As the war between Russia and Ukraine rages on, killing, damaging and destroying homes, infrastructure and everything else in its path, the G7 countries continue to impose sanctions on Russia's economy in a bid to deter President Vladimir Putin from continuing the invasion.
On Monday, G7 leaders discussed a fifth round of restrictions on pro-Putin banks, businesses and oligarchs, and even the possibility of imposing an embargo on Russia's oil imports, prompting oil prices to make fresh gains later in the day. As of the time of writing on Tuesday, the price per barrel stood at $115.66 for Brent oil futures and $109.86 for West Texas Intermediate crude futures, both maturing in May 2022.
Since the start of the conflict, the price per barrel has risen by about 18.5% to 19.5%, a sign that it is putting strong upward pressure on the raw material. And since the conditions for an immediate end to the crisis do not appear to be in place, the likelihood that oil prices will continue to rise in the coming weeks is very high.
To benefit from the expected further increases in the price of oil, investors are also investing in U.S.-listed oil producers. Higher oil prices should reflect an increase in stock prices as these companies, having improved their balance sheets on positive momentum for the commodity, cause the market to value them more highly than before.
One such company is EOG Resources Inc. (EOG, Financial), a hydrocarbon producer and explorer headquartered in Houston with a combined annual production of about 830,000 barrels of oil equivalent per day.
By committing nearly $4 billion to exploration activities on net reserves of approximately 3.75 billion barrels of oil equivalent in New Mexico, Texas and the Republic of Trinidad and Tobago, EOG Resources has been able to reach its set production level in 2021, representing 10% growth year over year.
Coupled with higher fossil fuel prices, this allowed the miner to report an Ebitda margin of 50% on total revenue of $19.7 billion, comfortably beating the industry median of 28%.
Thanks to its tremendous ability to generate income, the company has managed to make its balance sheet even more resilient in anticipation of future energy development projects while continuing to provide cash to pay the dividend.
EOG Resources' balance sheet is one of the strongest in the oil and gas production and exploration industry, as evidenced by a debt-to-Ebitda ratio of 0.61, a measure of leverage, versus the industry median of 2.46.
Therefore, it shouldn't be a problem to combine the next quarterly dividend of 75 cents per common share, scheduled for April 29, with subsequent dividends or a possible payout increase.
Over the past year, EOG Resources increased its dividend per share by 14.2%, while the December 2021 S&P 500 dividend growth was just 3.63%. In addition to surging oil prices, it was a powerful catalyst for the stock, which rose 72.75% over the past year to $120.29 in early trading on Tuesday.
In response to strong fourth-quarter and full-year 2021 financial results, CEO Ezra Yacob said, “EOG has never been better positioned to deliver significant long-term shareholder value.” Assuming the commodity continues to sustain this upside potential, the company could be an interesting opportunity despite not being cheap.
The location of EOG's mineral resources also deserves attention. As the company exploits assets in non-OPEC territories, its production could become part of a strategic attempt to curb inflation. Perhaps the company could fund higher throughput if it could take advantage of favorable credit conditions and more barrels would, of course, help optimize profit margins from rising oil prices.
As of the time of writing, the stock has a market cap of $71.69 billion, a dividend yield of 1.63% (versus the S&P 500's yield of 1.34%) and a share price above the 200-day moving average of $89.37 and the 50-day moving average of $111.19.
The 14-day relative strength index of 58 indicates the stock is yet overbought despite the strong share price increase.
Wall Street issued a median recommendation rating of overweight and an average target price of $132.23 per share.
