VALUATION HIGHLIGHTS
- Crude Oil constitutes 74% of the Trefis price estimate for EOG Resources's stock.
- Natural Gas Liquids constitute 13% of the Trefis price estimate for EOG Resources's stock.
- Natural Gas constitute 10% of the Trefis price estimate for EOG Resources's stock.
WHAT HAS CHANGED?
EOG Q4 2024 Snapshot
EOG Resources Inc reported its fourth-quarter 2024 earnings, surpassing analysts' expectations with an earnings per share (EPS) of $2.74 compared to the forecasted $2.57. The company's revenue fell short of projections, coming in at $5.6 billion against an expected $5.88 billion.
EOG Resources showcased robust resilience in the fourth quarter of 2024, delivering a solid financial performance with $6.6 billion in adjusted net income and a 25% return on capital employed. The company achieved a 6% increase in proved reserves, reaching 4.7 billion barrels of oil equivalent, while successfully lowering finding and development costs by 7% to $6.68 per barrel of oil equivalent.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are some key value drivers for EOG Resources that present opportunities for a significant upside or downside to the current Trefis price estimate for the company:
- Average Crude Oil Sales Price: EOG Resources' stock price is highly sensitive to crude oil prices as the company derives almost 80% of its total value, by our estimates, from the sale of crude oil. The company's average crude oil realization grew from $68.49 per barrel in 2021 to $97.21 in 2022. This metric moderated to $79.17 in 2023 before falling to $77.40 in 2024.
We expect the oil prices to remain within the $70-80 range going forward. However, if oil prices remain high for longer than what we currently expect, and increase to around $98 per barrel by the end of our forecast period, there could be a 10% upside to our current price estimate for EOG Resources.
- Average Daily Crude Oil Sales Volume: EOG Resources' average daily crude oil sales volume has grown from around 461 thousand barrels per day (MBD) in 2022 to 491 MBD in 2024. Almost all of this growth in the company's crude oil sales volume has come from its operations in the Eagle Ford and Bakken shale plays in the U.S. We currently forecast EOG Resources' Average Daily Net Crude Oil Sales Volume to grow to around 548 MBD by the end of our forecast period.
However, if the company ramps up its crude oil production at the projected rate and it increases to around 650 MBD by the end of the Trefis forecast period, there could be a 10% upside to our current price estimate for EOG Resources.
For additional details, select a driver above or select a division from the interactive Trefis split for EOG Resources at the top of the page.
BUSINESS SUMMARY
EOG Resources is an independent oil and gas company that explores for, develops, produces, and markets crude oil and natural gas primarily in major producing basins in the U.S., Trinidad, Canada, and the U.K. Around 99% of the company's total net proved reserves are located in the U.S., while 1% of the remaining net proved reserves are located in Trinidad.
The difference between EOG Resources' reported net revenue and the figures used in our model is primarily because we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.
SOURCES OF VALUE
Crude Oil exploration and production is by far the most valuable division for EOG Resources for the following reasons:
Huge proven reserves
Proven reserves are an extremely critical metric for an oil and gas exploration and production company. It represents the total quantity of technically and economically recoverable oil and gas reserves owned by the company at a given point in time. It directly impacts the company's production growth outlook.
EOG Resources' proven hydrocarbon reserves stood at 4.79 billion barrels of oil equivalent at the end of 2024.
Leading position in the Delaware Basin
The Delaware Basin is a geologic depositional and structural basin in West Texas and southern New Mexico, famous for holding large oil fields and for a fossilized reef exposed at the surface. Delaware Basin contributes about 60% to EOG Resources' total crude oil production.
EOG Resources is the leading oil producer and acreage holder in the Delaware Basin. The Delaware Basin consists of approximately 4,800 feet of oil-rich stacked pay potential offering EOG multiple co-development opportunities throughout its 395,000 net acre position. In 2024, EOG Resources produced crude oil from the Delaware Basin at an average rate of 309,700 barrels per day, compared to the 231,000 barrels per day that it produced in 2021.
KEY TRENDS
Improving volume-mix
EOG Resources' volume mix has been improving recently with the proportion of liquids (crude oil and natural gas liquids) in its total sales mix increasing. Liquids are priced higher than natural gas primarily due to higher energy density and ease of transport, among other factors. In 2024, EOG Resources sold liquids at an average price of $23.4 per barrel, while the company realized a price of just $1.99 per BOE of natural gas on average. Therefore, despite lower finding, development, and lifting costs per BOE of natural gas, the production of liquids is still a far more lucrative source of revenue for upstream oil and gas companies in the U.S.
Improving well productivity
Over the last few years, EOG Resources' average well productivity has increased considerably on optimized spacing and efficiency improvements in fracking techniques. Higher well productivity leads to lower per-unit production costs, which results in thicker operating margins for upstream oil and gas companies. Going forward, we expect EOG Resources' well productivity to improve further by increasing the estimated ultimate recovery (EUR) per well due to technological advancements in fracking techniques.
