At times, oil exploration and production (E&P) companies tend to look overvalued if one were to make a conclusion simply based on financial statements. Comparing the balance sheet and the income statement of EOG Resources
Contrary to expectations
E&P companies have a history of performing contrary to expectations. Take Kodiak Oil & Gas
Compared to peers, EOG's gross margin -- at a little under 60% for the trailing-12-month period -- is worse off than Occidental Petroleum
Then why EOG?
The obvious question is: Why this independent E&P company? Well, it's pretty simple. The company's resource base is incredible. The company's first-quarter results should provide a clue to its future prospects. Despite being a mature company with a market cap of $26 billion, EOG managed to increase its crude oil and condensate production by a solid 49% year over year.
The company has an asset base that is right on the money. Its North American resources include the Bakken reserves, the Eagle Ford shale near San Antonio, and the Fort Worth basin-Barnett shale area. These resources helped EOG increase its North American liquids production from 37% to 49% of total production year over year. Now these are the kind of figures I'm looking for.
And what's more? Thanks to the increase in crude oil production from its Eagle Ford shale, EOG could drive up sales to the Gulf Coast, easily pricing it against the Louisiana Light Sweet benchmark, which follows the more expensive international Brent crude oil prices. That's where the advantage really lies. In fact, EOG has finished construction of an unloading facility for rail shipments in St. James, La., in order to have a better reach in the diverse markets.
Foolish bottom line
Fellow Fool David Lee Smith mentions EOG's international operations, which also hold huge promise. In simple terms, this is a company long-term investors can bank upon. That's why plucking out valuation ratios simply might not work here. EOG Resources is still developing its asset base, which, I believe, has huge potential to further increase the production rates. To help stay up to speed on the developments and analysis on EOG Resources, all you need to do is add the company to your free watchlist.
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Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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