Natural Gas Prices Holding EOG Resources Inc (EOG) Back

Operating highlights

The company said that its outstanding performance in crude oil production in 2012 was substantially driven by drilling and completion activity in the Eagle Ford where305 net wells were drilled and completed with an average of 23 drilling rigs. In the North Dakota Bakken/Three Forks, positive results from downspaced drilling tests as well as important modifications to techniques of drilling and completion techniques, further helped crude oil production growth.

Breakthroughs in geologic modeling in the Leonard/Wolfcamp horizontal shale plays in southeastern New Mexico and West Texas also contributed. The company made progress in increasing the amount of crude oil recoverable from both its Eagle Ford and Bakken resources.  In the Eagle Ford, it increased the estimated recoverable potential reserves by 38% from 1.6 billion barrels of oil equivalent (BnBoe) to 2.2 BnBoe. At the levels of present operations, the company has a 12-year drilling inventory in the Eagle Ford.

EOG’s peers

CNOOC Limited (ADR) (NYSE:CEO) is the biggest offshore oil and gas explorer and producer in China and has almost exclusive rights to all Chinese offshore oil and gas reserves. It also has stakes in natural gas and liquefied natural gas onshore operations in China.  It is acquiring Canadian oil and gas exploration and production company Nexen, Inc. which has assets in conventional oil, oil sands, and unconventional gas and the deal is awaiting approval from the US government. CNOOC’s dividend yield at around 2.5% is well below the industry average of around 5.6%, but a low forward P/E of under nine times combined with a growth forecast of over 42% makes it a potentially attractive growth stock.

Surgutneftegas OAO (ADR) (PINK:SGTZY) is a Russian oil and gas exploration company and also produces petrochemicals while being involved in gas processing and power generation.  It has a low trailing P/E at under 5 and a forward P/E of 8.0.  It is currently trading below its book value in spite of attractive operating margins and return on equity.  This stock looks interesting but you should be aware that there is not much research material available on the company because it is covered by a single Wall St analyst.

Anadarko Petroleum Corporation (NYSE:APC) has quality assets in the Gulf of Mexico as well as the Rocky Mountains and the Appalachian basin. However, it is the international portfolio that should excite investors. Three major natural gas fields off the coast of Mozambique could make the country one of the largest producers of liquefied natural gas in the world in addition to Qatar and Australia. The company is also rumored to be an acquisition candidate and Macquarie has opined that Anadarko’s large potential reserves could command a buyout offer of $102 per share at a minimum which represents a considerable premium over the current stock price.

Conclusion

EOG’s liquids rich production growth as well as its large inventory of drilling opportunities has to be balanced against the fact that its production and reserves base are still weighted in favor of gas. Unless the outlook for natural gas prices in the United States improves significantly, the stock is likely to perform only in line with the market as a whole. I rate the stock as a “Hold.”

The article Natural Gas Prices Holding This Player Back originally appeared on Fool.com and is written by Jordo Bivona.

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