It’s not a question of if, but when EOG Resources (NYSE: EOG) will overtake the likes of Chevron (NYSE: CVX)and BP (NYSE: BP) to become the number one oil producer in the United States, according to a new report by Bernstein Research.

Ultimately, it will be the company’s conservative outlook that will maintain its growth, not risky --not or even slightly risky – moves behavior. Although greenfield entries and bolt-ons are a possibility, a major acquisition by EOG is unlikely. There is also not much expected in terms of global new ventures.

EOG has no interest in venturing outside of the country or even other parts of North America.

According to the report, “though EOG’s stock price has outperformed peers over the prior year and is near the top of its peer set in terms of price/cash flow, we feel there is still room for EOG to outperform.” In addition to reiterating its outperform rating on EOG, the research firm raised its target price from $181 to $222.

The report, “When Will EOG Become the Number 1 U.S. Oil Producer,” which was authored by senior analyst Bob Brackett and released before the new year, pointed to EOG’s leadership, its consistent growth year after year, its cautious optimism on oil prices and its pessimism on gas prices, among other factors, as working in the independent E&P’s favor.

“EOG has grown oil production by 43%/year for the past three years, and amazingly could become the top U.S. crude oil producer by 2018,” Brackett writes, noting that EOG would exit 2013 producing around 230,000 barrels of oil per day, a rate which could very well double by 2017. In a meeting with EOG CEO Bill Thomas, Bernstein was told the company will likely top Chevron and BP in the next three to four years.

EOG, the Eagle Ford’s leading oil producer, evidently likes where it’s at.


Mark Papa, board director and former president has said that international shale would need to be “better than the Eagle Ford” to account for the increased risk and labor. Current results in Argentina and China have not yet met that bar, according to the report.

Domestically, the company’s oil outlook is “perhaps even slightly more negative” than Bernstein’s. “They believe the market is overestimating upcoming U.S. production,” Brackett writes. “In their latest investor presentation, they note that the Bakken and Eagle Ford have together been the only two major drivers of horizontal crude growth from 2005-2013 and that the rate of growth is slowing.”

Concerning natural gas, Thomas acknowledged to Bernstein that “gas is the fuel of the future...someday,” the company noted that gas can only be competitive above $5.50/thousand cubic feet, a level EOG does not anticipate before 2017-2018.