I have owned EOG Resources (EOG) many times over many years. It’s the best managed oil exploration company — with the best technology, the best balance sheet and best drill sites in the business, asserts Adam Johnson, editor of Bullseye Brief.
Several people have asked me recently whether I’d buy it on a pullback, and the answer is 'Yes". To be clear, this stock is as much a trading vehicle as an investment opportunity, though I love the company and have held it for long-term gains in the past. I’m always happy to return to a quality company at the right price.
EOG sets the standard by which all other exploration and production companies are judged. It owns the best acreage across all the major shale fields in the US, including Bakken, Delaware Basin, Dorado, Eagle Ford, Permian, Powder River, Utica Delaware.
As a result, EOG is the industry’s lowest cost producer and has the least amount of debt. Additionally, no other company matches EOG’s data collection, AI-driven analysis or entrepreneurial drive. Its unique app-based technology empowers on-site drilling mangers to manage their wells on-site.
EOG only drills new wells with cashflow from existing wells — and only if it can assure profitability down to $40 oil. At every level, EOG is an exceptionally well-run business.
The company has built its top-tier franchise over several decades, amassing premium acreage and developing far superior technology. As a result, EOG drills more horizontal wells than any other E&P, and achieves productivity on large wells significantly faster.
EOG designs its own drill-bits, writes its own 3-D mapping software and programs its own AI-driven algorithms to optimize drilling. This hands-on approach helps EOG replace premium reserves twice as fast as the rate at which it depletes existing reserves.
Meanwhile, EOG profitability is strong and its balance sheet is pristine. So the opportunity to buy a high quality asset on non-company related selling gets my attention.
I like owning EOG under $100, which would represent a pullback from current prices and coincide with a level which has provided consistent support over the past year.
Worries that the Fed will hike rates to the point of causing a recession hurt oil-related valuations. As stocks like EOG get caught in the cross-fire, share prices can plummet quickly; concern of extended rate hikes last June knocked EOG from $150 to $90 in less than a month.
We want to be ready to buy if and when non-company specific news causes a decline… as happened last June when hawkish Fed commentary crushed asset prices. My target of $155 reflects a fully realized Net Asset Value in the stock price, as well as a valuation consistent with the company’s long-term average.
