EOG Resources (EOG)
Rarefied Air: Successful Ascent of the Liquids Growth Mountain
Our take: Following exceptional Q2 results in which EOG dramatically grew
Eagle Ford (EF) volumes and raised its all-important oil production guidance by
3% at flat capex, management indicated that 2H12 growth would moderate as
they shift activity toward the West part of the EF, drill lower working interest wells,
and moderate completion activity. While meaningful YTD outperformance (+21%
vs. EPX Index), moderation in 2H12 oil growth, and limited visibility on 2013
growth plans until February will likely cause EOG to trade more in-line with its
peers near-term, EOG is one of the few companies that has successful climbed
the unconventional oil mountain, which warrants a premium valuation to its peers.
We raised our 12-month target price to $115 from $108 per share.
Q2 volumes benefit from a near-perfect storm in the EF. From March to June
2012, EOG grew its sequential volumes by 26 MBoe/d (77 to 103 MBoe/d),
which was significantly above our 11.4 MBoe/d estimate. The company cited a
near-perfect storm of prolific wells (16 wells with IP rates between 2,500 and
4,800 Bopd), high completion activity (100 wells in Q2 vs. our 85 well estimate),
and favorable mix shift toward high working interest wells for the blow-out results
in the EF.
Raising target price. We are tweaking our 2012/2013 EPS estimates from
$3.58/$6.35 to $4.27/$6.39 to reflect better than expected oil production and
price realizations in 2Q, partially offset by higher production costs and lower gas
volumes. We forecast EOG’s total daily production to reach 466 MBoe/d in 2012
vs 460.7 Mboe/d previously. Our model assumes an average oil and gas price in
2012/2013 of $90.56/bbl and $2.66/Mcf, respectively. We are raising our 12-
month target price to $115 from $108 per share given accretion to our NAV from
higher oil price realizations and improved capital efficiency in the EF. Our revised
target price assumes 5.7 times 2013 EBIDA.
Credit Suisse 06 August 2012
9 pages, 3 exhibits
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