this afternoon. I have increased my Fair Value Estimate $2.90/share to $114.00/share.

EOG is rock solid and doing all the right things. This year they are focused on reducing costs, living within cash flow from operations, and maintaining production. When oil prices move back to the trend line, which I am expecting by year-end, EOG will be positioned for aggressive growth.

EOG is one of the "Elite Eight" in the Sweet 16.