VALUATION HIGHLIGHTS

1. Crude Oil constitutes 76% of the Trefis price estimate for EOG Resources's stock.
2. Natural Gas Liquids constitute 11% of the Trefis price estimate for EOG Resources's stock.
3. Natural Gas constitute 11% of the Trefis price estimate for EOG Resources's stock.

WHAT HAS CHANGED?

EOG Saw Mixed Q3 Results

EOG reported quarterly revenue of $7.59 billion in q3, which exceeded estimates by $610 million and was up 59% from a year ago. Non-GAAP earnings per share were $3.71, slightly below expectations but still up significantly from $2.16 a year ago. The company's total crude oil production in Q3 of 465,100 Bopd was above the midpoint of the guidance range and inline compared with Q2 2022 production. The company accumulated 395k net acres and 135k mineral acres at a total cost of less than $500 million and expects to complete 20 proprietary wells by 2023, in addition to the 18 legacy wells already in operation.

Note: EOG's FY'21 ended on December 31, 2021. Q3 FY'22 refers to the quarter that ended on September 30, 2022.

Fourth quarter and full-year guidance

EOG expects crude Oil and condensate Volumes of 459.9-462.1 MBod, natural gas liquids volumes in the range of 197.5-200.5 MBbld, natural gas volumes in the range of 1,475- 1,515 MMcfd, and crude oil equivalent volumes of 903.3-915.1 MBoed.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are some key value drivers for EOG Resources that present opportunities for a significant upside or downside to the current Trefis price estimate for the company:

• Average Crude Oil Sales Price: EOG Resources' stock price is highly sensitive to crude oil prices as the company derives almost 80% of its total value, by our estimates, from the sale of crude oil. The company's average crude oil realization stood at $68.49 per barrel in 2021. We expect the oil prices to increase to around $100 in 2022 and then decline and remain stable within the $85-95 range going forward. However, if oil prices remain high for longer than what we currently expect, and increase to around $120 per barrel by the end of our forecast period, there could be a 20% upside to our current price estimate for EOG Resources.


• Average Daily Crude Oil Sales Volume: EOG Resources' average daily crude oil sales volume has grown from around 400 thousand barrels per day (MBD) in 2018 to 445 MBD in 2021. Almost all of this growth in the company's crude oil sales volume has come from its operations in the Eagle Ford and Bakken shale plays in the U.S. We currently forecast EOG Resources' Average Daily Net Crude Oil Sales Volume to grow to around 492 MBD by the end of our forecast period.
  However, if the company ramps up its crude oil production at the projected rate and it increases to around 520 MBD by the end of the Trefis forecast period, there could be a 20% upside to our current price estimate for EOG Resources.

For additional details, select a driver above or select a division from the interactive Trefis split for EOG Resources at the top of the page.

BUSINESS SUMMARY

EOG Resources is an independent oil and gas company that explores for, develops, produces, and markets crude oil and natural gas primarily in major producing basins in the U.S., Trinidad, Canada, and the U.K. Around 97% of the company's total net proved reserves are located in the U.S., while 3% of the remaining net proved reserves are located in Trinidad. The remaining proved reserves of the company are spread across other International markets, including the U.K., Canada, Argentina, and China.

The difference between EOG Resources' reported net revenue and the figures used in our model is primarily because we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.

SOURCES OF VALUE

Crude Oil exploration and production is by far the most valuable division for EOG Resources for the following reasons:

Huge proven reserves

Proven reserves are an extremely critical metric for an oil and gas exploration and production company. It represents the total quantity of technically and economically recoverable oil and gas reserves owned by the company at a given point in time. It directly impacts the company's production growth outlook.

EOG Resources' proven hydrocarbon reserves stood at 3.7 billion barrels of oil equivalent at the end of 2021. Just to give some perspective on these numbers, EOG Resources currently holds enough reserves to produce oil and gas for the next 12 years at 2021 production rates.

Leading position in the Delaware Basin

The Delaware Basin is a geologic depositional and structural basin in West Texas and southern New Mexico, famous for holding large oil fields and for a fossilized reef exposed at the surface. Delaware Basin contributes about 50% to EOG Resources' total crude oil production.

EOG Resources is the leading oil producer and acreage holder in the Delaware Basin. The Delaware Basin consists of approximately 4,800 feet of oil-rich stacked pay potential offering EOG multiple co-development opportunities throughout its 395,000 net acre position. In 2021, EOG Resources produced crude oil from the Delaware Basin at an average rate of 231,000 barrels per day, compared to just over 32,000 barrels per day that it produced in 2017.

KEY TRENDS

Improving volume-mix

EOG Resources' volume mix has been improving recently with the proportion of liquids (crude oil and natural gas liquids) in its total sales mix increasing. Liquids are priced higher than natural gas primarily due to higher energy density and ease of transport, among other factors. In 2021, EOG Resources sold liquids at an average price of over $34.35 per barrel, while the company realized a price of just $4.66 per BOE of natural gas on average. Therefore, despite lower finding, development, and lifting costs per BOE of natural gas, the production of liquids is still a far more lucrative source of revenue for upstream oil and gas companies in the U.S.

Improving well productivity

Over the last few years, EOG Resources' average well productivity has increased considerably on optimized spacing and efficiency improvements in fracking techniques. Higher well productivity leads to lower per-unit production costs, which results in thicker operating margins for upstream oil and gas companies. Going forward, we expect EOG Resources' well productivity to improve further by increasing the estimated ultimate recovery (EUR) per well due to technological advancements in fracking techniques.

Peak oil

It is estimated that a large part of the world's oil reserves has already been discovered. Recent statistics have indicated that global consumption has been outpacing reserve additions. Peak oil is a commonly used term to describe the point at which world oil output will reach a maximum and decline afterward.

However, many institutions, such as the International Energy Agency (IEA), believe that peak oil will not occur for another 25 years at the very least. Many governments across the world are promoting alternative energy measures to ensure that the supply and demand for energy will be met at all times to come.