8% production growth achieved in FY23, 7% growth target for FY24
- EOG 4Q23 results were in line with estimates, meeting production guidance
- With higher cash return commitment of minimum 70% of annual free cash flow, EOG cements position as one of the best dividend plays among US shale players, backed by debt-free balance sheet
- Projects oil and total production growth of 3% and 7% respectively in 2024
- We reiterate our BUY rating on EOG with a target price of US$155
EOG delivered an in line set of results for 4Q23, with adjusted earnings of US$1.8bn down 11% q-o-q and 8% y-o-y due to lower commodity prices. FY23 adjusted earnings of US$6.8bn was down 15% y-o-y, with lower prices offset by higher volumes to an extent. EOG’s total production averaged 985mboepd in FY23, up 8% from 908mboepd last year. Notably, oil production rose 3% to 476mboepd in FY23, while natural gas production was up 14% y-o-y. EOG maintained sequential production growth each quarter in FY23, showing strong execution. Free cash flow remained robust at US$1.5bn in 4Q23 and amounted to US$5.1bn for FY23. This was after capex of US$6bn, which underpinned the production growth. EOG paid out US$4.4bn of the FCF to shareholders, comprising US$1bn in share repurchases and the remaining in dividends (implies total yield of >6.5%). EOG maintains debt free balance sheet and retired a US$1.25bn bond at maturity.
Looking ahead, EOG has provided an upbeat outlook for 2024, projecting a 3% rise in oil production and 7% growth in total production. This disciplined growth will be supported by planned investments in high-return projects across its portfolio. Capex for FY24 is projected at US$6.2bn, and includes investments in strategic infrastructure projects like pipeline and gas processing plant. At strip pricing of US$75 per barrel for WTI crude and US$2.50 per mcf for Henry Hub natural gas, EOG forecasts free cash flow generation of around US$4.8bn in 2024, not too different from FY23 levels. The company enhanced its minimum level of shareholder return commitment to 70% of FCF from 60% earlier. EOG will retain the flexibility to use surplus FCF for opportunistic bolt-on acquisitions. However, we believe EOG is unlikely to consider mega M&A deals, which is the current trend in the US shale industry. Given the positive growth outlook, we reiterate our BUY rating on EOG with an unchanged target price of US$155.