EOG Resources (EOG, Financial) has been investing smartly in its business and has succeeded in reporting impressive financial performance in recent quarters. It has gained impressive momentum with three production components and is expecting higher returns in the future. It is now working on evaluating the unit cost, which was the only metric that was below EOG’s expectations. It is now focused on crude oil growth and has posted an upbeat outlook for crude oil production.
Strong production growth
EOG is confident about its outstanding performance as it expects crude oil growth to improve. IT is already enjoying handsome growth in the crude oil production. With a 27% growth in production in the recently reported quarter, EOG is now expecting its margins to improve on the back of this higher production. It is expecting its production to grow by 16.5% from 14% which is impressive.
EOG is seeing long-term opportunities with Eagle Ford. Eagle Ford has a 10-year growth plan that is well on track. To make better use of opportunities, EOG is making good enhancements in its completion. EOG is pleased to have acquired Eagle Ford as it stands alone as one of the best crude oil assets in the industry. Moreover, the company is well on track to making a modest increase in its net well count to 520 which will ensure increase in the production for at least 10 years and will help EOG to achieve the upward growth curve.
Focus on margins and drilling activity
But until then, EOG is focusing on improving its margins even in the soft crude oil market. Under this, it is now focusing on controlling the costs with its self-source sands and other completion materials. In addition, the company will try to reduce the drilling days in the upcoming quarters to reduce costs and improve its margins. Further, Wolfcamp is another growth accelerator for EOG. According to the recent testing in Northern Delaware Basin acreage, EOG is pleased to find that a majority of them are highly over pressured crude oil window. This is a great news for EOG; it confirms the chances of outperformance by the company in the future.
Seeing this opportunity, EOG is now planning to increase its Wolfcamp drilling activity. With this EOG is now expecting higher reinvestment returns, making it more competitive in the market. Under this, EOG is planning to accelerate its activities in the Delaware Basin. Ramp up in the drilling well is also expected in Wolfcamp second bone Spring Sand and Leonard.
Conclusion
Looking at the trailing P/E of 16.21, the stock looks cheap and worth a investment as its forward P/E of 42.00 shows strong growth in the earnings in the near term. However, in the next five years the earnings of the company are declining as its earnings are moving with a CAGR of just 3.70% as compared to 15.59% which is lower than the industry average. Thus, I would like to suggest that investors pick EOG Resources now but consider other stocks for long-term gains.
