Q4 2021 EOG Resources Inc Earnings Call
Because our dividend rate and paid two special dividends paying out about 30% of cash from operations and we are continuing to deliver on our free cash flow priorities. This year with an additional special dividend announced yesterday, a $1 per share.
The last time, we said an earnings record was in 2014, we earned $5 32 per share while oil averaged $93 last year with shattered that record earnings $7 99 per share with $68 oil, that's 50% higher earnings with a 27% lower oil price.
The catalyst for that improvement was our shift to premium six years ago.
Premium is our internal investment hurdle rate that uses low fixed commodity prices to calculate the returns and drive our capital allocation decisions $40 and $2 50 natural gas for the life of the well.
While our premium strategy ensures high well level returns and quick payouts in any given year, the more significant and durable impact is to our full cycle development costs.
The benefit of making investment decisions using fixed low commodity prices is the enduring impact of steadily improving corporate level operating and cash margins over time that impact is now directly observable on the face of our financial statements.
And last year, we raised the bar again to double premium our hurdle rate increase from 30% to a minimum of 60% direct after tax rate of return using the same low fixed prices of $40 oil and $2 50 natural gas.
The switch promises to further improve financial performance in the years ahead, and it's what gives us great confidence in our ability to continue delivering shareholder value through commodity price cycles.
We expect to look back on 2021 like we do on 2016 as the year, we made a permanent increase to our return hurdle that drove another step change in the financial performance of EOG.
We also delivered as we promised operationally in 2021 with production volumes Capex and operating costs in line or better than target set at the beginning of the year.
We were able to successfully offset emerging inflationary pressures during the year to lower well costs by 7%.
2021 was also a big year for ESG performance, we reduced our methane emissions percentage in injury rates and increased water reuse, we announced our 2014 net zero ambition and added our goal to eliminate routine flaring by 2025 to our existing near term targets for greenhouse gas and methane emissions rates.
We continue to develop creative solutions, leveraging existing technology to make progress on our path towards our net zero ambition.
There's growing recognition that oil and gas will have a role to play in the long term energy solution.
And we know that to be part of that solution. We not only have to produce low cost high return barrels. We also have to do it with one of the lowest environmental footprint.
As we look into 2022, the global oil market is in a position to rebalance during the year.
Our disciplined capital plan aims to increase long term shareholder value through high return reinvestment that optimizes, both near term and long term free cash flow.
The plan also funds exploration and infrastructure projects to improve the future cost structure of the business.
With the improvements we made in the business last year combined with a higher commodity price environment EOG is positioned to once again generate significant free cash flow.
We continue to follow through on our free cash flow priorities, our stellar fourth quarter performance allowed us to further strengthen the balance sheet and we are returning cash to shareholders with $1 per share special dividend declared yesterday.
Combined with our $3 per share regular dividend, we've already committed to returned $2 3 billion of cash to shareholders in 2022.
We remain firmly committed to our long standing free cash flow and cash return priorities and you can expect EOG to continue to deliver on them as the year unfolds.
EOG has exited the downturn a much better company than when we entered it.
Returns with the shift to double premium a lower cost structure more free cash flow a smaller environmental footprint and our culture is strengthened by the challenges we have overcome together.
Our culture is the number one value driver of Eog's success.
The remaining humble and intellectually honest, we sustain the cycle of constant improvement that drives our technology leadership.
Of all the fundamentals that consistently create long term value none of them matter without the commitment resiliency and execution from our employees.
Now here's Tim to review our financial position.
Thanks Ezra.
EOG generated record financial results in the fourth quarter with adjusted earnings of $1 8 billion.
And free cash flow of $2 billion.
Capital expenditures of $1 1 billion were right in line with our forecast for production volumes finished above target.
For the full year adjusted earnings were a record $5 billion or $8 61 per share.
This yielded return on capital employed of 23% while oil prices for the year averaged $68 per barrel.
Perhaps most important than setting records is what drove our outperformance.
121 illustrated Eog's success at driving down our cost structure.
<unk> would have been 10% or better at oil prices as low as $44.
Keep in mind that back in 2016, when the premium investment standard was introduced.
The oil price required for 10% of our CE was in excess of $80 per barrel.
The dramatic improvements we have made to the profitability of our business reflect the benefits of using the highest investment threshold in the industry.
The bottom line financial impact of double premium is just beginning to show up but like our original switch to premium it will grow over the coming years.
Our goal is to position the company to earn economic returns at the bottom of the cycle less than $40 oil.
And generate returns that are better than the broader market on a full cycle basis.
Free cash flow in 2021 was a record $5 5 billion.
And we deployed this cash consistent with our long standing free cash flow priorities with.
We doubled our regular dividend rate, which now stands at an annual $3 per share and represents a two 7% yield at the current share price we.
We are confident in the sustainability of our high return low cost business model to support a dividend that has never been cut or suspended in his more than 20 year history.
We solidified our financial position, finishing the year with effectively zero net debt we.
We were also able to address additional cash return priorities.
We paid two special dividends for a combined $3 per share.
We also refreshed our buyback authorization, which now stands at $5 billion.
We will look to utilize this on an opportunistic basis.
In total EOG returned $2 $7 billion of cash to shareholders in 2021.
This represents 28% of discretionary cash flow.
And 49% of free cash flow, putting EOG among E&P industry leaders for cash return in 2021.
Looking ahead to 2022, our disciplined capital plan and regular dividend can be funded at $44 oil.
At $80 oil, we expect to generate about $11 billion of cash flow from operations before working capital.
The $4 5 billion capital plan represents about a 40% reinvestment rate.
Our ratio, resulting in more than $6 billion in free cash flow.
This of course is on an after tax basis as we expect to be a nearly full cash taxpayer in 2022 as we were last year.
We are in an excellent position to continue to deliver on our free cash flow priorities in 2022.
<unk> declared a <unk> 75 regular dividend yesterday, which is our highest priority for returning cash to shareholders.
The size of the regular dividend is evaluated every quarter.
As the financial performance and cost structure of EOG continues to improve we expect that will be reflected in continued growth of the dividend.
Turning to our second priority this period of high oil prices allows us to further bolster the balance sheet.
To support our renewed $5 billion buyback authorization and prepare to take advantage of other counter cyclical opportunities, we plan to build and carry a higher cash balance going forward.
We expect there will be opportunities in the future to create significant shareholder value by deploying our strong balance sheet and ample liquidity at the right time.
Finally, we also announced an additional cash returned to shareholders yesterday with a $1 per share special dividend to be paid in March.
Along with the regular dividend EOG has already committed to returned $2 $3 billion of cash to shareholders in 2022.
We are fully committed to continuing to deliver on all of our free cash flow priorities here.
Here's Billy.
Thanks, Tim.
First I want to thank all of our employees for their outstanding accomplishments and stellar execution last year.
I'm, especially proud of their safety performance. In addition to outstanding operations and financial improvements, we achieved a record low injury rate.
2021 was another year of execution throughout the year, we've consistently exceeded our oil production targets, primarily due to strong well results.
Our operations teams continue to innovate and find opportunities to increase efficiencies and lowered the average well cost by 7%.
Meeting the 5% target we set at the start of the year.
Our drilling teams are achieving targeted depths faster with lower cost by focusing on reliability of the tools and technical procedures that drive daily performance.
For example, in our Delaware Basin Wolfcamp play our teams have improved days to drill about 42% since 2018.
And our Eagle Ford oil play after drilling several thousand wells.
Our teams continue to refine the drilling operation to drive consistent performance from our rig fleet, resulting in a 21% reduction in the drilling cost since 2018.
And with our decentralized organization and collaborative teamwork across operational areas we.
We continue to generate ideas for improvement through our innovative approach to areas such as improved bid design and drilling motor performance and share them throughout the company.
On the completion side, we've made great strides to expand the use of our Super Zip or zama Frac technique. So that one third of our wells completed last year.
Completion cost also benefited from reduced sand and water cost.
Through our integrated self sourcing efforts and water reuse infrastructure utilizing.
Utilizing local sand and water pipelines includes the added benefit of removing trucks from the road contributing to a safer oilfield with lower emissions.
Cash operating costs were in line with forecast.
And while delivering a higher level of total production they were nearly equivalent to our cash operating cost pre pandemic in 2019.
The savings are a result of our focus on reducing workover expenses and improvements in produced water management.
These efforts will expand in 2022 to help offset additional inflationary pressure.
We also had another great year, improving our ESG performance metrics.
Preliminary calculations indicate that we reduced our methane emissions percentage by about 25%.
And our total recordable incident rate by 10%.
We also achieved a 99, 8% target for wellhead gas capture.
And increased water resource from reuse to 55%.
Again these are preliminary results as our final metrics will be published in our sustainability report later this year.
As we enter 2022 EOG is not immune to the inflation that we're seeing across our industry, but.
But we have line of sight to offset these inflationary pressures through innovation and technical advances contracting for services supply chain management and self sourcing of materials.
Over 90% of our drilling fleet and over 50% of our Frac fleets needed to execute this year's program are covered under existing term agreements with multiple providers.
Our vendor partnerships provide EOG the ability to secure longer term high performing teams at favorable prices, while providing the vendors are predictable and reliable source of activity to run their business.
Eog's technical teams take ownership of various aspects of the drilling and completion operations to drive performance improvements and eliminate downtime.
As a result, we will we still see opportunities to sustainably improve our performance.
Some of the largest efficiency gains will be in our completion operations. This year.
For example, we expect to utilize our Super Zipper technique on about 60% of our wells, increasing the amount of treated lateral per day.
We're also enhancing our self sourced local sand efforts, which we expect to not only secure the material needed for the year, but also offset the effects of inflation.
We continue to expand our water reuse reuse capabilities that will assist in offsetting inflation in both our capital program and lease operating expense.
We remain confident that we'll be able to keep well costs at least flat in 2022.
Eog's capital efficiency continues to improve as a result of Eog's culture of continuous improvement.
2022 looks to be a year of challenges and inflationary headwinds.
And I am excited about the opportunity to bring our talented employees.
To further improve our business through innovation and improved operational execution.
Here's Ken to review the year end reserves and provide an inventory update.
Thanks, Billy last year, we replaced more than two times, what we produced and reduced our finding and development costs by 17%.
Our permanent shift to premium drilling and focus on efficiencies driven by innovation and our unique culture are keys to why our capital efficiency continues to improve and our corporate finding costs and DD&A rate continued to decline.
Our 2021 reserve replacement was 208% for refining and development cost of just $5 81.
Per barrel of oil equivalent excluding revisions due to commodity price changes since 2014 prior to the last downturn and the implementation of our premium strategy, we have reduced finding and development costs by more than 55%.
With our double premium standard and the high grading of our future development schedule. We grew our reserve base in 2021 by over 500 million barrels of oil equivalent for total booked reserves of over $3 7 billion barrels of oil equivalent. This represents a 16% increase in reserves year over year.
In terms of future well locations, we added over 700 net double premium locations across multiple basins to our inventory in 2021, replacing the 410 drove last year by 170%.
Our double premium inventory is growing faster than we drill it and the quality of the locations we are adding to the inventory is improving.
Innovation continues to drive sustainable cost improvements and operational efficiencies and when you combine that with our focus on developing higher quality rock. We further improved the median return of the portfolio.
We don't need more inventory, we're focused on improving our inventory quality.
With this in mind, our double premium inventory now accounts for six of the 11500 total premium locations in our inventory representing more than 11 years of drilling at the current pace.
Now, let me turn the call back to Israel.
Thanks, Ken in conclusion I'd like to note the following important takeaways.
First investment decisions based on a low commodity price puts the emphasis on full cycle cost of development and demands efficiency efficient use of capital.
While the benefits of such discipline are realized immediately the larger impact builds over time.
The seed to our stellar results in 2021 was the premium strategy established six years ago, and we have set the stage for the next step change in financial performance by instituting double premium last year.
Second we are confident eog's innovative and technology, driven culture can offset inflationary pressures this year.
Our disciplined capital plan is focused on high return reinvestment to continue improving our margins and not only 2022, but in future years as well.
Third we are committed to returning cash to shareholders. We demonstrated this through the return of nearly 50% of free cash flow last year and this quarter special dividend, our third in less than a year.
Doubling our regular dividend rate indicates our confidence in the durability of our future performance the regular dividend as our preferred method to return cash to shareholders and as we continue to increase the capital efficiency of EOG through low cost operations and improved well performance growth of the regular dividend will remain a priority.
We truly believe the best is yet to come.
Going forward as a company and an industry, where the financial profile more competitive than ever with the broader market.
And a growing recognition of the value we bring to society. The EOG has never been better positioned to generate significant long term shareholder value.
Thanks for listening now we'll go to Q&A.
Thank you Nick.
The question and answer session will be conducted electronically if you would like to ask a question. Please do so by pressing the star.
<unk> followed by the digit one on your Touchtone telephone.
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To allow your signal to reach our equipment questions are limited to one question and one follow up question.
We'll take as many questions as time permits once again Chris.
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We will pause for just a moment to give everyone the opportunity signal question.
Our first question today comes from Paul Cheng from Scotiabank. Please go ahead the line is yours.
Hi, Thank you good.
Good morning, guys.
We have been asked by many clients that with your Capex pain in your production profile.
The colon commodity price coal by midyear.
When you change the pan or that under what circumstances that.
That.
Hey get revised.
First question.
The second question is that in your future capital allocation.
Yes.
22, the way how you add okay with you.
The global policy in the future, we see that has been good.
New domestic drilling which is about 10%.
And also with that facility and the gathering and processing those percentage go up that's a total opex and capex.
We're trying to pull them up more new resource area. Thank you.
Sure.
Yes.
Yes, Paul this is Ezra <unk>.
Answer the first question and then ill hand, the second question over here to ability to answer for you.
With regards to our plan this year.
As we've talked about.
The way we are approaching our planning is.
<unk>.
Just on the oil price that we're seeing we're really looking to see the broad market fundamentals that are underlying and supporting that oil price.
Other macro economic indicators, so when we look at our 'twenty. Two plan. We think we've designed a very high return capital program.
It balances our free cash flow this year with increased free cash flow in future years, and it really starts with investing in the double premium wells when we bring those low cost reserves into the company's financials that helps drive down the cost basis of the company and it continues to expand the margins.
It's what allows us to continue delivering high corporate level returns as well as increase the cash flow potential of the company and that further supports our free cash flow priorities.
So the program this year.
Is that a pace that allows us to capture and incorporate technical learnings to continue to improve each of our assets and thats. The most important thing that we look to do every year not only in 2022, but but to go forward in future years as well.
And I'll turn it over to Billy to answer the second part of the question.
Yes, Paul good morning.
On the second part of the question.
Going forward beyond 2022, and the percent we have allocated to new domestic drilling potential of really our exploration plays and infrastructure span, it's been fairly consistent in the past and I expect it to be fairly consistent going forward the largest amount of our capex spend will always be dedicated to our more developing.
<unk> plays like the.
<unk>.
Delaware Basin play.
And then going forward, we remain excited about the exploration potential we see in many of our new emerging plays and will continue to fund those at a pace, where we can continue to learn and get better just as <unk>.
As I mentioned the infrastructure spend has always been about the same percentage each year and I expect that we will continue to be managed in the same way we want to make sure that we don't get too far out in front with infrastructure spending, but it's done at a pace commensurate with the development activity in a given area. So I expect that that will continue to be the case.
Thank you.
Thank you. Our next question today comes from Arun Jairam from J P. Morgan Securities. Please go ahead. Your line is now open.
Yes, good morning.
Global gas is clearly in focus.
Right now so I wanted to get your thoughts.
On the revamped agreement with Cheniere, which will provide you more linkage to JK M. I think today, you're selling about 140000 btu.
That increases to $4 20 over time, so I'm wondering if you can give us a sense of timing.
And shed some light on the type of realizations you get from marketing this gas to LNG and how do you how does the economic rent shared amongst you and cheniere.
Hey, good morning. This is lance thanks for your question how are you today.
Doing well hey.
In our mind, just saying good morning, Hey, now we're very excited about that.
Amendment that we have wishing here and Youre exactly right I mean, we've got the 140000 <unk> a day that started in 2020 and I think that just really speaks to being really a first mover too because as you can see right. Now you can look at the price realizations you can see J.
<unk> spot prices are near $40.
Having that first mover that capability moving quickly there to get that exposure is exactly right. As you mentioned in your question that's been very impactful in a positive way as we think about our price realizations.
We're very excited about the commitment you are right. It ramps up so we've got the $1 40 today that will ramp to $4 20.
They go into service.
It's estimated to be probably with the first train there for stage three.
In 2026.
If you remember there we ramp up we kind of go to the $1 40 today, we started into the $4 20 as stage III goes into service and we still will maintain and we extended the 300000.
<unk> is a day sale that we have that's linked to Henry hub. So.
We're excited about it it's a brownfield facility.
They have demonstrated.
Being early on many other projects. So we're excited to see our relationship grow from that standpoint.
Expect to see the price realizations materialized as well.
Great and my follow up is just on the 2022 program as you guided to 570 net wells, we wanted to get a bit more color on the decision to allocate more capital to the Delaware versus Eagle Ford It looks like your Eagle Ford activity will be down.
More than 50% year over year, while your Delaware will be up 30% more including a little bit more second billing activity. So I was wondering if you could give us a little bit of color there.
Yes, Brian this is Billy Helms.
So, yes, we're allocating a little bit more money to the Delaware basin and its really just a <unk>.
Function of the maturity of the Eagle Ford at this point that the Eagle Ford has been an active play for more than 12 years, and certainly has been a highly economic play for the company and continues to be I would remind everybody that last year was the single best returns we've ever generated in the Eagle Ford play since its inception.
12 years ago.
So it's still a very valuable play, but it is more mature the Delaware basin on the other hand is still a lot earlier in its maturity in this life cycle.
And still has a lot of opportunity to grow and test new horizons.
And expand our development capabilities over time, so it's just a lot younger in its maturity phase so.
Naturally we will command a little bit more activity on that side.
Alright, great. Thanks, a lot.
Thank you.
Our next question today comes from Doug Leggate from Bank of America. Please go ahead. The line is yours.
Thanks, Good morning, good morning team.
Guys last time I spoke to you.
You were talking about the mix of the double premium wells and the production profile and of course, the impacts on the sustaining capital on breakeven oil prices. So I wonder if you could just.
Walk us through how you see that.
The 32 breakeven you've given us today.
Honestly it comes with a.
I guess, some element of growth and the capital. So how do you see this sustaining capital how do you see that breakeven trending that's my first question.
Yes, Doug This is Ezra you Jacob Thanks for the question, yes, our maintenance capital.
On the backs of a 7% well cost reduction last year and then.
Additional well improvement.
Combined with increasing the percentage of double premium wells and what I mean by that is the lower cost of the reserves, bringing those into the company's financials. Our maintenance capital continues to decrease which is fantastic for us you're right. The $32 breakeven that we provided today is actually with our commensurate with the Capex program that we have for this year, but.
The double premium wells, we can't stress enough not only as it does the impact so out on very rapid pay out on a high rate of return really by bringing those lower cost reserves and a lower decline into the base of the company over time. It really does start to show up and impact the full cycle returns and free cash flow generation potential of the company in the future.
So what do you think those two numbers out today of the <unk>.
Sustaining capital in the AG school to breakeven.
Yes, so we did it we didn't release a maintenance capital.
This.
This earnings call due to the fact that we have started to allocate some additional capital into the <unk> play.
And so it starts to get a little bit messy.
As you start going from oil into a BOE equivalents as we are starting to see the phenomenal results there with the draw to play as we as we dedicate additional capital to it. Nevertheless, I think what we've outlined is with the 7% well cost reduction and slight improvements on the well mix year over year, we've continued to drive down that that that break.
Even and for the full cycle return, we have a slide in our deck that shows the the one way that we like to present. It is the price required for a 10% return on capital employed and you can see we made a big step change last year as we drove that price down to $44.
Okay. Thank you for that my follow up is on capital allocation question, and it's really maybe it's for Tim but.
The free cash flow, you're showing in your slide deck of north of $4 billion. This year after the special.
Would essentially wipe out the majority of your share buyback authorization.
Wondering why you still feel no need to offer some kind of capital framework.
Because clearly the transparency of a breakeven level with the duration of your inventory so on valuation becomes a little bit more transparent.
Therefore buybacks.
Perhaps be more justifiable. So I'm just curious why <unk> been reluctant to go down not rich I'll leave it there. Thanks.
Yes, Doug this is Ezra again.
Just to reiterate our free cash flow priorities first commitment begins with the sustainable dividend growth of our regular dividend.
In 'twenty, one we doubled that regular dividend and to us that regular dividends really indicative of what we're trying to accomplish it reflects the continuing increasing the go forward capital efficiency of the company.
It is also focused on creating through the cycle value and free cash flow and that's ultimately what we're trying to do again going back to where we were just talking about with the investment in the double premium wells and lowering the cost base of the company.
To take at least a small step away from the.
Inevitable commodity price cycles of our industry.
The second free cash flow priority for us is a pristine balance sheet.
Which obviously provides tremendous competitive advantage in a cyclical industry and then the third what we're talking about right now is the additional cash returned.
In the form of specials or opportunistic repurchases and as we talked about last year, we demonstrated the commitment with $2 $7 billion in cash return through the form of $3 per share special dividends.
And our regular and then we also retired that $750 million bond early in the year.
In general we've talked about as well.
We're going to use our reserve or repurchase opportunities to be more more opportunistic than programmatic.
So in times, one way to think is that in times of rising share oil price you can expect us to to prefer to do special dividends.
And really the way, we think about the share repurchases, we measure it as an investment.
The same as we as we measure any investments across our business. So we want to make sure that it competes on a returns basis.
And Thats why we still prefer in an environment like this to stick with the special dividend.
As the priority for additional cash return.
I'll keep pressing on it thanks Ezra.
Thank you Doug.
Yeah.
Thank you. Our next question today comes from Scott Gruber from Citigroup. Please go ahead. Your line is open.
Thanks. Good morning, just following on on that line of questioning given that your.
Net debt negative here to start the year should we can we think about the cash build is likely to be in over here.
This is Tim.
No.
First of all we are excited to have to be in a position where we are to have a cash balance.
Going for a net cash balance going forward.
So we will continue.
I said in my opening remarks will continue to build cash on the balance sheet. During these high oil price scenarios and look to for opportunities in the counter cyclical times to deploy that cash in a meaningful way.
In the form of.
More more specials or stock buybacks or just opportunistic things that come along and the counter cyclical environment. So.
The answer again is no we will be.
These high price environment, we will be building more cash on the balance sheet.
Gotcha Gotcha.
You get the clarification.
And then congrats on the expanded export agreement.
Just thinking about the broader backdrop here.
Another round of LNG project sanctioning along the Gulf Coast.
It seems like.
The industry is in an advantaged position there.
Hello, Good afternoon.
GBS entering additional agreements.
We're kind of at similar terms.
Do you guys foresee an expanded Tam to Henry hub right that you'd want to.
Captured we think so.
Stable and we want to capture that spread or do you kind of look at additional agreements.
That's additional diversification lens.
Yes, Scott. Thanks for your question this is lance.
I think what I can really point you to is like do you think about each of our operating areas and you think about our transferred our transportation positions that we have it really puts us one we're in close proximity but two we have the capability that we can transact very quickly. So I think first I would point you to that and then I would say secondly, yes, we are.
We're always interested in new opportunities. So we'll be continuing to look at that from like a business development standpoint and.
It's really going to be commensurate like you've heard from Billy as you talk about as you think about growth our volumes and then as we move forward, we'll be looking at new opportunities, but that will be definitely in commensurate with.
With our plans on a go forward as we look at our plan.
Yeah.
Got you I appreciate the color. Thank you.
Thank you. Our next question today comes from Neal Dingmann from Trust Securities. Please go ahead. The line is yours.
Good morning, all thanks for the details so far.
And then maybe for you or Tim.
Maybe just one more on the shareholder return.
My first question.
You guys continued now that it's had over 50% of your free cash flow and I'm just wondering on.
On a go forward I know that was met that Theyre thinking you all would even have potentially a higher payout is that something that you are targeting I know youre not going to have exact metrics on how you want to pay a certain amount.
Is that something early you always continue.
Sort of look at paying out over 50% or 60%.
Something like that on a go forward given your strong free cash flow.
Yes. Thanks. Thanks for the question this is Ezra.
We continue to evaluate.
Our cash position.
With respect to dividends on a quarterly basis.
And what I would say is that Youre correct were thrilled to be in the position, where we are where we can offer.
To the shareholders such a competitive regular base dividend that again, I think as our R. R.
Our number one priority as a way to create value through the cycles.
But on top of that we are in a great position to offer continued strength of our balance sheet to support that dividend and then continue to offer.
Cash return additional cash return of excess free cash flow in the form of these specials and buybacks. We don't have a specific target that we do.
We've stayed away from providing a formula because we want to be able to have the flexibility to do the right thing at the right time to really maximize the shareholder value in a way that is protected through the through the cycles.
Said another way I think we've demonstrated that over the past year, we've taken the opportunity to both strengthen balance sheet last year and again.
Last year payout a significant amount.
A $2 7 billion in cash returns and we've doubled down on that basically with this first quarter announcement with the $1 75 per share cash return this quarter essentially that reflects the evaluation.
The positive commodity price environment that we're experiencing in and the strength of the underlying business and our confidence in it going forward.
And help but notice night.
Bump on the NGL guide maybe.
Could you talk about it.
Obviously now having.
Wells up in the.
Liquid Utica area that what's driving the growth there you've been talking about sort of the plan and the Marcellus Iberia are in Appalachian area.
Yes.
Yes, we are.
Actually divested of our Marcellus position a couple of years ago that was in a dry gas part of the <unk>.
Marcellus acreage there in Pennsylvania with respect to some of the other opportunities that we haven't really discussed publicly.
Exploration as you guys know first and foremost we're an exploration company, we're always striving to be a first mover in organically improve the quality of our inventory. So I will provide you a little bit of color on that domestically. We we continue to.
Explore across the U S. Our exploration program that we've talked about.
The last year. So it's been progressing we finished last year drilling 12 wells.
Ross multiple opportunities.
<unk>.
Dominantly oil focused and will be slightly increasing that number this year to about 20 years, we were encouraged with some of the results of that.
So we had last year.
In general, though like I said, we don't discuss the details of the exploration of other than just to say that the the.
These are low cost of entry there oil focus their reservoirs that we think we can exploit with our horizontal.
Horizontal drilling and completions expertise and this year, we look forward to doing some more delineation.
And appraisal drilling and as we've said in the past the goal of our exploration program is not just to find oil or find reserves is really to add to the quality of our inventory.
From a lower finding cost and higher returns perspective.
And so it takes time to be able to evaluate the we can actually discover these opportunities and bring them into the mix, where they're really going to help lower the cost base of the company.
And be a significant contributor to our portfolio going forward.
And I guess just to follow up on that as far as the NGL guide going up.
That's simply a function of the fact that we have.
Opportunity to make an election as to how much we recover or reject.
Forward on several of our processing contracts and with the strength of not to the NGL pricing. We are simply assuming we will be in recovery mode more than rejection mode in several of those contracts this year.
Okay.
Thank you. Our next question today comes from Scott Hanold from RBC Capital markets. Please go ahead your line is yours.
Thanks.
Maybe just since you talked a little bit of about the exploration opportunities in the U S. Can you give us a sense of how you think about international exploration opportunities. I know you all are doing some work in Oman and offshore Australia is there any update there and how do you think about international versus onshore U S opportunities.
Yes, Scott in general as we've talked about the international opportunities have they have a higher hurdle to really be considered additive to the quality of our inventory.
Simply because we need to have access to services there we need to have access to contracts and we need to find the subsurface geology that actually makes it come out.
Just competitive but really superior to much of what we're we're drilling here.
In Australia to start with that one we still have that opportunity we plan.
In the permitting phase currently and we plan to.
Initiate drilling in that one early next year.
And then in Oman, we did announce as you recall, we had a low cost of entry into Oman. It included a two well commitment and during the second half of 'twenty. One we drilled those two exploratory wells one of which was a short horizontal we completed that horizontal made of natural gas discovery, there, but ultimately as I was just saying the <unk>.
We decided it is not going to compete with our existing portfolio. So we won't be moving forward with that project in general we do feel encouraged with the international opportunities out there because we see.
Really kind of a lack of exploration competition out there and we see that many times Nash.
National oil companies or ministries.
The owners of those lands have really started to realize that they can't rely on traditional conventional term contracts to be able to get some unconventional type prospects drilled and so we're seeing a little bit more flexibility on the negotiation side, which gives us some encouragement.
Great. Thanks for that and I'm going to hit on the shareholder returns to because obviously you all are in a very enviable position, but.
Right.
Tim you guys talk about being opportunistic and countercyclical ways with your balance sheet then.
During the fourth quarter, I guess post <unk>.
<unk> given there was a little bit of a disconnect there.
Your stock was a lot lower than it is today.
Why not take that opportunity then to buy back stock can you. So just trying to frame for us like when you think the right opportunities to buy back stock car.
Yes in general Scott.
You didn't see that.
One of the opportunities that we're looking for there in the fourth quarter, when we talked about a significant dislocation we're talking about something.
More so than that like I said, we consider share repurchase in the same way that we do any investment decision is how does it create the most long term shareholder value and we are in a cyclical industry.
That's why we prefer to use it opportunistically.
With a significant opportunity the challenge of course is we recognize that being in a position to execute during the market dislocation.
It was a challenging thing to do however, we feel that with the strength of our balance sheet and low cash operating cost. So we have we.
We will be well positioned when we see the opportunity.
Thank you. Our next question today comes from Leo Mariani from Keybanc. Please go ahead the line is yours.
Yeah, Hey, guys I wanted to see if there is any update on the PRP certainly noticed in the slide deck that activity there is going to be down a little bit in terms of a few less wells in 'twenty two versus what you did in in 'twenty one so.
So you can kind of speak to maybe how well costs have trended and kind of where that opportunity is on your list amongst the different plays clearly you described a significant increase in Delaware activity. This year. So how does the PRP rank.
Hey, Leo this is Jeff <unk>.
The <unk>, we're really excited about where it's going in 2021, we had a record year, both from a well performance and an economic standpoint.
Last year, our team they continue to really delineate our core areas. They completed about 50 wells and half of those exceeded or double premium threshold. So we're really encouraged by that on top of that we also brought on multiple record wells in the basin, both in the Niobrara and the Mallory formations.
All doing this while recruit reducing our cost year over year by about 10%. So the one thing that we really look at where the powder River basin is it is a little bit more geologically complex compared to our other basins. So it's really important that we operate at the right pace and we don't outrun our learnings.
So looking forward kind of a 2022, we plan on maintaining a similar amount of activity and as our team up there really high grades our acreage refined our well spacing and strategically build out our infrastructure, we really expect the powder River basin asset to be able to increase activity in 2023 and beyond.
Okay now that's helpful for sure.
And then if I can just take another crack at the kind of exploration.
Certainly noticed that you guys are spending about my numbers are right around $100 million more on some of these U S plays here.
In 'twenty, two and you clearly talked about drilling more wells I guess, a comment question I hear from investors out there.
A number of years since EOG is kind of an announced the strategy and I guess, we had kind of get to CA.
New significant U S oil play for the company I know these things are hard to predict but if I had to just kind of look at a high level timeline. I mean, do you think thats likely in 'twenty, two or maybe 23, I mean anything you can kind of.
Say from a high level to give people some assurance that maybe these are progressing.
Yes, Leo what I'd say is just really hard to predict and I'd hate to commit to something to lead you down the wrong path.
My point to historically, we did some early drilling in the powder River basin.
And it was a number of years before we felt comfortable we'd gotten that to a point, where we wanted to talk about it publicly in a big way and then the same with Toronto I know there was a lot of speculation as to our Austin chalk exploration program for a number of years.
And as you can see we.
Waited until we had some long term production and felt confident to what we had there before we started really talking about it publicly the current exploration program was definitely slowed down.
Even maybe a little bit more than we anticipated during the pandemic.
It was just a little more difficult even to get leasing done and things of that nature.
As we talked about in 2021 plays coming out of the pandemic had really started to.
Become move it kind of various paces are various rates.
Some of the wells last year that we drilled were the initial wells in these plays.
And other prospects some of the wells were really testing a little more delineation repeat ability more appraisal.
Again, like I said almost more than.
And exploration program, where we're trying to find is not just oil that's not necessarily the most difficult thing anymore. It's really as you guys. Can appreciate you trying to find low cost barrels barrels that are additive to what not only we have already discovered but what the industry is really discovered what the world wants has access to.
The lower cost barrels and Thats, what were searching for and so it takes a little bit longer to be able to really get the appraisal on these and make sure that these.
These opportunities are really going to be additive again to the quality of our of our inventory.
Okay. Thanks.
Okay.
Thank you.
The next question today comes from Gena Wang from Barclays. Please go ahead. Your line is open.
Hi, good morning, everyone. Thanks for taking our questions.
Our first question is maybe just back to the double premium.
<unk> added 700, new net premium locations in 2021, and where these addition spread out across your plays or are they concentrated and maybe one or two of them and where do you see the most runway for future conversions.
Yes, Jeanine and thanks for the question this is Ken.
We added a double premium locations over a number of our active premium plays really in line with where we drilled our wells last year, mainly in the Permian and the Eagle Ford and this is really just an example of our culture.
We're working to get better continuing to lower well costs, while focusing on increasing the recovery is what leads to significant increases in returns in and really allows us to convert wells to premium and double premium through time.
And our goal is to always replace at least as many double premium locations as we drill every year.
Okay, great. Thank you.
Maybe a second question, maybe one for Tim or in the past I think if memory serves me correctly I think you've commented that after you pay off the 2023 nodes that you don't really have a desire to pay down any further debt and just wanted to check in is that with still the thinking and I think we're just really looking for a little bit more.
Color on how you decided that a dollar per share for the special this time around was the optimal level. Thank you.
Yes. This is Tim.
We have not announced any intention of paying off more bonds as they become due.
We will continue to evaluate that as we go forward, but we have.
That did not figure into the dollar.
The dollar was a way of giving back is meaningful.
Amount of cash to the shareholders in this period and as we said that's a backward looking thing not a forward looking thing.
Okay.
Thank you our final question today come from Neil Mehta from Goldman Sachs. Please go ahead the line is yours.
Thank you very much.
I know <unk>.
<unk> developed some more internal macro of forecasting capability and just curious on your views on U S shale production in the United States. How are you guys thinking about at entry to exit U S oil growth and talk about the moving pieces ranging from what youre seeing from your competitors in the private market.
Two.
Services constraints, such as pressure pumping.
Your thoughts on U S growth would be valuable.
Yeah.
Yes, Neil I'll I'll add a bit of an overview and then maybe I'll hand, it off the ability for some more details for you on the on the activity side, but in general when we.
<unk>.
When we think about the growth forecasts that are out there publicly discussed we're probably a bit more on the on the lower end.
In general.
On the crude and condensate side and the reason for that is I think youre seeing.
Commitment from a north American E&P space to remain disciplined.
And then you couple that with some of the inflationary and supply chain pressures and.
And we think the U S is definitely going to face some headwinds and.
And growth on this year and I think Billy can provide a bit more details on it.
Yes, Neal this is Billy.
I'm sure you've heard the same comments from many of our peers about the supply chain constraints in the industry is seeing.
Across all of the sectors.
Certainly on the drilling rig side there is certainly.
Most of the active Super spec rigs are being are deployed and active today theres not a lot of new pieces of equipment that can come into the market.
The same is true on the on the Frac side of the business most of the good.
Equipment is already under.
Employment today, and then bringing in new fleets, both on the drilling side and on the Frac side is is challenged also from the standpoint of attracting labor to the market.
So theres a lot of headwinds to trying to for.
For the industry to try to ramp up activity and grow production this year. So.
It will be.
Probably viewed as maybe a transition year.
Also in that light and hopefully.
Industry can strengthen and get better on a go forward basis, but this year is going to be a challenging year from that side.
And then the follow up is around natural gas both U S and global a lot of moving pieces obviously.
Now from a geopolitical standpoint, but.
Yes.
Most of the industry has been of a lower for longer use natural gas view do you see that evolving.
As we as we have more LNG linkage into the global market do you think about global gas, especially in light of your announcement with Cheniere.
Do you see a structural change in this market until the Qatari supply comes on mid decade.
Yes, Neal this is Ezra.
In general what I would say as you know the U S has discovered a very vast supply of natural gas.
And it's important that we get that gas offshore and enter the global market for some of the reasons that you talked about now not only geopolitical, but just developing nations so on and so forth and Thats one of the reasons. We're so glad to to partner and continue to take out some of our some of our LNG for us the way, we think about the natural gas globally.
It's really it's going to be a cost of supply.
And we say that we want to be the low cost producer.
And that might sound like were talking about oil dominantly, but that goes for gas as well and I was wondering is and we're very excited about our dorado prospect. We think it competes in north Americas basically the lowest cost of supply, especially because of its geographic location close to so many marketing centers, including the Gulf Coast. So we're very excited and very fortunate.
To have it.
And I think the U S is going to continue to be in the long term a significant player in the global gas supply.
Thank you. This concludes today's Q&A session. So I'll now hand, the call back to Mr. Yang.
Yes, we want to thank everyone for participating on the call. This morning, and we want to thank our shareholders for their support.
As we said EOG had an outstanding performance in 2021, and we're poised for another great year in 2022, and it really comes down to our employees. Our employees are the keys to our success.
I am convinced we are only getting started it being one of the lowest cost highest return lowest emissions energy suppliers that can play a significant role in the long term future of energy. Thank you.
This.
This concludes today's call you may now disconnect your lines.
Yes.
Okay.