EOG Earnings: Firm Exceeds Production Guidance and Raises Full-Year Outlook; Raising FVE to $132

Narrow-moat EOG delivered production of 998 thousand barrels of oil equivalent per day in its third quarter, up 8.5% year over year and 3% sequentially. The firm exceeded the high end of its guidance (issued last quarter) by 1% and raised its outlook for fiscal 2023 to 982 mboe/d at the midpoint (versus 978 mboe/d previously). This places EOG firmly on track to conclude fiscal 2023 on solid footing, and we expect further improvements in 2024 as declining producer activity, rising domestic demand, and incremental LNG export capacity facilitate more favorable natural gas pricing. We’re raising our fair value estimate to $132 from $121 following the results, implying shares trade at a slight discount at the time of writing.

EOG’s strong third-quarter production was augmented by lower cash costs, which came in at the low end of guidance across the board. Total operating costs were 5% below the midpoint, and management further reduced full-year guidance by 2%, which aligns with our 2023 outlook. These improvements are unlikely to be sticky, however, as evidenced by the slight sequential cost increase this quarter, with fourth-quarter guidance implying further cost rebounds are likely. The full-year projected average nevertheless remains lower than previously expected, and EOG’s continued outperformance on volumes and expenses has facilitated another positive surprise in its earnings. Adjusted EBITDA and adjusted earnings per share were $3.506 billion and $3.44, respectively, versus FactSet consensus estimates of $3.229 billion and $3.02. That led to over $1.2 billion in free cash flow, of which 50% was returned to shareholders, mainly via dividends. Though quarterly distributions fell below EOG’s commitment of 60%, the firm is well on track to exceed this target for the fiscal year.