On Thursday, EOG Resources (EOG +1.15%) will release its third quarter results. Last summer, the company posted spectacular results, raising its expected crude production growth rate from 28% to 35%. Those figures would be impressive from a small exploration and production name. But when you consider how large of an operation EOG is already, the numbers are absolutely incredible.
But with the stock up 50% over the past year, investors need to search for a new catalyst to send shares higher. Fortunately, EOG could deliver several this quarter.
EOG Resources by the numbers
| Metric | |
|---|---|
| Analyst EPS Estimate | $2.05 |
| Year-Over-Year EPS Change | 18% |
| Revenue Estimate | $3.75B |
| Year-Over-Year Revenue Change | 27% |
| Earnings Beat in Past Year | 4 |
Source: Yahoo! Finance
The third leg of EOG's growth story
EOG Resources has been one of the hottest plays in the oil industry by sitting on the ultimate duo of America shale plays: namely the North Dakota Bakken and the Texas Eagle Ford. These two formations have provided the company with a decade of drilling inventory as well as significant growth opportunities for the years ahead.
But the third leg of the EOG growth story could be the Texas Permian Basin. The company owns over 320,000 net acres in the region. And over the past year EOG has been slowly delineating its landholdings to determine the size and potential of the play.
But there's good reason to be excited about the Permian's potential. According to early estimates provided by Pioneer Natural Resources (PXD +0.00%), the Spraberry and Wolfcamp subsections could contain some 50 billion recoverable barrels of crude oil, making it the second largest oil field in the world. The company is so optimistic that that it sold off prime acreage in Alaska to fund its Permian exploration.
If these numbers are even remotely accurate, EOG could be sitting on a big asset. Investors should be watching the company's drilling results closely.
Two additional catalysts that could send shares higher
While big production growth steals all of the headlines, investors should also be watching to see how much of that top-line growth is converted into profits.
Across the Bakken and the Eagle Ford, costs are falling. Kodiak Oil & Gas (NYSE: KOG), a big player in North Dakota, has seen its average well completion costs fall almost 10% in the past year to $9.5 million. Last quarter, management at Continental Resources (CLR +0.00%) estimated that they could shave another 5% off well completion costs by year end. Much of these savings have been credited to the falling cost of hydraulic fracturing services, the transition to pad drilling, and other operational efficiencies.
EOG's management has promised similar results and expects to lower average well completion costs by $1 million to $6.2 million by year-end. That's a significant figure when you multiply those cost savings over the 700 net wells the company expects to drill in 2013. Those extra funds can be used to either reward shareholders with dividends and buybacks or be reinvested back into operations to grow production faster. Given the returns EOG is generating, I hope it's the latter.
This quarter we should also expect EOG to receive a boost from higher oil prices. Not just because of higher crude prices in general, but more specifically from the narrowing discount for Bakken and Eagle Ford output. EOG has also been savvy in its use of crude-by-rail, allowing it to bypass transit problems plaguing the rest of the industry.
Foolish bottom line
Given the recent run in the company's share price, expectations are set pretty high for EOG Resources this quarter. But management may have a couple of hidden catalysts left in the tank that could send shares even higher.
