3Q results a beat; increases cash return commitments
- EOG’s adjusted earnings of US$3.44 per share beats consensus estimates on the back of higher production volumes and lower operating costs
- For full-year 2023, EOG expects production growth of 8% and has updated guidance for higher volumes and lower operating costs
- EOG raised regular dividend by 10% and increased cash return commitment to minimum 70% of annual free cash flow from 2024 onwards, driven by strong cash flows
- Maintain BUY with TP of US$155
EOG Resources reported strong operating and financial results for the third quarter of 2023. Total production volumes of 998.5 mboepd were 3% higher than last quarter (970 mboepd in 2Q23). The company generated revenue of US$6.2bn in 3Q23, up 11% from 2Q23 due to higher crude oil, natural gas liquids (NGL) and natural gas price realisations. Adjusted net income was US$2.0bn or US$3.44 per share, exceeding consensus estimates of US$2.83 per share. This strong earnings performance can be attributed to higher production volumes combined with lower per-unit operating costs compared to guidance. Free cash flow (FCF) in 3Q23 amounted to US$1.5bn, stronger than the last two quarters. EOG expects to generate around US$5.5bn of FCF for FY23 and has already paid out 75% of FCF (US$4.1bn) to shareholders including US$3.4bn in dividends (regular + special) and US$0.7bn in share repurchases.
Raises cash return commitment. Looking ahead to full-year 2023, EOG expects total production growth of 8% at the mid-point of guidance compared to 2022. The company has updated its guidance to reflect higher volumes and lower per-unit operating costs due to strong operational execution. EOG has also increased its regular quarterly dividend by 10% to US$0.91 per share from US$0.825 per share earlier, which implies US$3.64 per share annualised regular dividend for 2024, amounting to 2.8% regular dividend yield. EOG has also upped 2024+ cash return commitment to minimum 70% of annual FCF from 60% earlier, so overall yield including special dividends and buybacks should be higher. EOG has US$4.3bn remaining authorization in place for opportunistic share repurchases. Given the robust return potential on the back of superior execution, we reiterate our BUY recommendation on EOG Resources with a target price of US$155, which offers decent upside potential from current levels. The company’s low-cost resource base, industry-leading balance sheet and commitment to increasing cash returns position it well to continue generating sustainable investor value. The strong balance sheet also enables EOG to evaluate opportunities to consider bolt-on acquisitions and add low-cost acreage to its multi-asset portfolio.