Summer's all but over, the kids are back in school, and investment banks are back to conducting a new round of investor conferences. In New York, Barclay's hosted its CEO Energy-Power Conference. And in Calgary, Peters & Company, a Canadian investment banker dedicated to energy, is also parading a bevy of companies before investors.
EOG Resources (NYSE: EOG ) , the successful Houston-based independent producer, was represented at the events on Wednesday by a pair of Bills. Bill Thomas, the company's CEO gathered with other chief executives at Barclay's, while Lloyd W. "Bill" Helms, EOG's executive vice president of exploration and production headed north of the border.
Not surprisingly, each told a similarly solid story. You'd expect that when the shares of the company in question have risen by a whopping 48% during the past year. And that's not simply reflective of a rising tide that's lifted all boats. Shares of similarly sized Anadarko Petroleum (NYSE: APC ) have climbed by just over 30%, but those of Apache (NYSE: APA ) and Devon, another pair of independent producers, have each slid by about 4%.
While Anadarko conducts midstream and marketing operations, in addition to its upstream activities, EOG, as each of the Bills described in his presentation, is largely involved in finding and producing oil and gas in the three hottest liquids plays in the U.S.: the Eagle Ford of South Texas, the Bakken-Three Forks of North Dakota, and the Permian Basin of Texas and New Mexico.
Given what Bill Helms labeled as "experimentations on maximizing or improving our completion techniques" -- especially in the Eagle Ford -- the company has been able to achieve a compounded annual growth rate of 38% in its crude oil production during the past seven years. In addition, management is forecasting that EOG will continue to lead its peer group in that key metric between now and 2017.
Three prodigiously producing plays
Last month, on his company's post-release call, Thomas said, "EOG's Eagle Ford acreage continues to prove that it's the premier horizontal position in North America." That's not likely to change, insofar as the company has nearly 5,000 locations left to drill in the prolific play. Indeed, that number could easily move higher, as management continues to tweak its approaches to well spacing.
The same is true of the Bakken, where a combination of revised spacing and new completion technology has led to, as Helms noted, "dramatic improvements in recoveries and production rates. One recent report on activity in the play indicated that, of the top 10 producing Bakken horizontal oil wells, seven belong to EOG Resources.
In the Permian, Thomas and Helms both expressed a belief that the company has about 2,700 wells left to drill on its Delaware Basin acreage alone. The big play -- it involves nine New Mexico counties and 20 in Texas -- is also a major source of potash. It's had holes punched in it for decades, but it's lately been reinvigorated dramatically by advancing technology.
More to come?
It'd be unwise to assume that, once output in its three key plays begins to wane, EOG will similarly wither. Keep in mind that the operating approaches that have prodded production in all three plays are relatively new. It's therefore hardly a wild exaggeration for both Bills to have talked about as yet undiscovered "greenfield" oil or combo plays.
Beyond its operating numbers, there is a bevy of financial metrics that are indicative of EOG's strength. For instance, during just the first half of this year, a reduction in expenses was a major contributor to a lowering of its ratio of net debt to total capital from 29% to 26%. And while its return on equity was 11.8% in 2012, Goldman Sachs is predicting a hike to 16.2% for this year.
There are several companies that represent compelling ways to play the substantial growth in U.S. oil production. For instance, rapidly changing ConocoPhillips is active in the three plays discussed above and in several attractive international venues.
For my money, however, if required to select a single domestic producer that has charged to the head of the pack without faltering, I'd tip my bill to EOG Resources.
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