Enron Oil and Gas EOG Message Board

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Gold/Mining/Energy : Enron Oil and Gas EOG

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To: Dennis Roth who wrote (11)	2/5/2008 8:42:41 AM
From: Dennis Roth	Read Replies (1) of 15

EOG Resources Inc. (EOG): Greater growth, returns and gas leverage at below-average multiple - Goldman Sachs - February 05, 2008 What's changed Further analysis of fundamentals and catalysts for EOG suggests the Street is excessively hair-cutting the company’s exploration spending and growth potential, both of which are expected to be addressed at the company’s February 28 analyst meeting. Implications We see three factors that will lead to outperformance: (1) a revaluation by the Street of EOG’s exploration program; (2) improved outlook regarding the non-core Barnett Shale and Bakken plays; and (3) higher natural gas prices. EOG shares in our view have not recovered from being a favorite short for much of 2007 when the Street was bearish on gas prices. We expect the analyst meeting to be a positive catalyst for the stock. Valuation EOG trades at 5.6x 2008E EV/debt-adjusted cash flow versus 6.1x for large-cap E&P peers. Post the 2004 discovery of the Barnett Shale extension play, EOG traded at a premium valuation, especially as natural gas price expectations rose. We believe EOG can recover its premium multiple relative to other E&Ps as there is greater confidence in the sustainability of the company’s growth and returns along with higher natural gas prices. We see 29% upside to our $115, 12-month discounted cash flow-based target price. We continue to rate the stock Buy relative to an Attractive coverage view. Key risks Commodity price volatility, drilling results, cost pressures and government pronouncements are key risks. Impact on related securities The XTO Energy analyst meeting on February 26 and the Quicksilver Resources analyst meeting on March 5 should also focus attention on the Barnett Shale.

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