Q2 2023 EOG Resources Inc Earnings Call
Good day, everyone and welcome to EOG resources second quarter, 'twenty 'twenty free earnings results Conference call.
As a reminder, this call is being recorded.
This time for opening remarks, and introductions I'd like to turn the call over to Chief Financial Officer of EOG resources, Mr. Tim Driggers. Please go ahead Sir.
Thank you good morning, and thanks for joining US This conference call includes forward looking statements.
Factors that could cause our actual results to differ materially from those in our forward looking statements have been outlined in the earnings release and Eog's SEC filings.
This conference call also contains certain non-GAAP financial measures.
<unk> and reconciliation schedules for these non-GAAP measures can be found on Eog's website.
Some of the reserve estimates on this conference call May include estimated potential reserves and estimated resource potential not necessarily calculated in accordance with the SEC reserve reporting guidelines.
Participating on the call. This morning are <unk>, chairman and CEO .
Billy Helms, President and Chief operating Officer, Ken Boedeker, EVP exploration and production, Jeff Leitzel, EVP exploration and production Lance <unk> senior VP marketing and David Streit, Treasurer, and VP Investor Relations and finance Here's Ezra.
Thanks, Tim Good morning, everyone, our second quarter results reflect exceptional execution throughout our multi basin portfolio.
Production volumes Capex cash operating costs and DD&A, all beat targets driving another quarter of excellent financial performance.
We earned $1 5 billion of adjusted net income and generated $1 billion of free cash flow year to date, we've generated free cash flow of $2 1 billion.
That free cash flow and cash on the balance sheet funded year to date cash return to shareholders of $2 2 billion.
Including more than $600 million.
Are share repurchases executed during the first half of the year.
Taking into account our full year regular dividend, we are committed to return $3 1 billion to shareholders in 2023 or about 67% of our estimated 2023 cash flow, assuming a $75 oil price well ahead of our target minimum return of 60%.
Eog's peer leading regular dividend is currently the majority of the $3 1 billion of cash return committed to shareholders. This year.
Our sustainable growing regular dividend, which we have never cut nor suspended remains the first priority to return cash.
We also continue to leverage special dividends and buybacks to return additional cash depending on market conditions.
Through the first two quarters of 2023, we've deployed more than $600 million to opportunistically repurchase shares during times of increased volatility.
And while our cash return strategy remains consistent what has evolved since putting the $5 billion repurchase authorization in place over a year and a half ago is the fundamental strength of our business and we continue to get better through relentless execution of and commitment to eog's value proposition.
We invest in high return projects across our multi basin portfolio, adding lower cost reserves, which reduces our breakeven and expands our margins. We are now active actively investing in five premium basins more than any time in our history.
Our foundational assets in the Delaware Basin, and Eagle Ford continue to consistently deliver and we are pleased by the outstanding progress across our emerging southern powder River Basin, Ohio, Utica combo, and South Texas Dorado place.
Well productivity and cost performance are meeting or beating expectations across our portfolio as we invest and develop each asset at a pace that supports consistent execution and continued innovation.
We continue to lower the cost basis of our company utilizing technology and innovation that improves well performance and lower well costs to sustainably reduce our finding and development costs.
Fishing season infrastructure investments are lowering current and future unit operating costs and contribute to our emissions reduction efforts.
Finally, we have further strengthened our pristine balance sheet this year, while generating significant free cash flow and funding our transparent cash return strategy, which is designed to deliver consistent shareholder value through the cycle.
And heading into the second half of 2023, our continued performance gains will be complemented complemented by strong fundamentals.
Oil demand has been resilient despite volatility in the first half of the year and demand is showing signs of continued growth through the second half of the year.
Strong inventory draws since the start of the year are pulled oil inventories below five year averages and refinery utilization remains high.
Production growth in the U S is on pace to deliver similar rates as 2022, while exiting the year with significantly less activity as public companies continue to demonstrate discipline.
And it appears the OPEC plus are following through on announced production cuts.
Culmination of these actions should further reduce inventory levels in place upward pressure on pricing through year end.
Regarding north American natural gas, while inventory levels remain above the five year average prices have firmed up recently, reflecting a reduction in natural gas drilling and an increase in demand from both power generation and LNG exports.
These trends should support a more balanced supply and demand environment late this year and heading into 2024.
We remain constructive on the longer term gas story for the U S supported by recent LNG project approvals and the growing petrochemical complex on the Gulf Coast, and we were especially pleased with Dorado is placed in the market as one of the lowest cost supplies of natural gas in the U S with an advantaged location and emissions profile.
Eog's value proposition is delivering results and the strength of our business has never been better to deliver value for the shareholders through industry cycles and play a leading role in the long term future of energy.
Now here's Tim to review our financial position.
Sandra.
EOG delivered excellent operating and financial performance in all areas in the second quarter oil.
Oil production increased 3% year over year, while total production increased 5%.
Per unit cash operating costs remained essentially flat from the prior year period, despite industry wide inflation.
Compared to the first quarter, however per unit cash operating cost declined by 5% and were lower in all four categories.
We're beginning to see the benefits of lower cost improve our operating margin.
The DD&A rate fell by 10% year over year, driven by the addition of reserves at lower finding cost compared to our production base.
Capital expenditures came in at $1 5 billion, a $130 million below our target and just slightly above the first quarter level.
The difference was mostly due to the timing of non well related costs such as infrastructure projects.
Year to date Capex of $3 billion is 50% of the full year budget.
The improving capital efficiency of our assets consistent operational execution, along with the application of innovation and technology to lower cost.
Making a big impact on the financial performance of the company.
We earned adjusted net income of $2 49 per share in the second quarter.
And generated free cash flow of $1 billion.
Return on capital employed for the last 12 months is 29% at an average <unk> oil price of $81 and Henry hub natural gas price of about $5.
Here's Billy to review operations.
Thanks, Tim.
I would like to first thank our employees for their commitment and dedication that led to another quarter of exceptional execution.
EOG once again meet our forecasted targets and delivered a near perfect quarter.
As a result, we have completed the first half of the year ahead on volumes and ahead on total per unit cash operating cost.
Our volume performance in the first half of the year is due to several factors.
The performance of new Wells is outpacing our forecast primarily in the Delaware basin part of which is due to our new completion design.
We are also experiencing less downtime due to market interruptions than previously planned our investments in infrastructure, along with real time data analytics provided the control and flexibility needed to redirect sales volumes to different markets to maintain production.
Unit cash operating costs through the first half of the year averaged 5% below the mid points.
Of our quarterly guidance due to a combination of several factors, including lower lease operating expenses as well as reduced transportation costs.
Lower workover and compression related expense reduced elo.
While transportation costs benefited from the flexibility to sell into more favorable markets throughout the quarter.
Credit goes to the cross functional efforts of our production marketing and information systems teams, who remain focused on sustainable low cost operations quarter after quarter.
We have line of sight to maintain these cost improvements throughout the year and as a result have reduced our full year guidance for total unit cash operating costs.
Operationally EOG is firing on all cylinders.
Our foundational Eagle Ford and Delaware Basin plays are delivering exceptional results.
Our emerging plays benefit from learnings in technology transfer across our multi basin portfolio.
Our decentralized structure supports innovation and each operating area, which function much locked independent technology incubators and compounds the impact of that innovation.
Taking ideas born in one area and expanding them across multiple basins and across multiple functions.
Across every operating area, our frontline engineers and geologist Workday technology every day to lower cost and improved well performance.
We look for strategic opportunities to vertically integrate certain services within the supply chain where.
Where we find an opportunity to better align those services with our goals.
That includes areas like downhole drilling motors drilling mud sand and water.
Developing such capabilities in house significantly improves the cost structure of the company.
This quarter, we're highlighting drilling performance improvements in the South Texas Dorado.
<unk> Powder River Basin, Mary and the Ohio, Utica combo plays.
Our emerging plays are moving up the learning curve faster due to the benefit of drilling advancements in the application of technology over the past decade.
We've continued to evolve our proprietary suite of applications.
Powered by real time high frequency data and analytics to assist our frontline employees to collaborate and make decisions faster.
The combined benefit of these efforts has already contributed to an increase of up to 25% and drilling feet per day for wells in our emerging plays this year.
In our Ohio Utica play.
We recently drilled a 15700 foot lateral and two six days and a 100% in zone.
Capital expenditures for the first half are also running light due primarily to the infrastructure spend that has been deferred into the second half of the year.
It is worth noting the economic impact of our investments in EOG owned infrastructure.
Our realized U S oil price in the second quarter.
It was $1 23 above the WTO.
And U S natural gas was essentially flat to Henry hub.
Capex for our drilling and completion program are right on track.
The rate of change for inflation. This year is consistent with what we had anticipate it started the year.
So we still see line of sight to limit year over year, well cost inflation in 'twenty three to just 10%.
While any additional softening of service cost. This year has the potential to impact 2024, it's simply too early to predict.
The market remains too dynamic.
Particularly given the constructive outlook for oil in the second half of the year.
Furthermore, we remain focused on generating long term sustainable cost reductions driven by utilizing the highest quality equipment and the highest performing teams, which are less exposed to the leading edge price declines that we see and more marginal equipment.
Our $6 billion capital program is focused is forecasted to deliver 3% oil volume growth and 6% total liquids growth.
And Dorado, our South Texas natural gas play we delayed the timing of planned completions earlier this year and about five wells have been pushed into early 2024.
Thus, we reduced our full year gas volume guidance accordingly.
We maintained our drilling pace and dorado to build operational momentum and capture the corresponding efficiencies.
As a result, we are seeing a 16% improvement in our drilling times for Dorado as shown on slide 11 of our updated investor presentation.
We're constructive on natural gas longer term.
And believe Dorado will be one of the lowest cost and lowest emission supplies of natural gas in the U S and we will compete on a global scale.
This year started out with many challenges, but also many opportunities to continue to improve the company.
I am very pleased with the progress our teams continue to deliver and remain optimistic about the second half of the year and how the company is positioned for the future.
Now I'll turn the call over to Ken to discuss progress on lowering our emissions.
Thanks Billy.
Continuing to make outstanding progress on our emissions goals as.
As a preview to our 2022 sustainability report that will be published in September .
We're excited to announce that we've reached three significant near term goals well ahead of schedule.
First our 2022 GHT intensity rate of 13, three metric tons of Cotwo.
<unk> is less than our 2025 goal of 13, 5%.
Second our 2022 methane emissions percentage is 0.04% of our of our natural gas produced and is significantly less than our 2025 goal of 0.0% to 6%.
And third we have achieved our zero zero routine flaring goal in 2023, well ahead of our 2025 target and significantly ahead of the World Bank initiative, which drives to obtain zero routine flaring by 2030, we have also confirmed that our wellhead gas capture rate for 2022.
<unk> was 99, 9% of the gas produced.
We continue to expand our in house continuous methane monitoring technology named <unk> and finished 2022 with 95% of our production in the Delaware basin covered by ice monitoring.
As a reminder, the power of Isa <unk>, incorporating continuous methane monitoring data with our production and facilities data and monitoring this data on our 24 hour basis, and one of our four control centers.
This enhances our ability to identify potential leaks and prioritize repairs that are needed in the field to minimize fugitive emissions.
As with a number of EOG operations. It is anticipated that collection and the integration of <unk> data will lead to continuous improvement in facilities and production design and operations.
We're excited about the progress we've made in the last several years on our emissions performance and are very proud that we have such dedicated employees, who are continually making our operations more efficient.
They are innovative solutions and push to beat expectations have driven us to exceed our goals early work.
Currently assessing new goals with our operations groups and anticipate publicizing those goals in the first half of 2024.
Now here's Ezra to wrap up.
Thanks, Ken.
Our second quarter results demonstrate once again that eog's value proposition works, we invest in high return low cost assets across a diverse multi basin portfolio.
We leverage technology, and innovation to sustainably lower well costs and reduce emissions.
These high return low cost investments generate significant free cash flow to fund our transparent cash return strategy backstopped by a pristine balance sheet to deliver consistent shareholder value through the cycle.
Most importantly, our.
Our culture is at the core of our value proposition and as our ultimate competitive advantage.
Thanks for listening, we will now go to Q&A.
Thank you the question and answer session will be conducted electronically if you'd like to ask a question. Please do so by pressing the star key followed by the digit one on your Touchtone telephone if you're using a speaker phone. Please make sure. Your mute function is turned off to allow.
You will signal to reach our equipment.
Question is limited to one question and one follow up question, we will take as many questions as time permits.
Once again, please press star one on your Touchtone telephone to ask a question.
If you find that your question has been answer you may remove yourself by pressing the <unk> key.
Well pause for just a moment to give everyone an opportunity to signal for questions.
Our first question comes from Paul Cheng of Scotia Bank.
Please go ahead.
Thank you good morning.
Right.
Can you hear me okay.
Yes, Sir Paul go ahead please.
Alright, thank you.
Two questions.
On the cash return on the free cash flow.
You bet.
More than 100%, but just wanted to.
How do you determine that this is the right time to pay for that.
How does it fit into the future given the already.
That cash position.
Things that need to be changed.
Change in.
Management.
And the payout is going to perhaps the wholesale.
It's been.
To that maybe that market.
And also with that.
Whether we should.
The second consecutive quarter buyback.
Yes.
Management now.
Alright, thank you.
More.
Going public.
Two box on casualty claim.
That's the first question second question Bert.
On the way though.
The decision to delay.
Yeah.
Well, yes.
Can you maybe share with us I think.
You had mentioned that but can you share with us.
Alright.
I note that the street has Buckingham.
The new system.
The write offs you guys Juliet.
This quarter, but want to understand a little bit better in terms of the decision making process behind and.
The full year guidance.
Yes.
Alright, thank you.
Sure Paul.
I think I'll take that first question and then and then our ability can address the second question regarding Dorado. So yeah on the first one it's kind of a broad question on our cash return strategy.
Hopefully I hit on all the points that you were trying to get at but first let's start with our guidance, which is has always been a minimum of 60% of free cash flow.
So we've never guided to that 60% as being a specific target. It's always been a minimum of 60% of our free cash flow and the reason we like that guide is honestly, it's pretty simple and dynamic it's easy to understand and communicate.
A minimum of 60%.
Is it can be supported over a range of price scenarios, especially when there's a pullback in prices and really we can underpin that with the growing sustainable.
Sustainable regular dividend that we highlight and talk about so much.
That's what can provide really a meaningful amount of cash returned through the cycle.
I do want to emphasize we consider that regular dividend to still be the true hallmark of a strong and improving.
Underlying business and we like the message that it sends we increase that regular dividend commensurate with that.
The strength of the business lowering the cost basis of the company and also in consideration with with strengthening our balance sheet more specifically to kind of payouts that you've seen this year.
We do recognize the value of opportunistic buybacks as part of that that cash return strategy as a way to.
To create shareholder value. So I would say that really the decision that you've seen.
Is consistent with our overall capital allocation strategy, where we buy back shares on an opportunistic manner.
As a means to return cash above and beyond that minimum of 60%.
In addition to our regular dividend.
And at times instead of paying a special dividend, we basically evaluate that buyback just like we do any of our other investment decisions, whether its exploration or drilling high return oil and gas wells are investing in infrastructure.
How is that investment going to create long term shareholder value. That's what we primarily focus on and so.
The percent will fluctuate.
Depending on a specific moment in time and what the circumstances are around our cash return strategy, but what we have guided to and what you can bank on is it's the minimum of 60% now we highlighted we paid 67% out last year and we were very.
Well positioned halfway through the year right now, where we've already committed or paid 67% as I highlighted in the script.
And all for the Dorado timing I'll hand, it over to Billy.
Yes, good morning, Paul.
On Dorado, we had indicated earlier in the year that we were evaluating the potential too.
Delay some of our completions in Dorado and we're consistent with that strategy, we have elected to maintain our drilling operations there and we're seeing the benefits of that decision to play through.
Efficiencies, we're gaining on the operational side.
And we've given you some color on that and as our new investor deck illustrating the improvements in drilling times there in that place. So we're very pleased with that progress.
Don't forget our investment strategy includes <unk>.
Gas price of investing for $2 50.
That's our premium price deck when it relates to gas prices, we certainly we're watching inventory levels on the gas side.
And just prudently decided to.
Delay a little bit of the completions there.
Until we saw the fundamentals improve and so will we.
We'll be just laying some of those completions as we go into the late this year, which pushes five wells into next year.
So that's simply the thinking on that.
Our next question comes from Neal Dingmann of Truest, Neil the line is yours.
Hey, good morning, guys nice quarter as sort of my question is on well productivity specifically looking at that slide 10 of years certainly appears that your Delaware.
Well continue to notably improve it so what I'm wondering is this driven more by just continued D&C efficiencies or is it more an informational targeting I asked that just was looking at the bottom left corner of those pies it looks like.
Over the years, none of the wealth of proven but it looks like they're becoming more.
Focus on that Wolfcamp oil. So I'm just wondering what is driving that but it does look that does a great positive.
Thank you Neal this is Ezra I'm actually going to let Jeff Leitzel step in and address your question.
Hey, Neil this is Jeff.
On our Permian productivity, we've been really happy with all the wells have performed in the Delaware through the first half of the year. So all of our primary targets. They are performing right now as forecasted or better and I'd say this is primarily due to just our stacked pay co development strategy in combination with the new completion design, we've talked about which has continued to be.
Really successful in our Wolfcamp targets and in regards to that new completion design, just kind of a quick update we're still observing a 20% increase in both first year production and EUR for both oil and BOE <unk> in the Wolfcamp. So for the full year of 2023 were planning on bringing out about 70 total wolfcamp wells with this new design, which is nearly twice.
The number we've completed in 2022 and also with it as we've talked about we're continuing to test and expand the technique in other areas and targets in the Delaware basin, along with all across our emerging plays in our multi basin portfolio.
Yes, very helpful and then.
Sorry about that my second question is just on Oss costs in the past you all have been among the best not only just what I would say renegotiating contracts, but I know in the past to be able to stockpile at the right time and all those sort of things I'm. Just wondering is maybe give us a little bit details of how you see the market now.
Yes, Neal this is Billy.
So certainly we're seeing.
The service prices start to soften.
But these savings from lower service costs, really probably won't manifest into lower well costs until later this year and certainly into 2024.
These.
Leading edge prices are falling across various products and services for the industry and certainly it varies.
Joining me on the product in the area.
I would add that there are several factors that kind of.
Reflect kind of where our 'twenty three capital program is.
As a company as you mentioned there we focus on sustainable cost reductions through our operational efficiency gains.
As a result, we do seek out the highest performing equipment and crews super spec rigs electric frac fleets et cetera, that's really less exposed to some of these headline inflation numbers that we're seeing on the more marginal in.
Equipments on the spot market.
And the second part of that is we really anticipate that service costs would moderate through the year when we put our plan together.
Since our rig count really peaked back in November and we built our plan in February expecting well costs would increase no more than 10% relative to this last year. So things are really playing out exactly the way we planned.
Another point there is we do try to secure about 50% of our well cost.
In the start of any given year.
That really helps insulate us from inflationary impacts to our activity levels.
And then lastly.
Based on how we do manage our business, we are less exposed to the volatility in service cost in any given year.
And I would remind you as.
As you kind of alluded to there are well cost to really only increased about 7% last year compared to the over 20% inflation that we saw in the market. So.
So yes, it really helps us kind of manage our activity level with confidence as we go through the year.
And we will certainly remained.
Flexible as we look into next year to see how we can position ourselves for next year.
Okay.
Our next question comes from Arun <unk> of J P. Morgan I remember the line is yours.
Yeah. Good morning, I was wondering if you could help us think about the second half oil production profile for EOG.
It looks like your updated guidance points to a slight sequential decline in <unk>.
And I just wanted to get some thoughts on.
Hit if theres still kind of confidence on hitting the midpoint of the oil guidance range, because that would imply a fourth quarter oil production number in the mid <unk> to upper 40, <unk>. So help us think about the sequential movement in volumes in the second half of the year.
Yeah Arun this is Billy.
Yes, I think.
Keep in mind is we do operate in more than one basin and multiple plays and we have the <unk>.
Bearing sizes of well packages in each play.
So the timing of really quarter to quarter variance in production is really driven by the timing on a quarter to quarter basis of how these packages across different plays come online and even within the quarter how that varies.
Month to month within the quarter can vary it can drive the volume profile.
And I would remind you and ill just ask you to go back and look at the change from the first quarter to the second quarter.
It's actually larger than what youre seeing in the forecast from the third quarter to the fourth quarter.
So we would we are maintaining ratable activity throughout the year and just as a matter of simply timing on bringing on some of these larger packages. So so far this year, we've either met or exceeded our volume comp.
<unk> forecast and have complete confidence in being able to meet the midpoint of our guidance.
Great.
Just a follow up I wanted to get some thoughts on the Ohio Utica.
The midstream providers highlighted how theyre building out call. It a backbone in the Utica looks like you may be the anchor E&P for that investment, but love to get some thoughts on the Utica. We did see that you may be pulled your til guidance down a little bit this year.
<unk>.
But just an update would be helpful.
Hey, Good morning. This is lance yeah, I would say what we're most focused on right. Now is just getting all of the midstream infrastructure in place. So we do have two ongoing projects that are going on we've got one in the north and then another one in the south as well so what we're really focused on is Lincoln our production to the available processing capacity.
And really what's happening is it's a consistent strategy that we've done and all are a place where we're going to have a balance of EOG owned infrastructure, along with strong relationships with really good working third parties, we're going to be need both in the Utica combo up there and so right now just focused on setting up 2024 and beyond with the infrastructure.
Sure.
Yes, Arun this is Ken I just wanted to give you a quick update on the on the Utica, We're making excellent progress on that program. This year, we do plan to bring a four well package online this month and our our Frac crew will be starting up again in a few weeks so.
<unk>.
The wells, we drilled and completed in 2020 to do continued to delivered our expected performance and we also continue to add acreage and look for additional low cost opportunities to add to our position up there.
Our next question comes from Doug Becker of Bank of America, Stoke The line is yours.
Thanks, Good morning, everyone.
That's right.
It's a long time since we had to worry about.
The U S growing too quickly.
And all of the whole market share baffled issues that we all lived through over the last four or five years with OPEC, but in your opening remarks, you did talk about studies decision to support the price we extend the cuts.
So I'm wondering when you sit in the boardroom and you look at what is an artificially high oil price because these cutting production arguably to support price. How do you think about what that means for your business the appropriate level of spending.
The right allocation of one could call it windfall cash flow because it is not.
It's an artificially support price by definition so.
I'm just curious how you think about what that means for your business Youre cash flow is basically being subsidized again by study.
Good morning, Doug. Thanks for the question. This is Ezra yeah. It's.
It's a dynamic environment right, we had a large SPR release last year that increased the inventory levels kind of entering this year.
As those have started to come down now that they're going to start all indications are that they're going to start coming down significantly faster because OPEC plus as.
As I said it looks like they are going to support.
Their cuts to kind of bring those inventory levels down. So your point is it's a very interesting one and it's one we discuss regularly obviously, we do different scenarios around so in general what I'd say is on this year, what we look at is whether it's crude.
<unk> gasoline distillates, either globally or domestically.
Inventory levels are basically in the lower half of our five year range now that's a that's a choppy five years like we said because of 2020 with Covid and then of course with 2020 with.
Half of the year being exceptionally low and then half of the year being somewhat.
Artificially higher with the SPR.
Outside of the last month, the last month, we've seen kind of gasoline and distillate demand being up just a bit weaker domestically.
But otherwise products demand has really been in line all year with our expectations crude demand has continued to increase continue to grow.
And not only with the <unk>.
High inventory levels that we entered the year with but really supply I think has surprised everybody a little bit to the upside and it's not necessarily as you pointed out U S growth.
Our new barrels, but its really historically displaced barrels that are back online.
Dominantly, what I'm talking about is Venezuela, and Iran, and maybe a little bit of I think everyone has been a little bit surprised at least we have on the resiliency of the Russian barrels to hit the market.
So we don't forecast those as having a significant longer term effect and one thing that we think about when we talk about the spare capacity. It's now offline with OPEC plus as some of that spare capacity is really offsetting the.
The previous spare capacity I, just highlighted from Venezuela, and Iran. So it is a little bit different from prior years ultimately what we see is the increasing oil demand overall.
<unk> this year.
<unk> estimates have it at least at 102 to exit the year, which would put us at a significantly high point.
Now to your ultimate question on how we actually look at that internally.
Our planning begins with everything we just talked about kind of an evaluation on the macro environment with respect to supply and demand fundamentals, including <unk>.
Spare capacity, that's offline just by choice and spare capacity, that's all fine for true geopolitical reasons, but then more than that Doug It really does come down to evaluating across our all of our premium assets, both individually and collectively we evaluate the correct investment level for each of those the activity levels to make sure.
Sure that each asset will deliver improved metrics year over year, and ultimately that'll be driving optimized returns and free cash flow generation at the corporate level and that's what we'll continue to set up EOG to create shareholder value in the near and long term honestly the growth ends up being a real output of our ability to invest.
And continue to lower the cost basis of the company and provide both near term and future free cash flow generation.
That's an interesting dilemma as well thank you for your perspectives on that.
A quick follow up hopefully is a quick one.
I wanted to touch on I think this was asked earlier, but I wanted to elaborate just a little bit the comments about inflation limiting to 10% this year, but it's too early.
To talk about 2024.
Pretty much the second to last company at the half year. The earnings call. This this quarter and pretty much everybody else has been pointing to yes, we're going to see some deflation in 2024 I'm. Just are you just being conservative or do you genuinely believe that there is still upside risk to capital in 'twenty four from inflation.
No Doug I don't think we are anticipating that you'll see.
Inflation into next year I think what the comment was we started out the year let me.
Can just clarify something we saw inflation last year coming into the business rig Count's kind of peaked in 'twenty in November of last year, we anticipated we would see any deflation in the market going into this year and so we built our plan based on the fact that our well cost in 2023 would increase no more than 10.
Percent relative to 2022, so that's where the 10%.
Comment comes from as we go into 'twenty four I think we recognized and clearly we're seeing deflation in our business.
I'd say, it's too early to predict what that level of deflation is going to do to our well cost next year, there's still a lot of market dynamics that we see in the business is as you just went through.
And so it's early to predict what impact that's going to have on next year's capital program as well as kind of how we choose to develop our plays across the different plays that we have to invest in.
So that's the comment about too early for next year, It's just too early with the market dynamics, we have for next year.
Our next question comes from Leo Mariani of Roth Capital Partners. Please go ahead.
Yes. Good morning, just wanted to kind of touch base on some of the emerging plays.
We're really thinking about kind of Utica and pier B and also some of the undisclosed exploratory plays out there as well just trying to get a sense.
It generally speaking you've seen any increased competition in these plays during the course.
2023, and it still seems like EOG has been a bit of a lone wolf in pursuing some of these plays were.
Others, maybe aren't doing as much but maybe theres more kind of going on behind the scenes you guys can help out with here.
Yes, Leo this is Ezra.
We continue to see very limited competition domestically on any.
Exploration thinking and you can kind of see that too just in the public comments that are made most.
Operators companies, whether private or public have really kind of pick the basin and our honing in on more of a.
Drill down kind of specialist manufacturing mode, and we continue to explore.
Ken said, we're still looking to.
Put on low cost high quality bolt on opportunities in some of those plays with respect to the Utica and <unk> in specific.
It's a little bit early this year on Utica, we're pleased with what we're seeing on the operational side and as Ken said, we'll get a completion spread in there and get some results here coming up on the <unk>. We've had a very strong year everything is really falling in line there and again, the PRP and Dorado are really benefiting from more of a continuous operations program. This year.
As we focus on Austin chalk and a little bit of co development in the Eagle Ford and draw, though and then we send our most of our focus in the pier B in the southern <unk> is basically on the Mallory this year.
And then shifting to international for just a minute on the exploration side.
No we both explore.
Onshore and offshore in shallow water internationally I would say onshore there's still limited competition on the exploration side for unconventional and what we see.
Or is it still a high bar that we have for international opportunities to they really do need to compete with our domestic portfolio.
Not just exploring internationally to try and say that we've got something internationally, it really needs to compete and deliver value for the shareholders and then in the shallow water.
A bit of the same maybe a little bit more exploration out there, but dominantly I think what you are hearing about in an offshore international exploration is a bit more in the deep.
And even ultra deepwater and really in the shallow water that we're focused on.
Okay. I appreciate that just wanted to turn to Capex.
For a minute here.
You talked about this a little bit in your prepared comments, but you guys are kind of at 50%.
Budget in the first half kind of right on where we wouldn't have expected here looking at guidance third quarter Capex is up a fair bit versus second quarter. So can we expect to see kind of a commensurate drop.
<unk> capital to kind of get you back to that kind of mid point on the full year, just trying to get a sense of kind of capex cadence in the second half.
Yes, Leo this is Billy.
So on the Capex I would say.
Our drilling and completion activity has been very ratable throughout the year and we're pretty much on track with what our plan is laid out.
The recent third quarter is up is simply due to the timing of our non drilling and completion capital and it moved from the second quarter into the second half of the year.
Els all of our drilling and completion Capex is really on pace with what we laid out we've spent about half the capex for the year and we've completed about half the wells that were planned for the year. So I'd say everything is pretty much on track but.
But fourth quarter will.
A reflection of how that.
Non D&C on drilling and completion Capex get spent in the third.
Yeah.
Our next question comes from Scott Gruber of Citigroup, Scott alone as yours.
Thanks, and good morning all.
Please go ahead and Thats two questions upfront.
They are related.
You guys noted continued efficiency gains in the emerging plays.
What are you seeing in terms of efficiency gains more broadly across the portfolio. Obviously the gains are always greatest in the new plays.
But I'm curious if you're still seeing solid gains more broadly across the portfolio.
If you are without adding rigs and Frac crews next year, just curious how much the overall well count could potentially grow next year just on the back of those efficiency gains.
Kind of a low single digit type figure potentially at a mid single digit. Thank you.
Yes, Scott this is Billy.
We're still seeing continued improvements although as you noted at a lesser pace and are more active foundational plays like the Delaware Basin and the Eagle Ford simply because we've been active there for a long period of time and as you noted emerging plays benefit from that transfer of technology more.
More rapidly I guess than some of the existing plays.
And really I'd, just like to tie that back in a little bit we still experiment quite a bit with applying technology.
Across all of our assets and especially true of our foundational plays.
The.
We've gone to to put in our data systems and tracked data across our plays gives us a lot of insights and how to how things are performing.
That goes back to our.
Bringing in house our.
Our drilling tools, our drilling motors those kinds of things so we still see improvements.
And some of our supplemental deck in the back you can see some of the increase in drilling times.
Say in our Permian program.
And how that's improved over time, and we'll continue to drive that down.
And so that's.
An effort there and then the same for the Eagle Ford.
Those are some of the slides in the back of our deck. So we're still seeing improvements in both the drilling times and the completed lateral feet per day.
And we're very encouraged with that because that enables the technology transfer enables quickly to go to the emerging plays and continue to reduce our cost how that translates into next year.
Again, I'd say, we're still a bit early to see.
How things are going to play out.
On the macro side.
What the market looks like so.
So it's early to see but I am encouraged with the efficiency gains that we're seeing that will continue to find sustainable ways to improve our business and lower our cost basis going forward.
Our next.
<unk> comes from Derrick Whitfield of Stifel. Erik Please go ahead.
Good morning, All my first question I wanted to focus on long lateral development, which has been a theme throughout Q2 and its development you're highlighting in the Eagle Ford with another 15000 foot lateral this quarter as it relates to the Eagle Ford and perhaps more broadly for your portfolio are there considerations beyond lease geometry, and legacy element that would limit you.
Our ability to pursue more 15000 foot laterals.
Yeah Derrick this is Ken.
Really no longer laterals are a way, we're increasing our capital efficiency in the Eagle Ford. If you. If you look at it we've drilled over 85 wells with laterals over two five miles long across the Eagle Ford and and we've utilized these longer laterals over the last five plus years where appropriate.
Think about it the faulting across the Eagle Ford does make these longer laterals challenging, but our data driven approach and multidisciplinary teams enable us to steer the laterals within some narrow target windows and apply an optimal completion design to maximize that capital efficiency.
These longer laterals are really contributed us lowering our cost basis in the Eagle Ford and are an example of how we're focused on increasing our efficiencies even in that play where we've been developing it for over 10 years.
Yes, Derek disability I'm, just not add the lessons we're learning from our longer laterals, we're pushing in the Eagle Ford, we're applying across all of our portfolio.
And so we're seeing those opportunities.
Across every asset that we have.
Yeah.
Our next question comes from Neil Mehta of Goldman Sachs. Please go ahead.
Yeah. Thanks, Thanks very much. The first question is just around Dorado, maybe you could talk about how that's tracking versus your target. How do you think about the timing of re completing the dorado wealth.
Yes, Neal this is Ken.
As far as the way that is tracking the five wells that we've deferred we would see that we would be completing those early in next year.
It's still early in the play and the wells are a core area are really performing as we've anticipated.
Timing dynamic and then what.
I would love your perspective stepping back to talk about the M&A markets, we've seen a pickup in consolidation.
U S shale, how do you think of Eog's role in future consolidation and is the best strategy.
The exploration program that we've been talking about here is to continue organically.
<unk>.
To grow the business or do you think there could be opportunities.
To bolt on.
Yes, Neal this is Ezra I think.
We've.
Ben 30 year strong is an organic exploration company.
20 years separated there.
And I think thats.
The thing about that is the way we look at these deals as it's similar to how I described every investment decision it's a.
It's a returns based decision how is that investment going to create long term shareholder value. We don't think of M&A versus exploration, but as a first mover looking trying to capture the sweet spots of new plays obviously, you can get a lower cost of entry.
And that offers a higher return so the exploration I think organic exploration stands on itself.
With regards specifically to M&A, we're aware of opportunities we evaluate many many opportunities and the challenge with it always comes back to is that opportunity really going to be additive to the corporate portfolio is it really going to be.
Something that we is better than what we're already drilling is it something that's going to add to the returns and add to the 10 billion barrels of equivalents that we've already captured as premium resources and we continue just to just to evaluate.
Opportunities, but kind of come up short with that evaluation.
Our next question comes from Roger read of Wells Fargo. Roger. Please go ahead.
Yes, good morning.
I'd like to come back to two things that have been discussed a little bit. One is just you talked about the.
Carbon advantage are the emissions advantage Dorado I was wondering if you could go in a little more depth on specifically what you see there and then my other question I'll just beyond the inflation side with oil at 80 85 right now.
Aren't we.
Sitting in a situation where inflation pressures might be reversing rather than behind us and if that's not the right way to look at it I'd be curious what you are seeing it says deflation is the right track here.
Yeah. Roger This is Ken I'll go ahead and answer the first part of that with Gerardo.
We're really confident that our gas production at Dorado generate significant returns in that development will be both operationally efficient and have a small emissions footprint because of the dry nature of the gas and really the proximity of that gas to the Gulf coast markets.
Yeah. Roger this is Billy on the inflation question I think youre spot on I think that's why we are saying.
Certainly we see deflation in the market today, but it's too early to think about 2024 because of the dynamic markets that we're seeing play out and we kind of be patient and watch the market and see how it develops before we make any comments about where cost would go in 2024, I think as a company, where we're certainly well positioned.
To take advantage of any opportunities that are presented in our market and our strategy about contracting and seeking out the highest performing crews are things that drive really our focus on sustainable cost improvements through the long term and that's really what drives our advantage over.
Trying to capture the.
Premium barrel premium price for all of our products.
We have no further questions on the phone line, so I'll hand back to Mr. Yaacov.
Yeah.
We appreciate everyone's time today on the phone call. Thank you to our shareholders for their support.
Wanted to give a special thanks to our employees for delivering another exceptional quarter.
Everybody.
Thank you for joining this concludes today's call you may now disconnect your lines.
Quarter. Thank you everybody.
Thank you for joining this concludes today's.