On Mar 21, 2016, we issued an updated research report on major independent oil and gas exploration and production (“E&P”) company, EOG Resources Inc. EOG.
EOG Resources’ results are particularly exposed to fluctuations in the U.S. natural gas markets since the commodity accounts for almost half of the company’s reserves.
Though EOG Resources has made some progress in expanding internationally, it is still largely a North American producer and hence, lacks substantial geographical diversification.
Infrastructure risks remain as EOG Resources generates production in the high-growth sections of the U.S. Moreover, like all E&P companies, EOG Resources’ results are vulnerable to historically volatile prices in world energy markets.
EOG Resources' financial and operational performances face a number of headwinds including changes in E&P spending patterns, commodity price fluctuations, geopolitical risks, regional spending trends, competition, the emergence of new technology and changes in economic conditions.
However, EOG Resources is one of the best independents in the E&P sector with an attractive growth profile, huge inventory of drilling opportunities, upper quartile returns and a disciplined management team. The company continues to demonstrate solid execution in its key growth assets, particularly the Eagle Ford and Bakken plays. The company’s large portfolio of high-return projects and strong technical competence are the main factors leading to its success over the long term. Notably, EOG Resources’ key skills include early identification of prospective areas through its engineering and technical expertise at low acreage prices. This helps to drive the company’s organic growth and delivering attractive returns on capital employed.
Moreover, EOG has reduced its capital expenditure budget for 2016 by 47% and now expects it in the $2.4–$2.6 billion range. Given the current volatility in oil prices, the company’s effort at maintaining spending discipline is noteworthy.
Stocks to Consider
Some stocks from the energy sector that warrant a look are SolarEdge Technologies, Inc. SEDG, Braskem S.A. BAK and Enviva Partners, LP EVA.
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