andy's eog resources
TRANSCRIPT
EOG ResourcesENRON OIL & GASANDY
SOFT ANALYSIS WEIGHTAGE
TECHNICAL = 2/10
ORDER/DEPTH = 1/10
FUNDAMENTAL = 4/10
SPECULATION = 3/10
*in order of importance
Oil & Gas Industry Oil & Gas is highly sensitive to OPEC
decisions Extremely capital intensive Cyclical Industry High levels of asset depreciation
Recent advancement in fracking tech – reduced dependence on oil imports & OPEC antics
Reserves Replacement? Fastest Increase in Sales Vol?
SPECULATION US has become less
dependent on oil imports due to fracking tech
Saudi A. is losing market share
Saudi A. would rather cut profits than lose crude mkt share to US, to hurt local oil producers
Conspiracy? Russia is currently No.1
Crude Producer
52% of revenues is Oil & Gas
US & Saudi manipulates crude price to punish Russia for Ukrainian Invasion
Dec ‘14 Crude Futures High @ 102.9 (June)
Close @ 77.26 (current)
Prices dropped 25%
Price of EOG vs Dec ‘14 Crude Futures
SPECULATION To reach previous price levels =
Supply/Demand Equilibrium 2 ways –
Solid Emerging Market economic growth pushes prices up
Saudi. A may synergize with Venezuela to boost mkt share
Reduce US’s overall slice of oil pie
Q1 2015 forecasts GS: $85 JPM: $82
COMPANY OVERVIEW EOG produces Crude and Nat Gas in US, UK, Canada, Trinidad
94% of US reserves owned -> Eagle Ford, Texas
Eagle Ford = Est 9.6B barrels of crude (2012)
EOG in Eagle Ford = 2B barrels of crude (2013)
Business Catalysts
Largest Crude Producer in Eagle Ford
2,282 km2 of pure oil production
Trends (2011-2013)
Declining Well Costs = -10%
Improved Production = +25%
21%
79%
TOTAL PROVEN CRUDE RESERVES IN E.F (BILLION BBLS)
EOG 104 Cumulative Competitors
ECONOMIC MOAT
RECENT NEWS / EARNINGS SURPRISE Q3 Results 2014
29% increase in U.S. Crude Oil and Condensate Production (YoY) 17% Increase in Total Company Production (YoY) Expanding Ops into Delaware Basin; Confirms 364km2 of proven crude
reserves
Plans to continue/increase production amidst slumped crude prices due to low costs of well operations
MANAGEMENT / INSIDER TRADING
ORDER/DEPTH Options Chain Put/Call Ratio:
bearishness/bullish P/C ratio < ~0.5 = Bullish
P/C ratio > ~0.7 = Bearish
Calls above Strike vs Puts below Strike
P/C Ratio503/1649= 0.305
Herd thinking - Jan ’15 expiration, stock price < $115
FUNDAMENTALS Important considerations: –
Oil Reserve Replacement & Growth
Cash Flow
Interest Coverage (ability to pay interest on outstanding debt)
2011 2012 2013Interest
Coverage Ratio
10.08 7 15.6
Operating Cash flow (USD $M)
4,578 5,237 7,329
Operating Margin % 20.9 12.7 25.4
Total Proven Reserves currently under EOG: 2.12B barrels of oil
Current Production/Extraction:~103.66M barrels / year
Assuming no change in Production= 20.45 Yrs in business
FUNDAMENTALS
0
100
200
300
400
500
600
2009 2010 2011 2012 2013 2014
% Daily Sales Growth compared to '09
Year Thousands of Barrels/Day2009 54.82010 73.72011 1132012 1592013 2202014 284
FUNDAMENTALS Intrinsic Value:
Analyst’s Average Price Est: [$105 + $123 + $135 / 3] = $121.67
EPS: $ of profit / Total outstanding shares
0
2
4
6
2009 2010 2011 2012 2013 2014
EPS(Yr) GrowthYearly
TECHNICAL (Trend/S.R) Current Downtrend:
20SMA < 50SMA < 150SMA
Recent appreciation:positive earnings surprise
2nd resistance @ 105.85, TP level
TECHNICAL (Elliot. W/Convergence)
Rising Prices + Rising Vol + Rising MACD
Positive ST price change
Elliot Wave 1 complete cycle
New cycle forming (wave 3 forming)
TECHNICAL (Elliot. W)
Est. resistance $105 Possible
extrapolation of future prices based on past levels
TECHNICAL (Fibo Retracement)
Moderately positive correlation with Fibo R.
Fake breakdown @ 90.78?
RECOMMENDATION Personal recommendation:
Strong fundamentals 80% of stock value from Crude Sensitive to OPEC
Not the right time Something to consider when crude
and geo-political matters settle
Short term: Underperform
Long Term: Overweight