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Morningstar | EOG Resources Could Raise Full-Year Guidance After 2Q. See Updated Analyst Note from 05 Jun 2019

When we initially commented on EOG Resources' first-quarter operations, we said the likelihood of an upward revision in guidance later this year had increased. The firm delivered production of 774 thousand barrels of oil equivalent per day in the period, which was 1% higher sequentially and 17% higher year over year. This was within guidance but at the high end of the range (oil volumes, at 436 mboe/d, exceeded the target range). Capital expenditures were below the target range. But despite these positive surprises, management reiterated its full-year targets for production and capital spending.

After taking a closer look at the firm's state-reported field results across multiple basins, we are confident that the strong first-quarter performance is the norm, not the exception. EOG's unique technical edge, combined with generally strong acreage holdings, enables the company to consistently deliver best-in-class initial production rates from its wells (especially in the Permian, where it leads the pack). The benefit is partially offset by above-average decline rates, but after controlling for this, we still see far superior well economics relative to most peers. This translates to stronger margins and returns and underpins our narrow moat rating.

Nevertheless, as the market is already well aware of EOG's technical strength, we do not see much upside for the stock. After refreshing our forecasts to reflect the strong operational data discussed above, we are nudging our fair value estimate up to $88 per share, which is less than 10% above the last closing price.