If there’s one sector of the stock market still poised for more capital gains, it has to be in domestic oil and gas producers.
This sector continues to be a top wealth creator. Most of the action is in the junior and mid-tier producers, as well as the limited partnerships focused on storage and distribution.
On the other hand, large, integrated producers are running into oil equivalent production issues. Both Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) are good examples, as they are currently dealing with declining production as new projects have yet to come on stream.
EOG Resources, Inc. (EOG) is a large-cap oil and gas producer with an excellent track record of wealth creation for shareholders. In the past, this stock has gotten ahead of itself, but it is still very much a growth story.
The stock’s been getting upgraded after reporting excellent financial and production growth in the first quarter. The position’s already been a huge winner, but within the numbers, there is still very meaningful growth in domestic (U.S.) crude oil production.
U.S. first-quarter production of crude oil grew an impressive 45% to 258.1 thousand barrels of oil per day (MBbld), up from 178.3 MBbld in the first quarter of 2013.
Natural gas production also improved in the first quarter but grew at a lesser rate of 20% comparatively (including U.S. and Canadian volumes).
For a large-cap resource company, it’s worth taking a closer look at EOG’s numbers. Its balance sheet is in very good shape with tons of cash on the books. And its net cash provided by operating activities soared in the most recent quarter.
EOG’s 10-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Resource investing is fraught with so many risks, the most important being the value of the underlying commodity being produced. (See “The Unavoidable Risk in Resource Investing.”)
Precious metals stocks are stuck with spot prices in consolidation and industry-wide rising costs. But in domestic oil production, the kicker is that technology and horizontal drilling continues to be the big story. Growth by the drill bit is an investment theme with legs until the end of this decade.
And the fundamentals remain attractive. The cost of capital for domestic oil producers is cheap, and with share prices buoyant, debt and equity financing is flowing.
It’s a good time to be in the oil business, and stocks like EOG are well positioned for more capital gains.
The company had a really good first quarter, with net operating revenues growing 22% to $4.08 billion, while earnings grew 34% to $661 million.
Management raised its 2014 full-year crude oil production growth goal to 29% from its previous 27%. The company is ramping up drilling in its four main operating sectors: the Rocky Mountains, the South Texas Eagle Ford, the North Dakota Bakken, and the Delaware Basin.
Even though this oil stock has already done extremely well, it boasts tremendous potential over the next several quarters with new drilling results awaited by the Street.
Last year, EOG’s revenues and earnings really took off from what was already a good growth story. It’s likely that the trend will continue.