Q2 2021 EOG Resources Inc Earnings Call
Call her and the accompanying investor presentation slides may include estimated potential reserves and estimated resource potential not necessarily calculated in accordance with the SEC reserve reporting guidelines.
We incorporate by reference the cautionary note to U S. Investors that appears at the bottom of our earnings release issued yesterday.
Participating on the call. This morning are Bill Thomas Chairman and CEO.
Billy Helms, Chief operating officer, as <unk>, President and COO.
Medicare EVP exploration and production, Jeff Leitzel, EVP exploration and production.
Lance <unk> senior VP marketing and David Streit, VP Investor and public relations.
And Bill Thomas.
Thanks, Tim and good morning, everyone.
<unk> is focused on improving returns.
For the first half of the year are already reflecting the power of EOG shift to our double premium investment standard once again, we posted outstanding results and the second quarter. We delivered adjusted earnings of $1.73 per share and nearly $1.1 billion and free cash flow repeating the record level of free cash flow, we generated last quarter.
There.
Our outstanding operational performance included another beat the high end of our oil production guidance, while capital expenditures and total per unit operating costs were below expectations. We are delivering the exceptional well productivity that continues to improve and addition, even though the industry is in an inflationary environment EOG.
<unk> continues to demonstrate the company's unique ability to sustainably lower costs.
Our performance clearly proves the power of doubling our reinvestment hurdle rate double premium requires investments to earn a minimal and 60% direct after tax rate of return using and flat commodity prices of $40 oil and $2.50 natural gas.
I'm confident our reinvestment hurdle is 1 of the most stringent and the industry and a powerful catalysts to drive future outperformance across key financial metrics, including and return on capital employed and free cash flow.
As double premium and proves our potential to generate free cash flow, we remain committed to using that cash and maximize shareholder value the regular dividend debt reduction special dividends and opportunistic buybacks and small.
High return bolt on acquisitions are our priorities and the first half of this year, we reduced our long term debt by $750 million and the demonstrated our priority to returning cash significant cash to shareholders with a commitment of $1.5 billion and regular and special dividends and we also closed on several low.
Costs high potential bolt on acquisitions, and the Delaware basin over the last 12 months.
Year to date, we have committed $2.3 billion to debt reduction and dividends, which is slightly more than a $2.1 billion of free cash flow we generated.
Looking ahead to the second half of the year and beyond our free cash flow priorities and framework have not changed as we generate additional free cash we remain committed to returning cash to shareholders and a meaningful way.
We are focused on doing the right thing at the right time in order to maximize shareholder returns.
Over the last for years, we've made huge progress, reducing our ghd and methane intensity rates, nearly eliminating and routine flaring and increasing the use of recycled water and our operations. We're focused on continued progress towards reducing our <unk> emissions in line with our targets and ambitions this quarter we.
<unk> announced our carbon capture and storage pilot project, which we believe will be our next step forward and the process of reaching our net zero ambition can and will provide more color on this and other emission reduction projects and a few moments.
Driven by Eog's innovative culture, our goal is to be 1 of the lowest cost highest return and lowest emission producers playing a significant role and the long term future of energy.
Now here's Ezra to talk more about how our returns continued to improve.
Thank you Bill, while we announced our shift to the double premium investment standard at the start of this year. The shift has been underway since 2016, when we first established our premium investment standard of 30% minimum direct after tax rate of return using a conservative price deck of $40 oil and $2.50 natural gas for the life.
Of the well.
And the 3 years that followed our premium drilling program drove a 45% increase and earnings per share a 40% increase and RSA.
And an oil price environment, and nearly 40% lower compared to the 3 year period prior to premium.
As comparative financial performance can be reviewed on slide 15 of our investor presentation and.
In addition premium enabled this remarkable step change and our financial performance, while reinvesting just 78% of our discretionary cash flow on average, resulting and 4.6 billion of cumulative free cash flow.
The impact from doubling our investment hurdle rate from 30% to 60% using the same conservative premium price deck is now positioning and EOG for a similar step change to our well productivity and costs boosting returns and capital efficiency and cash flow.
Double premium wells off for a shallower production declines and significantly lower finding and development costs, resulting and well payouts of approximately 6 months at current strip prices.
The increase and capital efficiency, resulting from reinvesting in these high return projects is increasing our potential to generate significant free cash flow. This year, we are averaging less than $7 per barrel of oil equivalent finding costs, adding these lower cost reserves is continuing to drive down the cost basis of the company and when combined with EOG is opera.
<unk> cost reductions is driving higher full cycle returns.
Looking back over the last 4 quarters EOG has earned a 12% return on capital employed with oil averaging $52.
We are well on our way to earn a double digit our oce at less than $50 oil and it begins with disciplined reinvestment and high return double premium drilling.
While EOG is 11500 premium locations approximately 5700 are double premium wells located across each of our core assets.
We are confident we can continue to grow our double premium inventory through organic exploration, improving well costs and well productivity and small bolt on acquisitions, just like we did with the premium over the last 5 years.
And the past 12 months through 8 deals we have added over 25000 acres and the Delaware basin through opportunistic bolt on acquisitions, and an approximate cost of $2500 per acre.
These are low cost opportunities within our core asset positions, which in some cases receive immediate benefit from our existing infrastructure pre.
Premium and now double premium established a new higher threshold for adding inventory.
Exploration and bolt on acquisitions are focused on improving the quality of the inventory by targeting returns in excess of the 60% after tax rate of return hurdle.
<unk> record for adding high quality low cost inventory predominantly through organic exploration is why we do not need to pursue expensive large M&A deals.
2021 is turning into an outstanding year for EOG are exceptional well level returns are translating into double digit corporate returns and our employees continue to position EOG for long term shareholder value creation.
Here's Billy with an update on our operational performance.
Thanks, Andrew.
Our operating teams continue to deliver strong results once again, we exceeded our oil production target for <unk>.
<unk> slightly more than the high end of our guidance driven by strong well results.
In addition capital came in below the low end of our guidance as a result of sustainable well cost reductions.
We have already exceeded our targeted 5% well cost reduction and the first half of 2021.
We now expect that our average well cost will be more than 7% lower than last year.
And as a reminder, this is in addition to the 15% well cost savings achieved in 2020.
We continue to see operational improvements outpaced the inflationary pressure and the service sector.
Average drilling days are down 11%.
And the feet of lateral completed and a single day increased more than 15%.
We are utilizing our recently discussed Super zipper completions on about a third of our well packages this year.
And we expect that percentage to increase next year.
In addition, our sand cost are flat to slightly down year to date.
We have line of sight to reduce the cost of sand sourcing and processing and expect to start realizing savings and the second half of 2021 and into 2022.
Water reuse as another source of significant savings and we continue to expand reuse infrastructure throughout our development areas.
Finally, we have renegotiated several of the expiring higher price contracts for drilling rigs and expect to see additional savings and the remainder of this year and next.
We also use the strength of our balance sheet to take advantage of opportunities to reduce future costs and several areas.
As an example last summer we pre purchased the tubular as you needed for our 2021 drilling program when prices were at their lowest point.
<unk> is not immune to the inflationary pressures, we're seeing across our industry, but this forward looking approach helps EOG mitigate anticipated cost increases.
And as a reminder, 65% of our well costs are locked in for the year and the remaining cost we are actively working down through operational efficiencies.
As usual, we have begun to secure services and products ahead of next year's activity.
With the goal of keeping well costs at least flat in 2022.
But as you can rest assured.
That with our talented and focused operational teams our ultimate goal is to always push well cost down each year.
The same amount of effort is being placed on reducing our per unit operating cost.
The results showing up and reduced LOE, driven mainly by lower workover expense reduced water handling expense and lower maintenance expenses.
Savings are also being realized from our new technology being developed internally to optimize our artificial lift we.
We have several new tools that help us reduce the amount of gas lift volume as required to produce wells without reducing the overall production rate.
These optimizing tools not only reduce cost, but also help reduce the amount of compression horsepower needed, which ultimately reduces our greenhouse gas footprint as well.
These and other continuous improvements are a great Testament to our pleased but not satisfied culture.
This quarter. We can also update you on our final ESG performance results from last year.
We reduced our greenhouse gas intensity rate, 8% and 2020 drill.
Driven by sustainable reductions to our flaring intensity.
Operational performance and the first half of this year indicates promise for future further improvements to our emissions performance and 2021.
Putting us comfortably ahead of pace to meet our 2025 intensity targets for ghd and methane and our goal to eliminate routine flaring.
Achieving these targets as a first step on the path towards our ambition of net zero emissions by 2040.
Water infrastructure investments also continue to pay off.
Nearly all water used in our powder River basin operations last year was sourced from reuse.
For our company wide operations and the U S water supplied by reuse sources last year increased to 46%.
Reducing freshwater to less than 1 fifth of the total water used.
These achievements and other along with the insight into ongoing efforts to improve future performance will be detailed and our sustainability report to be published in October.
We are starting to fill and the pieces on the roadmap to get to net zero by 2040.
Here's Ken with the details.
Billy earlier this year, we announced our net zero ambition for our scope, 1 and scope 2 GHT emissions by 2040, our ambition is aggressive but achievable and we expect it will be an iterative process requiring trial and error. This approach mirrors, how we develop and oil and gas asset we pilot creative applications.
Of existing and new technologies to determine the most effective solutions to optimize efficiencies by minimizing costs and maximizing recoveries of oil and natural gas.
Here, we are aiming to maximize emissions reductions. We then apply the successful technologies and solutions across our operations where feasible.
Our net zero strategy generally fall generally falls into 3 categories reduce capture or offset that is we are focused on directly reducing emissions from our operations capturing emissions from sources that can be concentrated for storage and offsetting any remaining emissions reducing emissions.
<unk> from our operations is a direct and immediate path to reducing our carbon footprint. Our approach is to invest with returns and mind and seek achievable and scalable results.
We made excellent progress the last for years through initiatives to upgrade equipment and the field invest and pilots using existing and new technologies and leverage our extensive big data platform to automate and redesign processes to improve emissions efficiencies as a result since 2017, we have reduced our.
<unk> intensity rate, 20%, our methane emissions percentage by 80% and our flaring intensity rate by more than 50%.
We recently obtained permits to expand the successful pilot of our closed loop gas capture project, which prevents flaring in the event of a downstream interruption.
We designed and automated system that redirects natural gas back into our infrastructure system and inject the gas temporarily back into existing wells and the project requires a modest investment to capture a resource that would have otherwise been flared and stores it for further or for future production and beneficial use.
The result is a double premium return investment that reduces flaring emissions are wellhead gas capture rate was 99, 6% and 2020 and rollout of additional closed loop gas capture systems will help capture more of the remaining 4%.
Turning to our efforts to capture Cotwo, we are launching a project that will capture carbon emissions from our operations for long term storage. This project is designed to capture and store and concentrated source of Eog's direct Cotwo <unk>. We believe we can design solutions to generate returns from carbon capture and storage.
By leveraging our competitive advantages and geology, well and field facility design and field operations are.
Our Ccs efforts are directed at emissions from our operations and we are not currently looking to expand those efforts into another line of business.
We will provide updates and our pilot Ccs project as it progresses.
EOG is all is also exploring other innovative solutions for ghd emissions reductions over the past 18 months, we have deployed capital into several fuel substitution projects to power compressors used for natural gas pipeline operations and natural gas artificial lift.
Compressors are the largest source of EOG stationary combustion emissions by replacing NGL rich field gas with lean residue gas EOG can reduce the carbon intensity of the fuel, which lowers cotwo emissions and improves engine efficiency.
Using lean residue gas also earns a very favorable financial return by recovering the full value of the natural gas liquids versus using those components is fuel.
Another fuel substitution and test we conducted recently was blending hydrogen with natural gas.
While it is still in the early stages, we are analyzing the test data to evaluate the emissions reductions that would be possible from this blended fuel it and operational and economic scale.
We're very excited about this part of the business just like cost reductions well improvements or exploration success. This is a bottom up driven initiative EOG.
<unk> employees thrive and this type of challenge, we create innovative solutions and apply technology to solve problems improve processes and optimize efficiencies, while generating industry, leading returns EOG culture has embraced our 2014 net zero ambition and we are focusing our efforts to minimize our carbon footprint.
And as quickly as possible.
Now here's bill to wrap up.
Thanks, Ken and conclusion and I'd like to note. The following important takeaways first by double doubling our reinvestment standard the future potential of our earnings and cash flow performance are the best they've ever been.
<unk> for the first half of this year demonstrate the power of double premium and the beginning of another step change and performance second EOG is not satisfied.
We are committed to getting better.
Sustainable cost reduction and improving well performance are driving returns and free cash flow potential to another level.
At the same time the same innovative culture that is driving higher returns is also improving our environmental performance.
Third our commitment to returning cash to shareholders has not changed as we have already demonstrated returning meaningful cash to shareholders remains a priority.
And finally as as it transitions into the CEO role.
Could not be more excited about the future of the company the quality of our assets and the quality of this leadership team are the best in company history oil.
All supported by Eog's talented employees and unique culture that continues to fire on all cylinders. The company is incredibly strong and our ability to get stronger has never been better the future of EOG is in great hands. Thanks for listening now and we will go to Q&A.
Thank you and question.
And then some session will be conducted electronically.
And I will like to ask a question and please.
And this does for that but you did 1 and you touched on the telephone.
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To allow your signal to retail and keeping them.
Question for limited to 1 question and 1 follow up.
Good question.
We will take as many questions as time for me.
Once again, please press star 1.
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Please pause for just a moment to give everyone an opportunity to signup for gray.
And fifth question comes for already a mariani with Keybanc. Please go ahead.
Yeah, Hey, guys.
We highlighted some success on kind of the small bolt on deals here.
And I guess just from my perspective, it seemed like those were very very economic very cheap per.
For acre costs at around 2500 per acre.
A lot of this just a function and the fact that these are very small deals and sort of captive to EOG existing acreage and infrastructure, which just gives you kind of the natural ability to kind of buy these and a lot of competition and just want to get a sense of how repeatable. These type of bolt ons can be for you guys going forward.
Okay.
Yeah, Thanks, Leo I'm going to ask for Ezra to comment on that.
Yes, Leo you described that very very well. These are smaller deals as I highlighted its 25000 acres across 8 different deals that we've we've captured and put together over the over the past 12 months and these are low cost opportunities and our and our core positions within the Delaware Basin and.
And typically these are things that are either.
Contiguous with our pre existing acreage position and are very very close to our acreage position and so theres not a lot of outside competition a lot of times. We're just bye bye all regards where the partner that.
Makes sense to go ahead and get these deals because like I said, we have the surrounding wells information seismic and oftentimes. Some of these deals can go immediately right into our into our existing infrastructure and these are typically we highlighted the last 12 months, but we wanted to give a sense of the.
The type of scale and the impact that these low cost opportunities can have when we're focused on them and these deals are pretty continuous throughout all of our plays and throughout the year.
Okay. That's helpful and I guess I also wanted to ask about your comment around.
Seeing a less and $7 per Boe.
F&B year to date and clearly you attributed some of the factors. There we had talked about how your well costs are coming down and that's part of it and also the move to double premium, but maybe you can provide just a little bit more color I mean, and I guess that less than $7 seems like a very.
The low number out there are there any other just kind of key factors, where maybe theres more of that and mix shift certain plays where perhaps your higher concentration in certain zones and the Delaware This year and day.
And you guys are also drilling some gas wells in south, Texas might be helping just any color around kind of so many key drivers and getting you to under 7%.
Leo and Billy Helms will comment on that.
Yes, good morning Leo.
Chip is strictly a function of moving to our double premium strategy. We saw a similar change if you remember back when we shifted to premium a few years ago, and we're seeing that same compounding effect as we shift to double premium and the quality of our wells improves.
And as you noted we have a history of continuing to focus on lowering well costs and just our continued effort and those areas. So it's not really attributable from 2.1 basin or the other.
Just a function of the impact of shifting to develop premium across our portfolio and I might add as we look to add wells to the to the inventory of double premium wells there'll be other in that same category to compete on both returns and finding cost.
Thanks, guys.
The next question and this fall and Neal Dingmann with Trust and Securities. Please go ahead.
Good morning, guys.
Nice quarter.
My first question is really just around when you've talked about shareholder return, obviously that seems to be the hot topic. These days.
Glad you don't do this but my thoughts about it.
If you guys would ever there's been others out there that are sort of guarantee that type of return or a ballot or something like that you guys seem to want to stay more flexible, but im just would just love to hear more color on.
And again, obviously you guys had a months for amount of free cash flow coming in and Thats not the issue I'm. Just wondering how you think about if you've put any sort of guarantees on the type of amount going forward.
Yes, Neal we've outlined a very clear framework and we've consistently delivered on our priorities and so maybe the best way to think about the future is to look and what we've done in the past and I'm going to ask Ezra to give more color on that.
Yes Neal.
And Investor presentation, there on slide 5 and 6 I think we can reference that.
This year, we've been very successful executing on on all of our cash flow priorities and the framework that we've kind of laid out.
We've been able to increase the regular dividend by 10%, which we feel you know as our primary mode of capital return.
We were able to reduce our debt earlier this year by $750 million by retiring a bond and.
And then third we just paid a $600 million special dividend on July 30.
This year, which we had announced during the last earnings call. So our year to date free cash flow commitment is $2.3 billion, which is slightly more than the $2.1 billion, we generated and going forward our framework and priorities have not changed lastly, we also highlighted and the opening remarks as we just spoke about a little bit with.
With Leo and some of them.
Small bolt on acquisitions, we've done which is 1 other avenues to growing our inventory and that's really the where the entire process begins its having the depth and quality of.
And inventory to continually improve the business and with our shift to drilling these double premium wells.
Free cash flow potential of the company continues to expand and as it does and as we realized the cash we're well positioned to continue executing on our priorities. We are committed to creating the most shareholder value and our cash return strategy is really a reflection of that so as the company continues to improve.
We're excited about about that potential.
Again, you guys really like the cash return strategy and then just 1 follow up.
Exploration and your opportunities that really you guys continuing to stick out there you obviously continue to be the leaders mentioned a number of things that have you excited could you just remind us again I think the last was it I forget Bill was it was it maybe 30% or 15.
And it was a unique projects here and the U S and just whether it can again could you tell us maybe just talk about the upside potential you see for that business. This year going into 2022 for the exploration upside.
And Neil I think what we've outlined as we've got about 15 exploration wells built into the Capex This year. So.
And the U S. So I'm going to ask <unk> to give some more color on that.
Yes, Neal the exploration prospects for all moving forward.
And we discussed on the last call. The prospects have all started to move at different phases really kind of as a result of some of the slowdown during COVID-19 and during 2020.
So we're as Bill just mentioned and we're planning on drilling 15 wells outside of the publicly discussed assets. Some of these and some of the prospects our initial exploration wells.
Some of them are more what we'd call appraisal wells are evaluating kind of the repeat ability of these plays were still leasing across many other players as well and as we've discussed the opportunities are really targeting a higher quality rock than what's typically been drilled horizontally and.
And outgrowth of a lot of technical work, we've done across multiple basins to combine modern drilling and completions technologies and apply those to reservoirs that have been traditionally overlooked and really we're very happy with our progress to date and we look forward to sharing additional information and it at an appropriate time.
Great details. Thank you all.
Hum.
The next question comes from Doug Leggate with Bank of America. Please go ahead.
Well, thank you guys.
This is the first thing I have a chance to say bill congratulations on your other Tom.
You say for to see what how are you.
And you move forward with the business, but.
And they are bill if I could ask you just to maybe a little bit of a retrospective here as you walk out the door so to speak.
There's been a lot of changes and the business model and also transitioning to a free cash flow and so on so I'm. Just wondering if you can offer and thoughts as to how this business should look going forward.
Set to level and that level as you kind of look back home.
Your tenure and.
And the changes taking place and all of that center.
Yes, well, thank you very much and.
Youre right I mean, the business has involved the.
Evolved over the last.
Year since the shale business really started.
And I and it's obviously, it's moving in and incredibly.
Great positive direction right now that the focus on returns and we've always been a leader and focus on returns and we're like Super excited about that the capital discipline.
Spending well below.
Cash flow and generating high returns and giving significant amount of cash back to shareholders. I think is a is certainly all very positive and so I think really we're we're entering.
Super New era.
And I think it's more positive than it's ever been before I think.
I think we are.
As an industry and going to generate better returns and Ghana.
Give.
More back to shareholders and I think we're in a more positive and macro environment and we've been in.
Since really the shale business started and.
And I think OPEC plus is solid I think the U S. We will remain disciplined.
And so I think.
I think the industry is and for a long run of really good good results.
And we've enjoyed butting heads with you over the years Bill So congratulations again and good luck.
And so this is my follow up maybe for you.
<unk>, obviously been an organic story for many many years and you've touched on and exploration again today, but yes, so as 1 of the.
I guess.
The acquisitions that you did and.
And if you look at your portfolio positioned today, there is clearly a large.
<unk> potentially for sale right and unified.
And.
And a very high quality acreage position and you could argue.
And why would emanate and.
A feature of the business at some point and maybe Iqos supply associated with you will yourself.
And being interested in nutshell package and I'll leave it there. Thanks.
Yeah.
Yes, Doug no were not evaluate and any large acquisition packages. At this time, we are focused on these small high return bolt on acquisitions and as discussed and opening remarks.
The larger expense of M&A deals the opportunity struggled to compete with the existing return profile that we have within the company do to either.
Hi.
PDP cost the high acreage cost or both.
Oftentimes acreage being marketed it might be additive to the quantity of our inventory, but not additive to the quality and as we've discussed as you know we're always working to improve the quality of our assets and we're having a great success with the small bolt on acquisitions were for.
Feeling very confident with our ability to increase the quality of our deep inventory through our organic exploration program.
And so we're excited about our prospects there.
Very clear thanks, guys.
Okay.
The next question comes from for Tanger and its costs have been can please go ahead.
Hi, Thank you good morning, gentlemen.
2 questions.
The first 1.
And maybe that Bill you can help us that too for yet.
To understand the decision on the EBIT for Tesla.
If we looked at last quarter, when you announced.
Special dividend I think you set a number of key condition and that's all being met such as.
And the January.
And so free cash flow.
And you don't have much of that.
And that maturity in the near term.
And your cash and it's already you can access all what.
And yet a reasonable level, which is 2 opinion.
And this quarter basically all of those conditions being met.
And you can sign not to it and can not a special dividend.
And just trying to understand that what is.
And the additional consideration.
And also if you can talk about between buyback and special dividend at this point for all.
And the cycle.
Which is more pizza, Paul for you or that houses looked at the differences. So thats. The first question.
The second question, yes with age.
<unk>.
I think that you guys kidneys.
And.
Question Debug and many of the basins.
Non interest would be in large scale, M&A, which understandable.
It makes sense I'll live with that tool.
Some of your peers.
Core to get the debt.
Yes, 2 for me, we did launched joint venture so everyone still have equity ownership and you don't pay and opinion.
But we'll be able to allow to use for your technical knowhow to apply to Zika and the larger scale that day in July.
And I think efficiency gain.
We think that makes sense for EOG for that Kyle.
Structure. Thank you.
Yes, Paul.
So on and on the first question you know I think it's Super important and I think we've already shared this.
And we've got a very clear framework and we've consistently delivered as you pointed out.
And that framework.
And significantly given and that framework, so and it was given a lot of money back.
To shareholders.
And going forward, our framework and priorities.
Not changed at all so as we generate additional free cash flow.
We're committed to returning cash to shareholders and a very meaningful way, it's really all about doing the right thing at the right time and.
As the company continues to improve we're excited about our potential to increase.
Total shareholder return and.
And the framework, we do have the.
The option.
For opportunistic buybacks.
As long as along with special dividends and so we look at opportunistic buybacks as.
Being able to have the opportunity to consider buying back shares and.
Counter cyclic environments, where the market is not well and our thought process significantly undervalued and while that would be and opportunity to consider buybacks and a good times.
And we think the special dividend as a way to go and that's what we're executing on now and and that's what we're hopeful to continue to execute and the future.
On the second part of your question on the large scale M&A.
I'm going to I'm going to ask Billy to kind of think through that question and give his feelings on that.
Yes, Thanks Bill.
Large scale M&A is there is as we've just talked about a minute ago, certainly we're not interested and <unk>.
Adding quantity to our inventory aboard its more about the quality of the assets, we have and as we think about.
Forming may be a potential larger JV.
That same approach needs to apply as we look across the fence if our if our assets are and what we consider the core acreage position and the play.
Adding and acreage outside of that ring fence would dilute our efforts. We've also taken as you know taken a lot of effort to build out infrastructure to make art to lower our unit cost and continue to improve our returns and we build out that infrastructure to meet the.
Volume expectations that we have for developing our acreage.
That may or may not apply as you add in additional acreage outside of that so I think each operator looks at how to make the most efficient.
Use of the acreage and their capital as they can and forming jv's doesn't necessarily improve overall company metrics. So I think.
While we've looked at bolt ons.
Way too to shore up a lot of our core area acreage I think that is a very applicable part of maybe thinking about JV expansions continue to core up and your base areas, where it adds the same quality doesn't dilute your quality of the assets.
And just expanding and a basin may or may not do that.
Thank you.
The next question chemicals from Iron day, Rob.
And then with JP Morgan. Please go ahead.
Yes, good morning.
Tim maybe starting with you I just wanted to get maybe some of the order of operations around a potential incremental cash return beyond the dividend last quarter, you mentioned that EOG like to keep a $2 billion minimum cash balance plus.
Fund the $1 billion to $5 billion bond maturities, so that suggest that you'd like to get to $3.5 billion of cash and anything.
Beyond that is available for cash return beyond the dividend.
Certainly you can do that math, but it's more than that.
As Ron and Bill talked about further we have to look at all of our priorities and the timing of those priorities to determine when and if there is another special dividend or share repurchases or bolt on acquisitions. All of those things are in play at all times, So and the $2 billion is not a and of the month number.
During the cycle so.
Cash can vary.
Tremendously during the month, so the $2 billion is the low point during the month not necessarily the end of a.
For a month, so you have to keep that in mind as well, but yeah.
Yes, you can do that math.
That's not all there is to it we have to look at all of our priorities and where we're at and the cycle and.
And theres been pointed out.
On slide 6 we have already distributed more cash than we brought in and the first half of the year. So we're well on our way to achieving that so as we move through the second half of the year, we'll look at what other cash is generated and we will evaluate how to.
And use that cash at that time.
Great and maybe just a follow up to Paul's question.
Could you give us maybe some feedback you've gotten from some of the shareholders on the special dividend.
And your thoughts on the per.
Pros and cons of moving to a formulaic type of approach around the cash return.
And.
It is especially and in terms of buyback.
Yeah, Ryan this is bill.
We've gotten an enormously positive responses from every shareholder on the special dividend.
And was a super hit and they like our framework when you really think through it it's not really a complicated framework.
That's the framework we're.
We want to be and are positioned to maximize total shareholder returns and as we said I've said and be able to do the right thing at the right time.
If you look at the history of what we've been doing.
And really over the last several years, we have been we've increased the regular dividend by 146% and.
And now we're working on a special dividend so.
As we go forward. It is our certainly our goal to continue to return meaningful cash back to the shareholders through the process. So so really.
It's a pretty straightforward process, if you kind of think through it and the framework is pretty pretty simple and it's just a matter of giving us the ability to have the options to do the right thing to maximize total shareholder return.
Great. Thanks, a lot.
The next question is from Michael Gallo with Stifel. Please go ahead.
Hey, good morning, everybody and Bill I'd like to offer my congratulations on a great career as well.
I know, it's too early to give details on 2022, but wanted to see if you could speak to it at least at a high level given your outlook for flat to lower well costs next year.
If you still see barrels held off the market by OPEC plus would you just look to hold production flattish and could you do that with kind of equal to lower capital than you spent this year.
Yes, well. Thank you very much again and we appreciate your comments, it's a team effort and EOG I'll tell you what we've got a lot of great employees and a super management team. So it's a team effort and it's been and honored to be able to to work with all day every body.
About 2022, you know, it's really too early to talk about growth.
We need to watch the pace of demand and recovery and the spare capacity drawdown. So we don't want to really spec and speculate on anything specific for 2022, but.
I'm going to ask.
To make us some additional color on that.
Yes, Michael.
Bill said, it's pretty early on 2022, its really its still pretty early to discuss any type of growth EOG.
AIG is we're committed we're not going to grow until the market clearly needs the needs the barrels and we've outlined what.
And we're looking for we're committed to staying disciplined and.
Currently we want to see demand returned to pre COVID-19 levels low spare capacity and we want to see inventories at or below the 5 year average.
Every year market factors are going to determine the plan for that year, and we're going to remain flexible and modify our plans to fit the market conditions. As he said we have made great progress this year on our on our total well cost reductions.
And going forward, that's strengthening and the underlying cap capital.
<unk> of the company.
And continuing to lower the cost base for the company and so as we move forward.
Regardless of any type of growth rates, we've set the company up with this double premium and investment plan to continue to expand the free cash flow generation and potential of EOG.
Okay.
And I guess really just my question. There was if you were to.
The production flat it looks like the capital required to do that.
It is not going up at least over the next 12 to 18 months as you see the world now is that is that fair to say.
Yes, Mark that's certainly fair to say I mean, we're reducing costs, all the time and improving well productivity. So we're hopeful.
That.
Maintenance costs and the future will be lower than it is today and that certainly directionally, what we've done and the pass and Thats hopefully, what we're going to do and the future.
Okay, Great and then.
I just wanted to follow up with Ken on the.
And you mentioned the Cts pilot you have there is there any more detail you can offer and in terms of it sounds like it's EOG specific at least at this point.
Can you talk about what the source of emissions are.
Yeah.
And where.
Youre focused within your.
Your footprint and.
Or are you looking at.
Storing sidoti and depleted fields or ceiling for us just any more detail you can give us their.
Sure. Thanks for that question.
At this point and time, we really don't anticipate any partners on our on our pilot project with our geologic and operational expertise will evaluate partnering and on future projects.
On a case by case basis.
This project is really part of our broader strategy of reduced capture and offset and it's focused on capturing our <unk> emissions and an area, where we can generate a return via some tax incentives and have a concentrated stream of cotwo that can be aggregated 2 and injection well for permanent and secure geologic storage.
And and interval and thousands of feet below the surface and and that's pretty much what we're what we're giving out at this time.
Okay very good thank you.
Okay.
The next question comes from rocket 2 and Samsung.
Yeah.
Please go ahead.
Hi, good morning to put you on the spot a little bit you highlighted the various well cost categories tubular sticks out as being both significant and also exposed to inflation you tackled the problem last year with pre purchasing can you throw out some ideas that the organization has come up with.
Sort of attack that cost category.
Billy you want to comment on that.
Good morning, Bob.
Obviously, yes.
Steel costs are going up which is affecting.
Tubular costs.
This last year, we were very fortunate to take advantage for.
Repurchasing.
The tubular who needed for this year's program and.
<unk> benefited greatly from that as costs go up and the future. We use the same approach and try to take and opportunistic look at when to secure <unk> for the next coming drilling program and.
And so we will continue to look at that.
Undoubtedly it's likely that the cost for tubular and will be higher next year than they are this year.
Is why and that slide number 10, and we tried to.
Ill give you some color on other ways, we're trying to keep our well costs flat to down going into next year and those come from the efficiencies we're seeing across the operation from drilling time to the implementation of our Super Zipper technology on the completion side too.
Newer contracts at a lower rate for some of the services. We have so it's a mixture of things we used to offset those inflationary pressures that we see and the different parts of our business.
Okay, that's clear and and just as a quick follow up could you contrast, super zippers. The way you think about them versus say a traditional zipper frac that we might think of or even a dual frac.
Sure. So our Super Zipper technique is very similar to what industry calls Osama frac.
Differences would be and how we actually implemented on a well to well basis, we keep very close control over the injection rates and pressures of individual wells within the.
Super Zipper operation.
So it's a very.
Scripted and very detailed procedure that allows us to control the rates and pressures just like we were doing and conventional frac with any.
Any other fleet, but the advantages of course has been able to double the amount of.
Stages, you get in and a particular day.
By attacking the.
Locations 2 at a time.
And we really are advancing that technology quite a bit.
Last year, we probably did less than 10% of our wells across the company benefited from Super Zipper. This year, it's probably directionally and closer to a third of the wells and we expect that percentage to increase going into next year. So we think it's going to give us a tremendous cost advantage.
And next year as we go into the program.
Great Thanks for that.
Okay.
The next question comes from Scott and hang on.
Capital markets. Please go ahead.
Thanks, and Bill again, and I also wanted to congrats you Congrats Julie give me congratulations on your 10 year obviously your.
Navigated a lot of ups and downs over the past few years fairly successfully so congrats for that.
I just have 1 question and you all seem to be.
Be doing better than expected I mean, certainly it seems like production, especially oil production on and on the upper end of your range and can you just give us some general thoughts I know youre not in a position where you're going to talk to 2022 and and how you think about growth, but if you are running a little bit ahead based on our performance of your wells.
Would you think about tapering as you get into 2022, a little bit just to maintain the flattish kind of production you all expected this year.
Yes, Scott again, thank you so much for your comments and the <unk>.
And I'll ask Billy to comment on that.
Remainder of this year and particularly the fourth quarter.
Yes, good morning, Scott.
So.
And certainly we're very pleased with the progress we've made on both reducing our well cost and the performance we're seeing from the oil wells, we are bringing into production this year.
It's a testament to the strategy of shifting the double premium standard again.
So as we go into the rest of the year.
We started out the year, a little with a little bit higher activity level, and we had a little bit higher rig counts started the year and then.
And it's tapered off and.
And we're running at a pretty consistent rate now and expect that to continue through the end of the year.
And then next year as Bill elaborated.
It's kind of hard to anticipate what will need this year, but I think the performance that we're seeing this year will continue into next year certainly.
And the pace of activity will be dictated by what we see and the market conditions. So that's kind of the color I could give you, but our performance will continue to at least stay flat or improve.
Understood. Thank you for that.
The next question comes from Neil Mehta, with Goldman Sachs net income and.
Good morning team and congratulations and congratulations Phil.
Bill last quarter, you talked a little bit about the analytics that you are building around.
Monitoring the oil macro.
Would love your latest real time thoughts a lot of moving pieces here.
OPEC demand uncertainty Iranian barrels U S supply how are each of those parameters evolving here as you guys are evaluating.
Yeah.
Yes Neil.
And as we've all seen we're definitely demand is on a strong recovery, it's a bit and lumpy obviously due to the for the virus resurgent and a few areas, but we expect.
Even with that we expect pre COVID-19 demand.
So to be reached.
Early.
22 inventories are already below the 5 year average really and the U S and and the world. So that is already been Chet.
And on the supply side.
And as I've said before we believe that the U S. We will stay disciplined and that there'll be small growth and the U S and next year.
But not not not much growth.
And we see OPEC plus.
They look to be very solid so they will continue.
To bring back on.
Shut in volumes and spare capacity as needed gradually.
And we see that the spare capacity.
And the recovery continues and likely expect we see spare capacity could be very low.
And by the second quarter or.
And by the Middle of next year. So, we'll just have to watch and see how it goes but overall, we see a very positive macro environment.
The follow up is just as you think about the U S production profile and maybe you can get a little bit more granular in terms of how youre thinking about those volumes.
The question, we continue to get asked is where are we in terms of resources maturity.
To the best of efficiencies being driven out of the shale and maybe you talk about the Permian.
Gulfport and the back and what are you seeing and each each of those plays where are we in terms of <unk>.
Efficiencies and then.
The slowdown and U S production being driven by resource maturity or is it really being driven by capital discipline.
Yes, we see we run the numbers on all the different groups from the privates to the publics to the to the majors.
And then generally.
Particularly in the private we see definitely well productivity is going down not up so it takes a lot more wells.
For that group to maintain production and are even thinking about growing it.
And overall and in.
And the other groups non.
Specific to EOG, but we generally see well productive well productivity oil production to be flat.
To not improving.
And over time, and so I think that is a function and our.
Resource maturity I think when you get and <unk>.
Downspacing.
And part and spacing.
And and timing.
And all of that I think is going to subdue the productivity.
And so literally and the biggest factor of courses and the capital discipline, and where youre spending tremendously amount less cash flow than we'd been spending and the previous year. So when you put all that together.
No we do not see and we think the discipline, we'll mine will remain with the route we not we did not see the U S growing cigna.
Significant Lee next year, so that's a very positive I think for.
<unk> and positive for the for the macro.
Thanks Bill.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mr. Thomas for any closing remarks.
So in closing I'd like to say, thank you for all the EOG employees, who continue to make EOG. So successful and that's truly a privilege and an honor to be on the same team with each 1 of <unk> and.
As is our transition and to the CE row, and Billy steps up to.
And to President and Chief operating Officer.
Along with the rest of the senior management team I could not be more excited about the future of the company so to all shareholders and future shareholders. We want to tell you. Thanks for listening and certainly thank you very much for your support.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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And with that.
Okay.
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Yes.
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