EOG Resources: A Top Natural Gas Play

James | Sep 29, 2009 | Comments View Comments

EOG Resources Inc (EOG) – EOG is one of the largest independent exploration and production companies in the world. They are focused on onshore natural gas operations, primarily in the U.S. and Canada. Substantial portions of its reserves are in long-lived fields with well-established production characteristics.

Fundamentals

EOG is much undervalued compared to its competitors. It’s estimated that EOG will have a return on capital of 26% which is well above the peer average. Moving on, it is expected that EOG will have double digit production growth in 2010. This is critical because around that time prices will begin to soar where as only now we have seen them stabilize. EOG is also planning on spending more in the New Year to lift production. They are focusing on plays such as the Barnett Shale and the Bakken Oil Shale. Both these areas are being talked about a lot due to the abundant amount of resources they possess. The area is currently leased out by all strong players in the industry: DVN, XTO, and EOG. Adding to this, EOG has announced several new offshore energy plays in which they plan to take advantage of.

Production to Increase

For the rest of 2009, Natural Gas production is expected to rise 5% while jumping double digits in 2010. Fundamentally, EOG is a safe and sound bet with strong EPS (8.62) and P/E (9.29) numbers. Their profit margin is 46% which is outstanding along with a ROE of 26% and a ROA of 14%. Adding to this they offer a miniscule dividend of around 1%. The ex-dividend date is coming up on October 14th so I advise to buy this stock before then.

Market Share - EOG is a strong fundamental play as they are one of the largest energy players in the world making them a market share leader.
Industry Growth – Natural Gas and Oil discovery is a Bullish Industry. With production levels for both increasing leading into 2010 this is a sector that will be on the rise. Natural Gas is popular since it is cheap, clean, quality energy that has received huge backing by the government to become the energy of the future. Oil is still a necessity which will continue its success in 2010 as prices soar. Click on the links to read more about Oil’s Future Strength and Natural Gas’s Future Strength.
Regulation – Regulation will be no problem in fact it will help out EOG. The U.S. government plans on helping push Natural Gas out into the center to make it the future energy of the U.S. by offering subsidies, tax breaks, etc.

Technical Factors

Technically EOG recently crossed a huge resistance barrier passing the $80 threshold. I see this as a big gain as now I believe $80 will become a support level and help boost the share prices higher. Looking at the moving averages charts, EOG is currently Bullish. The 50-day moving average is greatly surpassing the 200-day which means this stock is heading higher.

Overall

EOG is a Blue Chip stock that everyone should buy. There is no reason to not like this stock as it is well positioned in a strong, growing sector. EOG is right now trading at $80. I would recommend buying it ASAP. My 12-month price target is $105.