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On Friday, JPMorgan reiterated its Neutral rating and $123.00 price target on EOG Resources (NYSE:EOG), following the company’s acquisition announcement. JPMorgan’s analysis highlighted a key concern for U.S. shale operators like EOG, which is the sustainability of their long-term cash flow and returns. According to InvestingPro analysis, EOG currently appears undervalued, with strong financial health metrics and sufficient cash flows to cover interest payments. The company maintains a solid balance sheet with more cash than debt, demonstrating prudent financial management. The firm noted that while many of EOG’s peers have sought to enhance their inventory depth through acquisitions, EOG has mostly abstained from such deals since purchasing Yates Petroleum in 2016 for $2.5 billion.
EOG Resources has now entered into a significant transaction, purchasing Encino Energy for $5.6 billion. This acquisition is set to considerably increase EOG’s presence in the Utica shale, a region now identified by the company as one of its three foundational plays alongside the Delaware Basin and Eagle Ford. The deal, which will be funded with $3.5 billion in debt and $2.1 billion in cash, will add 675,000 net acres to EOG’s portfolio in the Utica, totaling 1.1 million net acres, with a mix of oil and natural gas assets. With a market capitalization of $59.6 billion and an attractive EV/EBITDA ratio of 4.75x, EOG demonstrates strong fundamentals. InvestingPro subscribers can access detailed valuation metrics and 8 additional key insights about EOG’s financial position.
Encino’s current production stands at 235 thousand barrels of oil equivalent per day (MBoe/d), which will boost EOG’s pro forma production in the Utica to 275 MBoe/d. The financial specifics of the transaction were not fully disclosed, but EOG indicated that the acquisition would be 10% accretive to its EBITDA and 9% accretive to cash flow from operations and free cash flow.
JPMorgan’s assessment suggests that the price EOG paid for the undeveloped inventory appears minimal when assuming valuation metrics of $40,000 per MBoe/d for oil and $3,000 per million cubic feet per day for gas and natural gas liquids, estimating a total value of $5.26 billion for these assets.
In other recent news, EOG Resources has announced a significant acquisition, agreeing to purchase Encino Acquisition Partners for $5.6 billion. This deal will expand EOG’s holdings in Ohio’s Utica Shale, adding 675,000 acres to its portfolio. The company plans to finance the acquisition with $3.5 billion in debt and $2.1 billion in cash, with completion expected in the second half of the year. Additionally, EOG Resources reported its first-quarter 2025 earnings, revealing an adjusted earnings per share (EPS) of $2.87, which exceeded forecasts, though revenue fell short at $5.67 billion against expectations.
In a related development, Raymond (NSE:RYMD) James has raised EOG Resources’ stock price target to $148, maintaining a Strong Buy rating, citing an improved commodity price outlook. Furthermore, EOG Resources secured an oil exploration concession in Abu Dhabi, marking a strategic move in its international expansion efforts. Shareholders recently approved executive pay and elected directors, with strong support for the company’s executive compensation policies. These developments highlight EOG Resources’ active engagement in both domestic and international markets, aiming to enhance its asset base and financial performance.
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