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EOG Resources, Inc. EOG recently flexed its muscle in the Bernstein Strategic Decisions Conference, where it highlighted its massive free cash flow generation abilities. It is planning to significantly increase dividends. The company also intends to reduce well costs by 5% in 2021, which will boost the bottom line.
From Premium to Double Premium
This year, the Houston, TX-based upstream company introduced double premium drilling capabilities, more attractive than premium drilling opportunities. Premium drilling created a low-cost structure for EOG Resources with 30% minimum return at WTI Crude price of $40 per barrel and Henry Hub natural gas at $2.50 per million British thermal unit. At same price points, double premium drilling opportunities improve the return rate in the range of 30-60%, thanks to higher production and lower declining rates.
Rising FCF to Boost Shareholder Value
This year, the company expects to generate $3.4 billion in free ash flow at WTI Crude price of $60 per barrel, signaling a significant jump from the 2020 level of $1.6 billion. The rising cash generating abilities will enable it to consistently increase shareholders’ value. It plans to increase regular dividend by 10% and pay a special dividend worth around $600 million. Due to higher cash returns, the company is eyeing to return $1.5 billion cash to shareholders in 2021.
Balance Sheet Improvement
Generation of more cash is expected to help it in further increasing balance sheet strength. Notably, the company’s cash balance of $3,388 million is more than sufficient to pay the current debt of only $39 million. It had a long-term debt of $5,094 million at first quarter-end. This represents a net debt to capitalization of 19.8%. Impressively, the company’s debt-to-capitalization ratio has consistently been lower than the industry over the past five years.
The company — which has significant acreages in oil shale plays like Permian, Bakken and Eagle Ford — intends to put an end to routine flaring by 2025. Moreover, by 2040, it plans to reach net-zero target from scope 1 and scope 2 emissions with the help of technologies and innovation.
Shares of the company have gained 40.8% in the past year compared with 67.7% rise of the industry it belongs to.
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Zacks Rank & Stocks to Consider
The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Earthstone Energy, Inc. ESTE, Braskem S.A. BAK and PHX Minerals Inc. PHX, each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earthstone’s sales for 2021 are expected to jump 87.7% year over year.
Braskem’s bottom line for 2021 is expected to rise 231.3% year over year.
PHX Minerals’ bottom line for 2021 is expected to surge 140% year over year.
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EOG Resources, Inc. (EOG) : Free Stock Analysis Report
Braskem S.A. (BAK) : Free Stock Analysis Report
Earthstone Energy, Inc. (ESTE) : Free Stock Analysis Report
PHX Minerals Inc. (PHX) : Free Stock Analysis Report
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