Shale Oil Continues Pushing the Needle for This New Oil Major

Surging production and increased reserves are pushing EOG Resources ahead of the pack, which includes other oil exploration firms moving onshore like Anadarko Petroleum and Apache Corp.

Jul 2, 2014 at 10:37AM

After more than doubling in value in the last couple of years, EOG Resources Inc (NYSE:EOG) is now large enough to be counted as an oil major. The valuation has surged to over $60 billion, yet the company continues to produce substantial growth rates from oil production.

EOG Resources is now slightly larger than Anadarko Petroleum Corporation (NYSE:APC) and has long passed Apache Corp (NYSE:APA) due to industry-leading growth for its size from identifying and developing new shale plays, especially in oil-rich areas.

Massive oil growth
With WTI oil trading above $100, an energy production firm can't have too much oil growth. In the case of EOG Resources, the company saw oil production surge 42% over the prior year period, prompting the company to raise full-year oil production guidance to 29% growth. Total production growth was raised to 12% due to a slight decline in natural gas numbers, but the overall revenue will surge nearly 18% to reach roughly $17 billion according to analysts.

For a growth stock, the company produced impressive net income for the quarter of $767 million or $1.40 per share, an impressive increase from $490 million and $0.90 in the prior year period. EOG Resources had discretionary cash flow of $2.1 billion that exceeded the capital spending for the quarter of roughly $1.9 billion.

The production growth is led by the Eagle Ford where several new wells started production at more than 4,000 Bpd with additional amounts of natural gas liquids and natural gas. Additionally, the company introduced several new basins that will add significantly to growth in the future.

Impacted by international slowdowns
Anadarko Petroleum and Apache Corp are making their own strides in shale oil plays. Apache achieved 21% domestic liquids production growth primarily from growth in the Permian region. The region now produces 150,000 boe/d, but the company only obtains 48% of production from oil. In addition, the Central region helped contribute to growth providing for a combined 239,000 boe/d from the onshore plays. Unfortunately, the oil and gas revenues dropped from last year despite the domestic shale play gains due to international production declines.

Apache now obtains more oil production from the Permian than any operating region in the world that will help elevate the percentage of oil production. Furthermore, the company sold deepwater Gulf of Mexico assets for $1.4 billion in order to focus more on domestic shale plays and the deep shelf plays in water depths of less than 1,000 feet.

Similar to the other two exploration firms, Anadarko is growing domestic onshore liquids production with first-quarter volumes up 12% over last year. The numbers aren't moving the needle yet considering the majority of the revenue gains came from higher natural gas prices. In addition, the company has several large-scale Gulf of Mexico projects that will contribute to production gains including the Lucius and Heidelberg projects with first oil expected in 2014 and 2016, respectively.

Bottom line
Due to international and Gulf of Mexico operations by Anadarko Petroleum and Apache Corp, EOG Resources provides the best opportunity to invest in the domestic shale plays. While all three are seeing substantial gains in onshore domestic oil production, the gains are only moving the needle for EOG Resources. Not to mention, the company entered several new shale plays that will help grow production for several years into the future. The major concern for investors in EOG Resources at this point is that with the market cap now over $60 billion, there might be less opportunity for growth.

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Mark Holder has no position in any stocks mentioned. The Motley Fool owns shares of EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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