EOG earnings- another blow out quarter. This company has long had a premium valuation, yet it goes up and up. Every time I listen to a conference call I want to buy the stock, but then I look at the valuation and the price action and I feel like I'd be chasing. I'm considering finally buying some though.
They are the biggest unconventional oil producer in the USA, mainly on the back of their huge position in the oil window of the Eagleford play. They grew US oil production by 45% yoy for Q1, and increased full year oil growth guidance to 29%. They beat on earnings as well, and came in with $2.268b of cash flow from operations vs. $1.824b of cash used for investments (mostly drilling capex). It is remarkable that a company of this size can be growing at this speed while throwing off cash like they are. ROE and ROCE lead the peer group and increase every year. I've always had a problem with their very large enterprise value, now at over $57b. Their EV/EBITDA is on the high side, but at maybe 8x trailing or 6x current year, it isn't really that high.
What does the market not understand about this stock? Everyone knows that they are a premier operator. I think what the market may not understand is how good the economics can get in these plays. Every quarter we hear about cost reductions, increased drilling speed, downspacing (more wells per drilling unit), better completion techniques, higher EUR (estimated ultimate recovery) per well. Their Eagleford acreage, where most of their capex goes, will be fully held by production by the end of the year, and after that they will only be concentrated on economics in this massive play. Production in the Eagleford will grow for them for the next decade, while throwing off cash from this point on.
I'm slowly talking myself into buying some...
The other interesting thing was that they announced for the first time that they have 4 relatively smaller new plays in the DJ Basin and Powder River Basin (eastern Colorado and Wyoming). This region has long been the next big thing, but now companies are actually announcing high IRRs. Rather than huge contiguous plays it seems to be more separated into smaller sweet-spots. But the amount of capex going here has certainly been increasing, and Anadarko, Noble, Whiting, and now EOG are all touting 1st tier 100%+ IRRs. This region is likely to be the next big thing for unconventional oil, after Bakken, EOG, and Permian, but it's not yet clear that it has the potential to be anywhere near comparable in total size.
EOG also announced that they considered their Leonard Shale play to be a first tier play, competitive for capital with the other 1st tier areas and second only to Eagleford and Bakken. They are still running a very modest program in the Delaware-Permian basin.
Last thing- they say they'd consider going back to dry gas drilling if the price stayed above $5.50 for a while. They think the price should go up, but there is a lot of gas acreage out there and they are worried that other companies will overdrill again, so they have no plan to get back to drilling dry gas in the near future.
They are the biggest unconventional oil producer in the USA, mainly on the back of their huge position in the oil window of the Eagleford play. They grew US oil production by 45% yoy for Q1, and increased full year oil growth guidance to 29%. They beat on earnings as well, and came in with $2.268b of cash flow from operations vs. $1.824b of cash used for investments (mostly drilling capex). It is remarkable that a company of this size can be growing at this speed while throwing off cash like they are. ROE and ROCE lead the peer group and increase every year. I've always had a problem with their very large enterprise value, now at over $57b. Their EV/EBITDA is on the high side, but at maybe 8x trailing or 6x current year, it isn't really that high.
What does the market not understand about this stock? Everyone knows that they are a premier operator. I think what the market may not understand is how good the economics can get in these plays. Every quarter we hear about cost reductions, increased drilling speed, downspacing (more wells per drilling unit), better completion techniques, higher EUR (estimated ultimate recovery) per well. Their Eagleford acreage, where most of their capex goes, will be fully held by production by the end of the year, and after that they will only be concentrated on economics in this massive play. Production in the Eagleford will grow for them for the next decade, while throwing off cash from this point on.
I'm slowly talking myself into buying some...
The other interesting thing was that they announced for the first time that they have 4 relatively smaller new plays in the DJ Basin and Powder River Basin (eastern Colorado and Wyoming). This region has long been the next big thing, but now companies are actually announcing high IRRs. Rather than huge contiguous plays it seems to be more separated into smaller sweet-spots. But the amount of capex going here has certainly been increasing, and Anadarko, Noble, Whiting, and now EOG are all touting 1st tier 100%+ IRRs. This region is likely to be the next big thing for unconventional oil, after Bakken, EOG, and Permian, but it's not yet clear that it has the potential to be anywhere near comparable in total size.
EOG also announced that they considered their Leonard Shale play to be a first tier play, competitive for capital with the other 1st tier areas and second only to Eagleford and Bakken. They are still running a very modest program in the Delaware-Permian basin.
Last thing- they say they'd consider going back to dry gas drilling if the price stayed above $5.50 for a while. They think the price should go up, but there is a lot of gas acreage out there and they are worried that other companies will overdrill again, so they have no plan to get back to drilling dry gas in the near future.
No comments:
Post a Comment