Time to Buy EOG Resources Stock

EOG Resources [stock_market_widget type="inline" template="generic" color="default" assets="EOG" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] delivered terrific first-quarter results that beat the higher end of the company’s own expectations as well as analysts’ forecasts thanks to a solid increase in output. A closer look at EOG’s latest quarterly results indicates that there is a lot going on in the company’s favour that could eventually lead to a stronger performance as the year progresses.

Pulling the Right Strings

EOG Resources managed to complete more wells last quarter despite reducing its drilling rig count by one and also operating a leaner crew.

EOG Resources’ production increased 20% year over year in the first quarter of the fiscal year. More specifically, the company produced 435,900 barrels of oil per day during the quarter, while it was originally expecting production in the range of 426,600 bpd to 434,200 bpd.

This impressive increase in EOG’s year-over-year production was driven by an uptick in the number of wells completed during the quarter in the Delaware Basin. Buoyed by rising oil prices, EOG Resources completed 78 wells in the first three months of 2019, up from the prior-year period’s completion figure of 70 wells.

What’s more, EOG Resources managed to complete more wells last quarter despite reducing its drilling rig count by one and also operating a leaner crew.

Similarly, EOG’s operations in the Eagle Ford shale and the DJ Basin drove up the company’s production at a lower cost base thanks to improved productivity and lower well costs. In all, EOG Resources’ focus on driving efficient production allowed the company to reduce its cash operating costs by 8% during the first quarter as compared to the prior-year period.

Thanks to higher production and a lower cost base, EOG Resources was able to mitigate the negative impact of a 13% annual decline in the WTI oil price. The company delivered non-GAAP net income of $689 million, or $1.19 per share, which was identical to the figure posted in the same period a year ago.

What’s more, thanks to its focus on controlling costs, EOG Resources’ first quarter discretionary cash flow increased 3% year over year to $1.9 billion. In all, it was a solid performance from EOG Resources during the quarter as the company was able to successfully navigate the weak oil pricing environment.

Shareholders Get a Boost

EOG Resources gave shareholders another reason to cheer as it boosted its dividend by 31%. As it turns out, EOG has consistently increased its dividend in the past few months. According to CEO Bill Thomas:

“EOG’s commitment to increasing cash returns to stockholders continues, as we have now increased our dividend by 72 percent during the past 14 months. This is made possible through our relentless efforts to lower costs, increase returns and fundamentally reset the business to be profitable even in a low oil price environment.”

Looking ahead, EOG Resources believes that it can further cut costs. The company is on track to reduce its well costs by 5% this year, which should help boost its margins and cash flow as oil prices have been ticking up.

EOG Resources looks all set to sustain its terrific momentum in the future, making it a good stock to buy.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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