EOG Resources has an impressive portfolio of assets worth paying close attention to.
The company has a 14% post growth capital FCF yield at current WTI prices, FCF it directs to shareholder returns.
While the company doesn’t have the same yield as some, it has a reliable long-term commitment to shareholder returns.
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Nordroden/iStock via Getty Images EOG Resources (NYSE: EOG ) is one of the largest upstream crude oil companies with a $50 billion market capitalization and a 3.4% dividend yield. The company has a massive portfolio of “double premium” wells and, as we’ll see throughout this article, it’s utilizing that to provide substantial shareholder returns. EOG Resources 3Q 2021 Results
EOG Resources achieved strong 3Q 2021 results with its portfolio. EOG Resources increased its regular dividend by 82% on the basis of strong earnings. On top of that the company announced a $2 / share special dividend making dividends for the year $5 / share. That points to an effective yield of approximately 6%. That highlights the strength of the company’s cash flow to drive shareholder rewards.
Additionally, the company has updated its buyback authorization to support future opportunistic share repurchases. It’s authorized a $5 billion total (~2% market cap) share repurchase program. The company is beating expectations on capital expenditures with 7% reduced well costs for the year. The company’s FCF is annualized at ~$5.6 billion (~10.5% yield). EOG Resources Long-Term Targets
For the long run, EOG Resources expects to continue generating substantial shareholder returns. EOG Resources Long-Term Targets – EOG Resources Investor Presentation
EOG Resources is focused on sustainable dividend growth. It can average 10% dividend increases going forward. It’s targeting $2 billion in debt reduction through 2023 and maintaining $2 billion in cash through cycles. Right now, the company has a $4.3 billion cash balance and recently made a $750 million bond maturity payment.
The company has worked on low cost bolt-ons without expensive M&A and a consistent focus on shareholder returns. EOG Resources Cash Flow Breakeven – EOG Resources Investor Presentation
EOG Resources has a $30 WTI capex breakeven. Current WTI crude prices are almost $80 / barrel and the company is operating off of assumptions of $65 WTI. The company has ~$4.7 billion in FCF at $65 WTI and at $80 WTI its FCF is roughly $7 billion. That’s a 14% FCF yield post capital spending for both maintenance and growth.
Since it’s post capital spending, that’s FCF that can go directly towards shareholder returns. EOG Resources Asset Base
Backing up long-term shareholder returns is EOG Resources impressive asset base. EOG Resources Premium Locations – EOG Resources Investor Presentation
The company has announced it won’t participate in growth until the market needs barrels. The company is waiting for demand to go back to pre-COVID levels, with inventories at or below a 5-year average before it looks to grow production. We expect that to be at least a year away for the company meaning it can focus in returns in between.
The company has 5700+ double premium locations which has a premium hurdle of 60% returns at $40 oil and $2.5 natural gas. At $50 WTI the payback of these wells is a merge 9 months and at current prices it’s just a few months. The company is confident double premium locations will be replaced faster than drilled with an impressive asset portfolio.
These assets and returns with continued replacement highlights the long-term reliability of the company’s cash flow. EOG Resources Reliable Potential
EOG Resources has reliable potential to generate substantial long-term shareholder rewards.
At $30 WTI the company is covering maintaining its production flat while also investing consistently in growth to the tune of $500 million annually. At $36 WTI, the company has the cash to pay dividends of almost 3.5%. The company’s special dividends for the year help to add on top of this, highlighting its strength.Going to $65 WTI, the company has chosen to use $750 million of cash on debt reduction while still having roughly $1 billion extra FCF at $65 WTI. The company has recently expanded its buyback authorization to $5 billion, or 10% of its market capitalization. It has the additional cash flow, post dividends, to pay the majority of this over the next year.That reliable potential to generate substantial shareholder rewards is something worth paying close attention to. It highlights the company’s reliable potential. EOG Resources Risk […]