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EOG's Eagle Ford Focus Paying Off

Zacks Equity Research

Major independent oil and gas exploration and production company, EOG Resources Inc.’s (EOG) focus on the Texas Eagle Ford shale formation is now paying off. Per the preliminary data released by the Texas Railroad Commission, daily output in Mar 2013 from the nine geographic fields that make up the majority of Eagle Ford yielded 529,874 barrels of crude. This is an uplift of more than 77% year over year. The fields produced 298,266 barrels daily in Mar 2012. Apart from EOG, other major leaseholders in the Eagle Ford shale formation benefitting similarly include Chesapeake Energy Corp.(CHK), Apache Corp.(APA) and BP plc (BP).

One of the largest U.S. independent oil and gas exploration and production companies, EOG is proactive in its liquid ventures. These efforts will be further aided by its deep focus on major oil and liquids rich plays, while holding its core natural gas and Combo acreage in the Barnett, Leonard and Wolfcamp plays for the long term.

EOG Resources’ key growth assets continue to show strength. The company’s Eagle Ford resource potential increased by 600 million barrels of oil equivalent (MMBoe) to 2.2 billion barrels of oil equivalent (BBoe) based on continued production improvements and successful downspacing pilots. Owing to downspacing, EOG Resources has approximately 4,900 Eagle Ford drilling locations. This reflects enough drilling inventory for more than a decade.

Again, the company is busy expanding its liquids production level. Although it expects to cut North American gas volumes by 15%, total liquid production is likely to surge 23% in 2013. The primary driver will likely be production in Eagle Ford, Barnett and Permian.

EOG Resources expects production from crude oil to grow 28% for 2013, reflecting the third successive year of significant double-digit increase in volumes. Natural gas liquids is also expected to see strong growth of 23%. Although projected natural gas declines will impact overall production, the boost in higher margin products are expected to drive the underlying cash flow.

Though we view EOG as a favorable long-term story, the risk-reward pay-off for the company is still uncertain due to its natural gas weighted production and reserves base as well as cost overruns. EOG's large portfolio of high-return projects and strong technical competence are the key long-term drivers.

The company retains a Zacks Rank #3, which is equivalent to a Hold rating for the period of one to three months.

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