(EOG) EOG Resources to Sell Kitimat Stake

Texas-based EOG Resources Inc.’s (EOG) Canadian subsidiary – EOG Resources Canada Inc. – has signed a purchase and sale agreement with the Canadian counterpart of Chevron Corporation (CVX). Per the agreement, EOG will divest its stake in the Kitimat LNG facility to Chevron.

The transaction is anticipated to close by the end of the first quarter of 2013, subject to the consent of Canadian regulatory authorities. The financial details of the deal have not been disclosed by either of the parties.

The assets that are up for sale include EOG Canada’s 30% stake in the planned natural gas liquefaction and export facility on British Columbia’s west coast and the associated Pacific Trail Pipelines project, in addition to undeveloped net acreage of about 28,500 in the Horn River Basin.

EOG’s decision to divest its stake in the Kitimat LNG facility is in sync with its strategy of concentrating on its domestic onshore crude oil output, which has an immediate reinvestment prospect. The company, however, has no doubts with respect to the feasibility of the Kitimat project.

EOG is one of the best independents in the E&P sector with its attractive growth profile, huge inventory of drilling opportunities, upper quartile returns and disciplined management team. EOG continues to demonstrate solid execution in its key growth assets, particularly in the Eagle Ford and Bakken plays. The company’s large portfolio of high-return projects and strong technical competence are the key factors that would lead to its success over the long term. Notably, EOG’s key skills lie in the early identification of prospective areas through its engineering technical expertise at low acreage prices, thus driving organic growth and delivering attractive returns on capital employed.

EOG holds a Zacks #2 Rank, which is equivalent to a Buy rating for a period of one to three months. Longer term, we maintain our Neutral recommendation.

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