Short at $77.33My dear fellow investor:
I've been mulling on EOG.
EOG looks like a short just based on how little its shares have declined as compared to the % decline in its fundamentals:
EOG share price is only down 22.7% compared to its $100/shr price before the oil price started declining in Sept. 2014.
meanwhile:
- WTI crude is down about 50% to $50 for current contract. (this is EOG's main reference price for its oil, from which it derives the lion's share of profit). Q1 2015, realizing $46.7/barrel (vs $100.6 in Q1 2014)
- But EOG fundamentals have suffered much more:
EOG Q1 2015 net income down 125% vs Q1 2014 to a loss of $170 MM. Operating income down 116%, and Cash from Operating Activities down 57.6%.
- Meanwhile thier capex is only down 20% in Q1 2015 vs Q1 2014, so they aren't reducing spending nearly as fast as their profit has declined. They probably don't dare to reduce capex too much lest they reveal to the street what the decline rates really are on their Eagle Ford fracking play.
Just based on these issues I'd have expected at least a 50% decline in share price to $50. But is it really worth anything at current oil prices? It could be a near-zero sitiuation except as option value on oil going way up and staying up. EOG is a total speculation on the future price ot WTI crude - except at $77.33 its already factored in to EOG's high and unsinkable share price. Even looking further out to Dec. 2017, the WTI price is only $60, so the futures market is telling you not to buy EOG. If you think crude is going back up then buy oil futures, not EOG.
- A whole other can of worms are the decline rates on EOG's oil production from their Eagle Ford fracking play (80% in 3 years is average I understand). My intuition is telling me this fracking business is a low-interest-rate + high oil price fueled machine that can't continue if one or the other is not present. Funny to think the anti-carbon cabal really ought to be lobbying central bankers to raise interest rates. To be continued...
prior posts on stockhouse:
www.stockhouse.com/members/bullboard-post-history/investmentitos