EOG Resources: What To Expect From Next Week's Q4 Report

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EOG Resources (NYSE:EOG) is mostly regarded arsenic 1 of nan astir technically innovative and businesslike shale producers successful nan business. With Q3 mean regular accumulation of 919,200 boe/d, it's besides 1 of nan largest. With a breakeven price beneath $40/bbl WTI, and astatine nan comparatively precocious existent value of oil, EOG was capable to move that accumulation into $2.3 cardinal of free rate travel successful Q3 and salary retired a $1.50/share typical dividend. Today I'll return a look astatine what to expect from EOG erstwhile it releases its Q4 and full-year 2022 study earlier nan marketplace opens adjacent Friday. I'll besides look astatine what to expect from lipid and state prices and nan dividend going forward.

Consensus Estimates

The schematic beneath shows existent consensus EPS estimates for EOG per Yahoo Finance:

EOG Consensus Estimates

Yahoo Finance

Of statement is that 90 days ago nan statement EPS estimate for Q4 was $3.89 and it has fallen steadily to nan coming time. Much of that is simply owed to nan truth that nan value of WTI declined from complete $90/bbl astatine nan commencement of Q4 (early October) to adjacent retired nan twelvemonth and nan 4th astir $80/bbl:

WTI Price


Note: Red note by nan author.

In addition, statement that net reports connected Tuesday from shale producing adjacent Devon Energy (DVN), and again Wednesday from Marathon Oil (MRO), were comparatively disappointing arsenic Winter Storm Elliot was blamed for curbing production. Devon had previously warned that terrible wintertime upwind would trim Q4 output by ~2%, but besides said Q1 volumes would beryllium "temporarily impacted by infrastructure outages successful nan Delaware Basin, timing of wells placed online and ethane rejection" and level vs Q4.

In nan lawsuit of MRO, nan large wind was blamed for ~5K nett bpd of lipid accumulation diminution - chiefly successful nan Bakken shale.

Combined pinch nan weekly EIA Petroleum Report released Wednesday greeting that showed commercialized crude lipid inventories grew by a whopping 16.3 cardinal bbls week-over-week and refineries ran astatine a debased capacity utilization complaint of only 86.5% owed to important attraction related shut-downs, and news of a Congressionally mandated merchandise of an further 26 cardinal bbls from nan Strategic Petroleum Reserve ("SPR"), and nan banal of each 3 companies traded down Wednesday - pinch Devon really taking it connected nan chin owed to its anemic guardant guidance:

ChartData by YCharts

Perhaps a bigger interest for EOG going guardant is nan clang successful nan value of home earthy gas:

Natural Gas Price


As I advised investors successful my caller Seeking Alpha article connected APA Corp (APA), Natural Gas Is Down, But Not Out. As pointed retired successful that piece, I expect nan value of home earthy state to enactment debased until caller LNG capacity comes online successful 2024 and beyond. So, this will apt beryllium a reliable twelvemonth for EOG connected yoy nat state realization comparisons (ignoring immoderate hedging impacts). Note that successful Q3, EOG's dry-gas volumes equated to ~245,000 boe/d, aliases ~27% of full production. Likewise, NGLs prices (like propane) person besides cratered, and those volumes were different ~23% of EOG's production. The constituent is, successful Q3, only ~50% of EOG's accumulation was oil.

With each that bad basal news, statement that EOG banal is still up 3.3% year-to-date, refinery attraction won't past everlastingly and is successful mentation for what should beryllium different large driving season, and nan SPR releases will apt upwind down aft nan latest announced merchandise owed to aggravated governmental criticism. Plus, nan Biden administration's SPR refill argumentation (at aliases beneath $67-$72/bbl) will put a level nether nan value of WTI going forward. Note that nan mid-range of that "refill price" is much than 2x EOG's breakeven price.

The Dividend

EOG is successful a awesome position to reward shareholders pinch fantabulous dividend income because astatine nan extremity of Q3 it had net-debt of a positive $188 million. And, arsenic mentioned earlier, EOG's breakeven value is truthful low, that it will people rate for shareholders successful Q4 and for this twelvemonth arsenic well.

Indeed, arsenic shown successful nan Q3 presentation, and dissimilar adjacent ConocoPhillips (COP) which has decided to greatly over-emphasizing stock buybacks complete nan dividend, EOG has been richly rewarding shareholders pinch fantabulous dividends straight into their pockets:

EOG's 2022 Dividends

EOG Resources

As tin beryllium seen successful nan graphic, EOG's full dividend payments (base+special) for 2022 were $8.80/share, aliases 67% of FCF. Given nan existent banal value of $128.53, that equates to a TTM output of 6.85%. As I person antecedently cautioned my Seeking Alpha followers galore times, astir financial websites - including Seeking Alpha and Yahoo Finance - are having problem reporting shale producers' yields fixed their adaptable dividend policies. Indeed, some those sites person EOG's output astatine 2.57% (i.e. they neglect nan variable/special dividends and see only nan existent guidelines dividend of $3.30/share).

Summary and Conclusions

Given EOG's shareholder friends guidance team, its debased breakeven constituent (the institution has 6,000 "double premium" drilling locations that present successful IRR of 30% astatine WTI=$40/bbl and $2.50/Mcf nat gas), and nan no-debt profile, I expect EOG to state different typical dividend successful nan vicinity of nan past 1 - aliases ~$1.50/share.

However, going guardant - and successful information of nan plunge successful earthy state and NGLs pricing - I fishy EOG will person problem repeating nan $8.80/share successful dividends paid retired past year. That being nan case, nan existent 9.2x guardant P/E seems to beryllium a adjacent worth successful my opinion. I opportunity that because COP is trading pinch a guardant P/E = 9.9x - but it has higher separator LNG assets successful its portfolio that EOG doesn't have.

Pioneer Natural Resources (PXD), possibly EOG's closest nonstop comparison successful nan shale patch, trades astatine a guardant P/E of only 7.2x, that contempt paying retired complete $25/share successful dividends past year. From that standpoint, EOG could beryllium considered over-valued.

I fishy that 2024 will beryllium amended than 2023, because that's erstwhile nan existent imaginable of EOG's caller earthy state play (Dorado) will apt beryllium realized (see EOG: A Natural Gas Kicker). Bottom line: I reiterate my HOLD standing connected EOG and propose that EOG shareholders bask nan dividends this twelvemonth while considering they whitethorn person to beryllium diligent and hold until 2024 for immoderate decent banal value appreciation.

For much of a semipermanent perspective, I'll extremity pinch a 10-year full returns comparison of EOG, COP, PXD, and DVN:

ChartData by YCharts

This article was written by

Michael Fitzsimmons floor plan picture

Technology stocks, ETFs, portfolio strategy, renewable energy, and O&G companies. Primary extremity is increasing net-worth. I typically allocate a information of my ain portfolio and give immoderate of my SA articles to mini and mean sized companies offering compelling risk/reward propositions. I americium an Electronics Engineer, not a qualified finance advisor. While nan accusation and information presented successful my articles are obtained from institution documents and/or sources believed to beryllium reliable, they person not been independently verified. Therefore, I cannot guarantee its accuracy. I counsel investors behaviour their ain investigation and due-diligence and to consult a qualified finance advisor. I explicitly disclaim immoderate liability that whitethorn originate from finance decisions you make based connected my articles. Thanks for reference and I wish you overmuch finance success!

Disclosure: I/we person a beneficial agelong position successful nan shares of COP either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: I americium an electronics engineer, not a CFA. The accusation and information presented successful this article were obtained from institution documents and/or sources believed to beryllium reliable, but person not been independently verified. Therefore, nan writer cannot guarantee their accuracy. Please do your ain investigation and interaction a qualified finance advisor. I americium not responsible for nan finance decisions you make.

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