EOG Resources’ Strategic Shift to ‘Double Premium’ Wells Drives Financial Strength and Sustainable Growth

Suvro Sarkar, an analyst from DBS, reiterated the Buy rating on EOG Resources (EOG – Research Report). The associated price target remains the same with $155.00.

Suvro Sarkar’s rating is based on EOG Resources’ adoption of a “double premium” wells strategy, which has significantly increased the company’s cash flow and investment payback speed. This strategy, an evolution from the previously successful “premium” wells approach, targets wells with a 60% after-tax rate of return, doubling the previous threshold. The shift to the “double premium” strategy, coupled with EOG’s efforts in technological innovation and operational efficiency, has led to a lower breakeven price for West Texas Intermediate (WTI) crude oil, down from $85 per barrel in 2014 to $44 per barrel in 2023, and has also reduced finding and development (F&D) costs. Moreover, EOG has been focusing on sustainable operations by implementing iSenseSM technology for continuous leak detection and initiating a carbon capture and storage pilot, further strengthening its environmental commitments.

Furthermore, EOG Resources has demonstrated a commitment to growth through its focus on the Ohio Utica combo play, which shows promise to compete with established plays like the Permian Basin. The company’s increased capital expenditures are directed towards achieving production growth and improving infrastructure, which includes strategic projects like the Janus gas processing plant and the Verde pipeline. Additionally, EOG’s financial strategy is compelling, exhibiting a robust balance sheet with zero net debt, substantial free cash flow generation, and an increased commitment to returning 70% of this cash flow to shareholders. These factors, alongside its low-cost structure and high-quality well inventory, position EOG favorably for sustainable investor value creation, justifying Sarkar’s Buy rating with a target price of $155.

In another report released on May 3, Jefferies also maintained a Buy rating on the stock with a $157.00 price target.

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EOG Resources (EOG) Company Description:

Incorporated in 1985 and based in Texas, EOG Resources, Inc. is engaged in the exploration, development, production and marketing of crude oil and natural gas and natural gas liquids. It operates in the United States, Trinidad and Tobago, China and Canada.