How Will EOG Resources Handle the Nat-Gas Rebound?

On Tuesday, EOG Resources (NYSE: EOG  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

EOG has been one of the most impressive oil and gas production companies in the industry lately, as it has been able to navigate the turbulent energy markets while staying profitable. With natural-gas prices starting to recover, the company could see further tailwinds to its results. Let's take an early look at what's been happening with EOG Resources over the past quarter and what we're likely to see in its quarterly report.

Stats on EOG Resources

Analyst EPS Estimate

$1.17

Change From Year-Ago EPS

0%

Revenue Estimate

$3.04 billion

Change From Year-Ago Revenue

8.3%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will EOG Resources keep hitting earnings out of the park this quarter?
In recent months, analysts have gotten a bit less optimistic about EOG's earnings prospects, reducing their first-quarter estimates by about 10% and chopping $0.36 per share from their full year 2013 consensus figures. The stock has also been stuck in neutral, falling about 2% since late January.

EOG's success has largely hinged on its being in the right place at the right time. The company has exposure to some of the most lucrative unconventional plays in the nation, including the Eagle Ford in South Texas and the Bakken play in North Dakota. With its high-efficiency operations, EOG has managed its oil and nat-gas liquids mix high, with levels expected to approach 90% this year.

Moreover, EOG has made smart moves to enhance production. In the Eagle Ford, the company has increased well density, boosting overall production from the play. Meanwhile, EOG pioneered the use of railcars to get oil out of the Bakken in light of a lack of pipeline capacity serving the area, and Bakken rival Continental Resources (NYSE: CLR  ) now moves more than two-thirds of its Bakken production out of the region by rail. In addition, both EOG and Apache (NYSE: APA  ) have used rail transport to get Permian Basin oil to more lucrative Gulf Coast markets in Louisiana, where it can get higher Brent crude prices for the oil.

The big question is whether EOG will start to look more closely at boosting natural-gas production. Prices have started to rise, and some players have started looking at boosting gas-drilling activity in response. Chesapeake Energy (NYSE: CHK  ) and other major players have resisted the move, but if nat-gas prices rise even further, the temptation may be great to move back toward gas.

In EOG's quarterly report, pay attention to whether the company comments on more favorable conditions in the natural-gas market. For now, though, it seems much more likely that the company will continue focusing on the winning strategy it already as in place.

EOG has a lot of promise, but energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.

Click here to add EOG Resources to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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