Is EOG the best oil stock for long-term returns?
EOG offers a compelling combination of financial strength, capital discipline, and shareholder returns. They have a strong balance sheet with negligible debt and a history of prudent financial management. Production growth of 5-7% that is supported by disciplined capex (~$2 billion above maintenance), and substantial reserves with an average life of 12.5 years at the end of 2023.
They have an attractive free cash flow (FCF) yield at 6.5%, with nearly 100% of FCF returned to shareholders via dividends and buybacks.
This is even after the $2 billion per annum growth capex, a compelling valuation with shares trading at 1.9x Enterprise Value/Invested Capital (EV/IC) which is near 10-year lows, and with a ~19% return on invested capital (ROIC). They are making good ESG progress, with CO₂ emissions having risen just 5% since 2018 despite 37% higher production, and water recycling has improved significantly.
What EOG Resources does?
EOG Resources, Inc. is a crude oil and natural gas exploration and production company.
The company explores, develops, produces, and markets crude oil, natural gas liquids (NGLs) and natural gas primarily in major producing basins in the United States, the Republic of Trinidad and Tobago (Trinidad) and, from time to time, selects other international areas.
Strategy and outlook
EOG Resources produces approximately 1 million barrels of oil equivalent per day, split roughly evenly between oil and natural gas liquids/gas.
Over the past decade, the company has delivered an average annual production growth rate of 6.5%, underpinned by a multi-decade resource base and a strong focus on cost efficiency.
EOG's production is primarily US-based, but the company has recently expanded internationally, securing a significant exploration concession in Abu Dhabi in early 2025. This move diversifies its resource base and positions EOG for potential long-term reserve growth beyond its already substantial US footprint.
Returns
The company's business model is built on low-cost operations-cash costs are below $15 per barrel, with all-in costs around $25-$30 per barrel - enabling EOG to generate attractive returns even in challenging commodity price environments.
The required oil price for a 10% return on capital employed (ROCE) has dropped from $85 to $44 per barrel over the past decade, reflecting ongoing efficiency gains.
At a $65 oil price, EOG's expected return profile is a blend of ~7% from cash flow (dividends and buybacks) and ~5% from organic growth.
If oil prices rise to $100, the upside is substantial, with FCF yield exceeding 14% and the potential for a share price approaching $220 (versus $121 as of July 1).
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