EOG Resources: Lower Costs Support Increase in Fair Value Estimate to $108

We're raising our fair value estimate for narrow-moat EOG to $108 from $97, after incorporating the firm's first-quarter financial and operating results. The increase was primarily driven by lower-than-expected processing and transport costs, coupled with a sequential (and maintainable) decline in unit general and administrative costs. We have also factored in a small dip (5%) in well cost per foot starting 2024, given that steel prices have moderated, several upstream firms are anticipating service markets will soften in the back half, and EOG remains laser-focused on getting more value through productivity and efficiency gains. Supporting the last point, management discussed its improved completion design in the Permian, with 39 wells in the test averaging a performance upgrade of about 20%. While the new technique is only applicable in certain parts of the play, management expects to roll it out more broadly this year. The impact on production was taken into account with the firm's volume guidance, which we think the firm can meet or exceed. But the potential for cost savings was not previously accounted for in our model.