What to Watch When EOG Resource Inc Reports Q4 Results

As hard as Hurricane Harvey tried, it just couldn't hold back EOG Resources' (NYSE: EOG) drilling machine in the third quarter. As a result, the shale giant entered the year's final quarter on pace to hit its bullish target to expand oil output 20% in 2017. We'll see if the company achieved that goal when it reports fourth-quarter results later this week. Here are a few things to keep an eye on in that report.

See if results matched expectations

Hurricane Harvey forced EOG Resources to hold back 15,000 barrels of oil per day (BPD) during the third quarter, which resulted in the oil giant only producing 327,900 BPD last quarter. However, with that headwind having vanished, EOG expects to unleash a gusher to end the year:

At the midpoint, EOG expects its U.S. oil output to jump nearly 12% from just the third quarter, pushing its full-year rate up 20% versus 2016. If the company hits that mark and keeps costs at bay, it should have no problem meeting or potentially beating the consensus earnings estimate.

That said, it's worth noting that several of its peers had trouble finishing the year as well as expected thanks to production and drilling problems. Devon Energy (NYSE: DVN), for example, missed its production guidance by 14,000 BPD after partners in the STACK shale play of Oklahoma didn't finish 50 wells as quickly as expected. On top of that, Devon Energy experienced an unexpected maintenance issue in Canada, which caused it to curtail some output during the quarter.

Meanwhile, Laredo Petroleum (NYSE: LPI) also reported weaker-than-expected production numbers during the quarter. In Laredo Petroleum's case, it took longer than expected to finish some wells in the Midland Basin because it drilled in a new area. In addition, Laredo encountered an operational issue that permanently reduced production at two wells.

These production problems sent the stocks of both Devon and Laredo lower this year, which is why investors should see if EOG ran into similar issues. Though, it's worth noting that EOG doesn't operate in the same areas that gave those rivals trouble, so it's less likely that it ran into similar problems.

Look at the outlook for 2018

In August of 2016, EOG Resources provided investors with a glimpse of its growth potential thanks to the cost reductions and efficiency gains captured during the oil market downturn. At that time, the shale giant thought it could increase oil output at a 10% compound annual growth rate through 2020 at $50 oil, with that rate accelerating to 20% at $60 oil. However, thanks to additional gains and a needle-moving acquisition, EOG has since increased that outlook to 15% and 25% at $50 and $60 oil, respectively.

That said, the industry has undergone a notable shift in how it allocates capital since that time. Most producers are no longer planning on pouring all of their money into drilling more wells to grow as fast as they can. Instead, they're beginning to return a portion of their excess capital to shareholders. Laredo Petroleum, for example, recently announced a $200 million share repurchase program, which is enough to buy back 10% of its outstanding shares. Fellow shale-focused peer Pioneer Natural Resources (NYSE: PXD) also unveiled a share buyback program, planning to repurchase $100 million in stock this year. In addition to that, Pioneer Natural Resources announced a fourfold dividend increase. Devon Energy, meanwhile, promised to ramp up cash returns after it paid off another $1.5 billion in debt.

With so many shale drillers planning to send more cash back to investors this year, there's some pressure on EOG Resources to do the same, especially since trendsetting rivals have significantly outperformed other oil stocks after announcing increased cash returns. Given EOG's returns-focused management team, it seems likely the company will join in and return more cash to investors this year.

Look for a strong end to 2017 and a bright outlook for 2018

Unless EOG Resources ran into an unexpected drilling problem, the oil giant should report another good quarter later this week. Further, given its low-cost operations, the company will likely unveil a balanced plan for 2018 that grows production and returns more cash to investors. Those catalysts could provide EOG Resources with the fuel needed to deliver market-beating performance in the coming year if oil prices cooperate.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.