EOG RESOURCES INC (EOG) stock intrinsic value fair value estimate & owner earnings analysis

EOG Resources produces crude oil, natural gas liquids and natural gas, almost entirely in the United States (Delaware Basin in Texas and New Mexico, the Eagle Ford and Dorado plays in South Texas, the Bakken, Wyoming's Powder River Basin and, since August 2025, the Utica in Ohio), plus gas in Trinidad. In 2025 it produced 1,232 thousand barrels of oil equivalent a day, up from about 985 in 2023, and received an average of $65.63 a barrel for oil. What it earns in any year is set mostly by commodity prices it does not control; what it controls is its cost of finding and producing barrels, which has historically been among the lowest of the large US producers. Owner earnings. We measure the cash the owners can take out after keeping the business running: operating cash flow, with temporary working-capital swings removed, less stock compensation and the drilling capital needed to hold production level. Measured this way, per share earnings over the past ten years were about -$0.17 (2016), $3.50, $6.14, $2.07, $2.15 (2020), $12.94, $15.69 (2022), $8.20, $8.83 and $7.46 (2025). In 2021 and 2022, part of drilling spending was treated as growth investment because revenue was rising sharply; in years when revenue fell, all capital spending was charged as upkeep. Depletion of reserves is added back like any non-cash charge, but this is not a free pass: the full drilling budget is charged in normal years, and that budget is what replaces the barrels produced. A large swing in taxes payable (cash taxes deferred in 2024 and paid in 2025) and in receivables were stripped out as timing items. Because EOG carries debt, we value the business before its lenders by adding back cash interest of roughly $140-185 million a year, then subtract the debt. The starting level. A single year of an oil producer means little, so we used the median of 2019-2025, a full cycle that includes the 2020 collapse and the 2022 spike: about $8.47 per share of cash before interest. Earlier years describe a much smaller company and are left out. In 2025 this measure fell about 14% from 2024 as oil prices dropped 15%. Our base case nevertheless starts 2026 at about $9.00, above both 2025 and the anchor, for a dated reason in the filings: the Encino purchase closed on August 1, 2025, so 2025 carried only five months of it. On a full-year basis the company's own pro forma disclosure puts 2025 net income at $5.4 billion versus $5.0 billion reported, and first-half 2026 operating cash flow of $7.6 billion compares with $4.3 billion a year earlier. We do not assume higher oil prices. Base case: about $110 per share. Cash before interest of roughly $9.00 per share in 2026, then $8.47 a year for the following two decades with no growth credited. That duration rests on two facts: proved reserves of 5.5 billion barrels of oil equivalent, about 12 years at the current production rate, and a long record of replacing what it produces from its own drilling (about 336-580 million barrels added each year in 2023-2025 against roughly 360-450 million produced). Beyond twenty years nothing we can evidence today sustains the rate, so it fades by 5% a year. The business is worth about $118 per share; it owes about $8.0 billion of senior notes and leases against roughly $3.9 billion of cash beyond operating needs, about $7.70 per share net, leaving about $110. Most notes carry fixed coupons of 4-6% with nothing due until $640 million in 2028 and $750 million in 2030, so refinancing is not a material issue. Bear case: about $47 per share. Oil and gas prices have collapsed for prolonged periods: in 2015-2016, US shale oversupply and OPEC's refusal to cut drove EOG's owner earnings to roughly zero for two years, and 2019-2020 produced another two lean years. We assume one more episode like 2015-2016 within the decade: a near-normal 2026 at about $7.00, then two years at about $0.50 per share, a partial recovery to $3.50, and a lower plateau of $5.50 thereafter (about a third below the cycle median), fading 6% a year after year ten as drilling is cut back and inventory quality declines. The business is worth about $55 per share in this case, less $7.70 of net debt. In the trough years cash flow falls short of interest for two years, which the current cash balance covers, and the company carried a similar trough in 2016 without cutting its dividend. Bull case: about $141 per share. Prices hold near the 2023-2024 average and the full Utica and Dorado gas positions run at the volumes already in the 2026 drilling plan, giving about $10.00 per share a year (near 2024's level plus a full year of Encino), sustained for 25 years on the demonstrated reserve-replacement record and then fading. We did not credit new exploration successes, international ventures or higher prices, because none of these can be shown today. What could make this wrong: the level of oil prices over the next decade matters more than anything EOG does; a prolonged period below about $50 would push value toward or below the bear case. The Encino purchase ($5.7 billion including debt) is the largest acquisition in years and raises EOG's exposure to natural gas prices, which have been even more volatile. Net debt of about $4 billion is small relative to the business, so the downside is a lower value, not a threat to solvency. Margin-of-safety price. We are reasonably confident in the long-run earnings level, because it is drawn from a full cycle and the company has a decades-long record of low costs, but very unsure of any given year, since prices swing it by half or more. The worst plausible outcome is a multi-year price collapse like 2015-2016 or a structural decline in oil demand; the balance sheet would survive either, with debt well under one year of normal cash flow and no maturities before 2028, but the share price could sit near the bear value for years. If we are wrong about the cycle median or how long the reserves last, the shares are probably worth $60-80 rather than $110. Meanwhile, the company pays a regular dividend of $4.08 a year ($1.02 a quarter), about 8% at the margin-of-safety price, and has bought back a lot of stock. At $52 the price is little more than the bear value, the dividend has continued through past downturns, and a move to the midpoint between the bear and base values within about three years, or to the base value within five, implies about 20% a year. That is why the margin-of-safety price is $52.