Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Low Oil Prices Are No Match for This Top-Tier Oil Stock

By Matthew DiLallo - Nov 8, 2019 at 9:07AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

EOG Resources’ third-quarter results provided more proof that it can thrive at lower oil prices.

EOG Resources ( EOG 1.84% ) has uncovered an extensive supply of low-cost oil in recent years, which is giving it the fuel to grow production and cash flow at lower crude prices. That was evident once again during the third quarter as the energy company produced more oil than expected while also generating more free cash. Meanwhile, it added even more fuel to its growth tank by discovering additional sources of low-cost oil. Consequently, the company appears well positioned to keep prospering even if oil and gas prices remain weak.

Drilling down into EOG Resources' third-quarter results

Metric

Q3 2019

Guidance or Expectations

Oil production

464,100 BPD

453,500 to 463,900 BPD

Adjusted earnings per share

$1.13

$1.15

Data source: EOG Resources. BPD = barrels per day.

EOG's oil production came in above the top end of its guidance range, soaring 12% year over year. Fueling its high-end result was excellent well performance across its portfolio. One driver of that outperformance is that the company's wells are becoming increasingly more productive, with those completed this year producing 15% more oil over their first 90 days compared to those it finished last year. That's the result of its relentless efforts to improve.

The company also did an excellent job of continuing to drive down costs. EOG noted that its per-unit transportation costs had fallen 9% over the past year while lease and well expenses are down 3% versus the year-ago period. That enabled the company to generate $2 billion in cash flow during the quarter even though oil and gas prices remain weak. That was more than enough money to fund its capital expenses ($1.5 billion) and dividend ($166 million), enabling it to generate $337 million in free cash flow during the quarter. That boosted its cash position to $1.6 billion against $5.2 billion in debt. The company currently plans to use some of that cash to repay the $1 billion of debt that's scheduled to mature next year.

EOG also made more progress on the exploration front by expanding its premium drilling inventory through the addition of two new plays in the Delaware Basin. The Wolfcamp M formation holds an estimated 1 billion barrels of oil equivalent resources that the company believes it can tap via 855 high-return drilling locations. In the meantime, the Third Bone Spring formation holds an estimated 585 million barrels of oil equivalent that it can unlock by drilling 615 high-returning wells. These new additions have more than replaced the 640 wells the company drilled this year. As a result, it now has 10,500 total remaining locations, which is enough to last it the next 14 years at its current pace.

An oil well with a brilliant sky in the background.

Image source: Getty Images.

A look at what's ahead for EOG Resources

CEO Bill Thomas commented on his company's progress by saying:

EOG's operating performance has never been better. The company generated outstanding financial results in the third quarter driven by improvements in every area. We reduced operating expenses, grew volumes at double‐digit rates while lowering well costs, and generated substantial free cash flow. EOG has never been in a better position to sustain this success long into the future.

That's evident in its outlook. EOG's strong showing during the third quarter enabled it to increase its full-year oil growth target from 14% to 15% above 2018's level. Equally impressive, the company expects to deliver that faster growth rate even though it now anticipates that capital spending will be near the low end of its $6.1 billion-$6.5 billion range.

The company also provided a brief glimpse at 2020, noting that it expects to deliver similar production growth, assuming oil remains in the mid-$50s. That would also enable it to continue to generate lots of free cash, which it still intends to use to repay debt and increase its dividend.

An oil stock for the long haul

EOG Resources is one of the best oil drillers in the U.S., which was evident by its success during the third quarter. With a vast inventory of high-return drilling locations remaining, a top-tier balance sheet, and a business that's gushing cash, EOG has the potential to generate high-octane returns for investors even if oil prices keep bouncing around. That ability to thrive no matter the market conditions makes it an ideal oil stock to consider holding for the long term.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

EOG Resources, Inc. Stock Quote
EOG Resources, Inc.
EOG
$87.57 (1.84%) $1.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.