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EOG Resources Inc Just Keeps Getting Better

Photo credit: Anadarko Petroleum Corporation

EOG Resources Inc (NYSE: EOG  ) might not be the cheapest oil stock in America, but it just might be America's besrun oil company. The company recently reported stellar 2013 results. It improved on every single financial and operational metric that matters. That's a trend that won't be ending anytime soon.

Still getting better
In commenting on the company's latest results on a conference call with analysts, CEO Bill Thomas summarized its current situation saying,

EOG has captured the best horizontal oil acreage in North America, and our high performance operational teams continued to execute superbly. Our wells are still getting better, unit costs continue to decrease and oil production continues to increase at peer leading growth rates.

It's really quite impressive to see the company continue to improve upon its already strong results. The company is not only growing, but it's growing better at everything that matters. For example, as the following slide shows, the company is improving both its return on equity, or ROE, as well as its return on capital employed.

Source: EOG Resources Investor Presentation (link opens a PDF)

However, what's just as impressive is to note how good those returns look when stacked up to its peer group. The company's returns rise well above those of peers like Hess (NYSE: HES  ) and Anadarko Petroleum (NYSE: APC  ) , for example, as the following chart shows.

Source EOG Resources Investor Presentation

EOG Resources is really crushing the returns of its competition. The reason for this is quite simply the fact that EOG Resources is leading the way in improving its operations, which is translating into higher returns.

Well-oiled machine
EOG Resources describes its drilling improvements in similar ways as to how manufacturing has evolved over the years. To that end, CEO Bill Thomas noted that, "In the Eagle Ford, we moved beyond an assembly line of operation to a high precision manufacturing mode of delivering top quality individual wells." This shift resulted in remarkable improvements to initial production rates and estimated ultimate recoveries, as well as returns.

That's not to say Anadarko Petroleum isn't focused on the same efficiencies in the Eagle Ford Shale. However, the simple fact of the matter is that Anadarko Petroleum, as well as the rest of EOG Resources' North American peers, can't yet match the company's focus on returns.

The same can be said about the Bakken Shale where, again, Thomas noted the company is leading the way. He said that: "In the Bakken, we created a technical renaissance not only for EOG, but also for the industry. We changed our completion techniques and improved the well productivity." So, while Hess might have first discovered oil in North Dakota in 1951, it's not the one leading the technical renaissance in the play today. By leading the way in improving each well it drills, EOG Resources is fueling better returns for its investors.

Investor takeaway
EOG Resources continues to impress. It's poised to become America's largest oil producer in just a few short years as its operational successes translate into increased production. That should continue to fuel solid long-term returns for its investors.

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Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

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8/28/2015 4:05 PM
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