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Gold/Mining/Energy : Enron Oil and Gas EOG -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (12)	2/8/2008 8:42:01 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 15

EOG Resources Inc. (EOG): Stock undervalued despite strong growth, returns, 4Q 2007 results - Goldman Sachs - February 08, 2008 News EOG reported 4Q 2007 adjusted EPS of $1.29 versus First Call consensus of $1.10 and our estimate of $1.17. Total production was 1.8 Bcfe/d, in line with our 1.8 Bcfe/d estimate. Operating cash flow was $872 million versus our $837 million estimate. 2007 drillbit finding and development costs were $13.65/BOE worldwide and $11.43/BOE in the US, versus $14.88/BOE and $15.33/BOE in 2006, respectively. Capital spending guidance for 2008 of $4.4 billion is in line with our estimate. Production growth guidance now calls for the midpoint of the company’s prior 13%-17% range, whereas our estimates, which are under review, assume the upper end due to our bullish natural gas view. Analysis EOG’s quarter beat expectations across the board, with the exception of rising costs. We believe strong production from the Barnett Shale and Bakken plays are poised to provide outsized production growth at attractive rates of return. EOG did not provide an update on key exploration-based plays in its release, but we expect a greater discussion on the company’s conference call and/or at its February 28 analyst meeting. Implications We believe EOG’s strong production growth per share and returns warrants a premium valuation. But at 5.7x 2008 EV/debt-adjusted cash flow, EOG trades at a slight discount to peers. We believe greater confidence in EOG’s exploration portfolio as well as more bullish natural gas prices will lead to further outperformance going forward. We see 28% upside to a $115 discounted cash flow based 12-month target price, with commodity price volatility, drilling results, cost pressures and government pronouncements key risks. For more details please see our February 4, 2008 report, “Greater growth, returns and gas leverage at below-average multiple.”