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Analyzing EOG Resources’ Enterprise Multiple

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EOG Resources’ enterprise multiple

As of 3Q15, EOG Resources’ (EOG) EV-to-adjusted EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio comes around 10.3x. This is higher than EOG’s historical average EV-to-EBITDA ratio of ~7.3x over the last five years.

As seen in the below chart, its EV-to-EBITDA ratio has increased since 1Q15, which was mainly due to the much steeper fall in EBITDA than EV in the same period.

Among the upstream companies within the S&P 500 (SPY), Noble Energy (NBL), Pioneer Natural Resources (PXD), and Murphy Oil (MUR) have enterprise multiples of ~12.4x, ~10x, and ~3.2x, respectively.

EOG’s forward EV-to-EBITDA multiple is 10.9x which is higher than its own historical average of 7.3x. For 2016, Wall Street analysts estimate EOG’s EBITDA to be lower by ~10% year-over-year at ~$3.7 billion.

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The enterprise multiple

EV-to-EBITDA ratio is also referred to as the enterprise multiple. This term is preferred over the PE ratio, especially for upstream companies, because it takes into account the debt of a company.

In the enterprise multiple, enterprise value is the sum of market capitalization and market value of debt minus total cash and cash equivalents.

EOG’s proved reserves

As of December 31, 2014, the EOG Resources’ worldwide proved reserves totaled ~2.5 billion boe, an increase of 378 million boe from December 31, 2013. As of December 31, 2014, ~46% of EOG’s proved reserves consisted of crude oil, ~36% of natural gas, and ~18% of natural gas liquids. Of the total proved reserves, ~97% is in the United States and only ~3% in international locations.

According to EOG’s 2014 annual report, the discounted value of its reserve base at the end of 2014 was ~$27.9 billion. Given the decline in commodity prices in 2015, this value should be much lower today.

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