EOG Resources: Another Finely Tuned Energy Machine

Last week, in a piece I penned for Fools about National Oilwell Varco's (NYSE: NOV  ) quarterly results, I noted that the oil-field services company extraordinaire was "hitting on all cylinders." It must have been an appropriate metaphor. On Wednesday, during the post-release conference call for independent producer EOG Resources (NYSE: EOG  ) , Executive Chairman Mark Papa twice employed the same description of his company's circumstances.

Of course, Papa clearly was correct. Adjusted for onetime items, the company earned $573.8 million, or $2.10 per share, up 81% the from $312.4 million, or $1.16 per share, for the second quarter of 2012. The per-share figure also topped analysts' consensus $1.76 expectation by nearly 20%. Revenue rose to $3.84 billion, compared with $3.53 billion a year earlier.

Constantly growing production
From a production perspective, the company's output of crude oil and condensate climbed by 35% year over year, while natural gas liquids volumes were up by 16.6%. However, production of natural gas declined by nearly 15% from the year-ago quarter. Given that EOG is far "oilier" than most other producers, the quarter also benefited from an 8.4% rise in crude oil and condensates prices, which averaged $103.19 per barrel.

In addition to its obvious growth, EOG Resources is more readily understandable than most other oil and gas companies. While the company conducts operations in such international locations as Trinidad and Argentina, easily its most noteworthy activities occur in the three hottest U.S. onshore shale oil plays: Texas's Eagle Ford, North Dakota's Bakken/Three Forks, and the Permian Basin of southwestern Texas and southeastern New Mexico.

Winning with an eagle
As William Thomas -- who became president and CEO of EOG at the start of the current quarter -- said on the call, "EOG's Eagle Ford acreage continues to prove that it's the premier horizontal oil position in North America." Given that contention, it's important to note that EOG Resources is also the most active operator in the Eagle Ford.

Thomas made it clear that EOG is working in two distinct parts of the unconventional play: western acreage, which has come on strongly of late, and the eastern portion, which has been EOG's most active venue for the past few years. In both locations, the company continues to increase its operating efficiency, thereby reducing its drilling time and related costs. Beyond that, Thomas's overview of the play is that "... our large number of high quality drilling locations in the Eagle Ford gives EOG a platform to have superior growth for many years to come."

Another pair of prolific plays
As in the Eagle Ford, EOG is achieving big increases in operating efficiencies in the Bakken, which are leading to significant hikes in production and promise. In the Bakken's core area, for instance, the company's average estimated ultimate recovery from wells drilled this year is fully 180% higher than from those that were drilled just two years ago.

The company will also be busy in the Permian basin for about as far as the eye can see. In describing the potential of three areas of EOG operations in the Permian, Thomas said, "(Our) positions are located in the sweet spot of two very strong horizontal shale plays. Using (a) conservative recovery factor, we have roughly 2,700 drilling locations with 1.3 billion barrels equivalent net reserve potential."

There's much to be said for independence
EOG is hardly the only independent producer to have stepped forward with strong quarters of late. While the major integrated companies like ExxonMobil (NYSE: XOM  ) and its peers generally posted disappointing results, Devon Energy (NYSE: DVN  ) , an independent operator slightly larger than half EOG's (market cap) size, topped analysts' earnings expectations by fully 27%.

Earlier, Devon's Oklahoma City neighbor Chesapeake Energy (NYSE: CHK  ) told us about a 44% increase in its oil production. (The company is still largely a gas play.) That growth was also largely a product of Chesapeake's successful program in the Eagle Ford, where it too holds a large acreage position.

As for EOG, however, Papa likely said it well when he concluded his prepared remarks on the call by stating that "EOG is firing on all cylinders: volumes, unit costs, prices realizations, returns, and net debt reduction."

Foolish bottom line
For my part, as a longtime observer of the oil and gas scene, I find it difficult to point to a more sensible way to participate in the burgeoning world of U.S. oil production than through shares of EOG. Given the company's major acreage positions in the nation's three hottest onshore oil-rich plays, along with its incessant attention to operating improvements, it seems quite unlikely that the steady and impressive growth pattern displayed by EOG Resources for some time now is apt to abate.

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