In 2013, EOG Resources (NYSE: EOG) became the largest onshore oil producer in the Lower 48.
Much of that success can be attributed to the Eagle Ford, where EOG is also the largest oil producer and acreage holder. It has 520 net wells in the shale, twice as many as all of its other U.S. plays combined.
Of late, though, some have started pulling on Superman’s cape.
“In recent weeks, we have received numerous (questions) on EOG’s July/August public data listed on the Railroad Commission (RRC) of Texas’ website,” said David Tameron, senior analyst, Wells Fargo Securities, in an Oct. 27 report.
EOG reported that its second-quarter 2014 oil production rose 46% year over year. But its July and August public gross production results have shown significant declines.
EOG’s gross production was 225 thousand barrels of oil equivalent per day (Mboe/d) in July and fell to 194 Mboe/d in August.
Compared with the second quarter of 2014, EOG gross production in August has plummeted 23%.
Eventually, the Eagle Ford’s rate of acceleration will begin to slow. “But we still think we have time before we have to really worry about basin-wide plateauing production levels,” Tameron said.
The company has repeatedly said that a higher percentage of pad drilling would lead to uneven production growth, according to Tameron.
Management has cautioned against reading too much into monthly and quarterly production data, he said.
“EOG’s most recent comments were made on Sept. 18, so it seems likely that management would have been more inclined to hedge its language if long-term production prospects were truly changing.”
Tameron said some have asserted that the RRC’s data is accurate only up to June as the agency attempts to keep up with completion filings.
In the past five years, EOG has grown entirely through internally generated projects, rather than acquisitions. The company’s cost structure has been much lower than others as a result, producing industry leading returns.
“Given the potential of its promising portfolio, we view EOG as a compelling investment,” Tameron said.
Bob Brackett, senior analyst, Bernstein Research, said EOG risks are relatively minor and involve either a miss for the third quarter or questions of sustained long-term growth tied to inventory.
“We believe a combination of EOG inventory and EOG ingenuity is sufficient to outweigh these risks, especially given current valuation,” he said.
Brackett said it is widely expected among buy-side investors that EOG will miss the mark in the third quarter.
“We forecast total production of 584 Mboe/d for the third quarter, which is the midpoint of EOG's guidance,” he said. “Consensus is 592 Mboe/d ̶ the high end of guidance range.”
Even if the company misses its earnings, it will still be the first “port of call” for investors.
“We forecast that EOG will meet its third quarter guidance, but be below consensus, which we feel is too high,” he said. “We forecast EPS of $1.20/share for EOG third-quarter earnings. This is 13% below consensus but, we believe, in line with the guidance that EOG provided in early August.”
Recommended Reading
Segrist: The LNG Pause and a Big, Dumb Question
2024-04-25 - In trying to understand the White House’s decision to pause LNG export permits and wondering if it’s just a red herring, one big, dumb question must be asked.
Texas LNG Export Plant Signs Additional Offtake Deal With EQT
2024-04-23 - Glenfarne Group LLC's proposed Texas LNG export plant in Brownsville has signed an additional tolling agreement with EQT Corp. to provide natural gas liquefaction services of an additional 1.5 mtpa over 20 years.
US Refiners to Face Tighter Heavy Spreads this Summer TPH
2024-04-22 - Tudor, Pickering, Holt and Co. (TPH) expects fairly tight heavy crude discounts in the U.S. this summer and beyond owing to lower imports of Canadian, Mexican and Venezuelan crudes.
What's Affecting Oil Prices This Week? (April 22, 2024)
2024-04-22 - Stratas Advisors predict that despite geopolitical tensions, the oil supply will not be disrupted, even with the U.S. House of Representatives inserting sanctions on Iran’s oil exports.
Association: Monthly Texas Upstream Jobs Show Most Growth in Decade
2024-04-22 - Since the COVID-19 pandemic, the oil and gas industry has added 39,500 upstream jobs in Texas, with take home pay averaging $124,000 in 2023.