What Will 2019 Look Like For EOG Resources?

by Trefis Team
+32.05%
Upside
87.59
Market
116
Trefis
EOG
EOG Resources
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Houston-based E&P company EOG Resources’ (NYSE:EOG) fortunes are looking increasingly favorable as we head further into  2019. The oil driller significantly reduced its cost of drilling after oil prices fell from their 2014 highs. Recent data points to EOG’s finding and development costs coming in at $8.90 currently, down from $12.45 in 2016. Additionally, depreciation costs are down 40% over the last four years.

Furthermore, the company has projected that it has 13 years of premium inventory at the current drilling rate.  Currently EOG Resources produces 970 MBoE of premium inventory. Premium inventory is defined as inventory where the company achieves break-even above a price of $45 per barrel.

We currently have a price estimate of $116 per share for EOG Resources, which is higher than its market price. View our interactive dashboard – EOG in 2019 – and modify the key drivers to visualize the impact on its valuation.

With EOG Resources able to achieve positive cash flow with the price of oil being above $55 a barrel, and with the company’s debt not too high (the current ratio of the company is at 1.25) we believe that EOG could use the excess cash to improve its portfolio, pay a dividend, or buy back stock. All of which would be positive for its stockholders.

 

Key facts:

  • The Eagle Ford well costs are expected to fall this year from $4.5 million to $4.3 million, similarly at its other big operation, the Wolfcamp basin, costs are expected to fall from $7.5 million to $7.3 million.
  • We expect the average realized price for oil in 2019 to be around $61 a barrel, in 2018 the company achieved an average realized price of $59 per barrel.
  • The company was producing 765,000 BP/d of oil at the end of 2018, and we expect that the company will expand its production by anywhere from 10-15% for the year.
  • The company currently produces 23,000 McF/d of natural gas. We believe it can add an additional 5% to capacity in 2019.
  • The company achieved a return-on-capital-employed of 15% in 2018, which was best among its peers. We expect that ROCE could come in at 16-17% in 2018.

Overall, the company is well placed to see an upside to its revenue, margins, and therefore stock in 2019, as it improves its production efficiency, and increases output.

Do not agree with our forecast? Create your own price forecast for EOG Resources by changing the base inputs (blue dots) on our interactive dashboard.

 

 

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