Q3 2024 EOG Resources Inc Earnings Call
Speaker Change: Good day everyone, and welcome to EOG Resources third quarter 2024 earnings results conference call. As a reminder, this call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Investor Relations Vice President of EOG Resources, Mr. Pearce Hammond. Please go ahead, sir.
Speaker Change: Good morning, and thank you for joining us for the EOG Resources 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: An updated investor presentation has been posted to the investor relations section of our website and we will reference certain slides during today's discussion. A replay of this call will be available on our website beginning later today. As a reminder, this conference call includes forward-looking statements.
Speaker Change: 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.
Speaker Change: This conference call may also contain certain historical and forward-looking non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures and related discussion can be found on the Investor Relations section of EOG's website.
Speaker Change: In addition, some of the reserve estimates on this conference call may include estimated potential reserves, as well as estimated resource potential, not necessarily calculated in accordance with the SEC's reserve reporting guidelines.
Speaker Change: Participating on the call this morning are Ezra Yacob, Chairman and CEO,
Jeff Leitzell, Chief Operating Officer
Ann Janssen, Chief Financial Officer
Speaker Change: Keith Trasko, Senior Vice President, Exploration and Production, and Lance Treveen, Senior Vice President, Marketing and Midstream. Here's Ezra. Thanks, Pearce. Good morning, everyone, and thank you for joining us.
Ezra Yacob: We've increased our regular dividend rate 160%, and including both regular and special dividends, paid or committed to pay more than $13 billion directly to shareholders, and $3.2 billion indirectly through share repurchases, all while reducing debt 35%.
Speaker Change: EOG has a history of delivering consistently strong financial and operational results and the third quarter is simply more of the same.
Speaker Change: Led by our employees' commitment to operational excellence and capital discipline, we outperformed on oil, natural gas, and NGL volumes for the quarter as well as beating expectations on per-unit cash operating costs.
Speaker Change: We generated $1.6 billion of adjusted net income and $1.5 billion of free cash flow and returned $1.3 billion of that free cash flow back to our shareholders through a mix of our regular dividend and opportunistic share repurchases.
Speaker Change: In addition to announcing third quarter results, yesterday, we demonstrated confidence in our ability to generate strong free cash flow in the future, as well as our continued commitment to return a significant portion of cash to our shareholders.
Speaker Change: By increasing the regular dividend seven percent and boosting our share repurchase authorization by five billion dollars
Speaker Change: And we continue to improve our capital efficiency by leveraging technology and innovation across both our foundational and emerging assets. That is one of the key advantages of operating in multiple basins. We are able to drive improvements to operational performance through technology transfer between those basins.
Speaker Change: We are drilling further and faster than at any time in our history, completing wells with fewer people and less equipment due to efficient operations, and we continue to capture additional value through our marketing strategy.
Speaker Change: EOG's performance is sustainable because it's driven by our culture, empowering each employee to be a business person first, focusing on returns, and seeking ways to improve the business every day.
Speaker Change: Our culture is our competitive advantage, and combined with our focus on sustainable value creation through the cycles, gives us confidence in our ongoing performance as we finish 2024 and position ourselves for 2025.
Speaker Change: In a moment, Jeff will provide some early commentary on our 2025 Capital Program, but our investment strategy always begins with capital discipline, balancing short and long-term free cash flow generation, return on capital employed, and return of capital to shareholders.
Speaker Change: Oil inventory levels are below the five-year average, with both supply and demand showing moderate growth year-over-year. We expect to finish 2024 with strong demand slowing into a seasonally lower first quarter and then increasing throughout the rest of 2025.
Speaker Change: Domestically, while efficiency gains continue across the industry, we anticipate another year of slower U.S. liquids growth, grounded in the lower number of active drilling rigs and drilled but uncompleted wells.
Speaker Change: Regarding North American natural gas, inventory levels have moved closer to the five-year average throughout the year due to a combination of producer discipline and increased demand driven primarily by power generation.
Speaker Change: We remain optimistic on the long-term outlook for gas demand beginning in and increasing throughout 2025 from additional LNG projects coming online and ongoing increases in power generation.
Speaker Change: Finally, last month, we released our Annual Sustainability Report for 2023, highlighting our leading environmental performance and commitment to safe operations.
Speaker Change: We achieved a GHG intensity rate below our 2025 target for the second year in a row, and achieved a methane emissions percentage at or below our 2025 target for the third consecutive year.
Speaker Change: Our in-house methane monitoring solution has progressed beyond the pilot phase and is integrated into our standard operating procedures. And our carbon capture and storage pilot project is operational and we stand ready to deploy our learnings to future operations.
Speaker Change: Our consistent sustainability performance is a result of our empowered and collaborative workforce and our continued investment in innovation and technology to achieve not only leading environmental performance, but also strong and consistent safety performance throughout our operations.
Speaker Change: This year's report highlights our innovative culture that drives EOG's mission to be among the highest return, lowest cost, and lowest emissions producers playing a significant role in the long-term future of energy. Now here's Ann with details on our financial performance.
Ann: Thanks Ezra, EOG continues to create long-term shareholder value. During the third quarter, we earned $1.6 billion of adjusted net income and generated $1.5 billion of free cash flow on $1.5 billion of capital expenditures.
Ann: Cash on the balance sheet at quarter end is temporarily higher due to the postponement of certain tax payments until the first quarter of next year from disaster relief granted for severe weather events in Texas, including Hurricane Beryl.
Ann: Our ongoing marketing strategy to diversify and expand our access to premium markets also delivered exceptional results during the third quarter, with peer-leading U.S. price realizations of $76.95 per barrel of oil and $1.84 per mcf for natural gas.
Ann: Finally, we paid a $0.91 per share dividend and repurchased $758 million of shares during the quarter.
Ann: Year-to-date, we have generated $4.1 billion of free cash flow, which helped fund $3.8 billion of cash return to shareholders.
Ann: Of that $3.8 billion, $1.6 billion was paid in regular dividends and was complemented by $2.2 billion in share repurchases through the third quarter.
Ann: Taking into account our full-year regular dividend, we have committed to return $4.3 billion to shareholders in 2024.
and we are on track to exceed.
Ann: This increase reflects our confidence in the fundamental strength of our business, which continues to get better through consistent execution of EOG's value proposition.
Ann: Efficiencies and technology applied throughout our multi-basin portfolio continue to sustainably improve EOG's capital efficiency.
Ann: A growing, sustainable, regular dividend remains the foundation of our cash return commitment and we believe is the best indicator of a company's confidence in its future performance.
Ann: In addition to the dividend increase, the board approved a $5 billion increase in our share repurchase authorization to supplement the $1.8 billion remaining on the authorization as of quarter end.
Ann: The total $6.8 billion buyback capacity retains our flexibility to deliver on our cash return commitment to shareholders.
Ann: Over the last several quarters, we have favored buybacks to complement our regular dividend, and we will continue to monitor the market for opportunities to step in and repurchase shares for the remainder of the year.
Ann: EOG's balance sheet underpins the financial strength of the company and remains a strategic priority.
Ann: To optimize EOG's capital structure going forward, we intend to position our balance sheet such that our total debt to EBITDA ratio equals less than one times at $45 WTI.
Ann: We believe this is an efficient and prudent long-term capital structure for a cyclical industry that will support our commitment to deliver shareholder value.
Ann: As a result, we anticipate refinancing upcoming debt maturities, increasing our debt balance to $5 to $6 billion range in the next 12 to 18 months, and maintaining our cash balance at levels similar to what we have carried for the last two years.
Ann: By managing our debt levels toward this more efficient capital structure, we are increasing our capacity to return cash to shareholders. Now here's Jeff to review operating results.
Speaker Change: Thanks, Ann. We delivered another outstanding quarter thanks to our employees and their consistent execution across our multibasin portfolio. Their focus on continued improvement through innovation, technology advancements, and operational control is why our third quarter volumes and per unit cash operating costs beat expectations.
Speaker Change: Oil volumes beat our forecast primarily due to better-than-expected productivity from new wells, driven by continuous improvement to our completion designs.
Speaker Change: Year over year, we have increased our maximum pumping rate capacity by approximately 15% per frac fleet on average. The benefit is two-fold, faster pump times and better well performance.
Speaker Change: As a result of third quarter volume performance beats, we are once again raising full year guidance.
Speaker Change: Our oil production midpoint has increased by 800 barrels per day, natural gas liquids by 2,800 barrels per day, and natural gas by 24 million standard cubic feet per day.
Speaker Change: We also beat per unit cash operating cost targets during the third quarter. The primary drivers were lower lease operating expense due to less work over expense and fuel savings. We now expect our full year per unit cash operating costs to be lower than forecasted and have reduced guidance accordingly.
Speaker Change: Our capital expenditures in the third quarter were in line with our forecast, with only minor differences primarily due to timing of operations.
Speaker Change: In addition, well cost deflation, driven primarily by efficiencies, is playing out as we had forecasted at the start of the year, resulting in a 3 to 5 percent year-over-year decrease in well costs.
Speaker Change: As a result, our expectations for full-year CapEx remain unchanged at $6.2 billion at the midpoint.
Speaker Change: Ideas born in one operating area are replicated across multiple basins through technology transfer. Two examples of innovation expanding through our portfolio and driving efficiencies this year are extended laterals and our in-house motor program.
Speaker Change: Average lateral lengths for our domestic drilling program continue to increase. In the Delaware Basin, we now expect to drill more than 70 three-mile laterals this year, compared to our original forecast of 50.
Speaker Change: We've also set a new lateral length record in the Eagleford, not only for EOG, but for all of Texas.
Speaker Change: Our Aspen A1H well was drilled in our western acreage and has a lateral length of over 22,000 feet.
Speaker Change: In addition, longer laterals help unlock new potential from acreage that might not otherwise meet our economic thresholds.
EOG's in-house motor program also continues to pay dividends.
Speaker Change: In the Delaware Basin, we are testing the limits of our drilling motors in the shallower Leonard Shale and Bonespring formations.
Speaker Change: While drilling the production hole section, we attempt to drill as much of the vertical, curve, and lateral portions of the wellbore with one motor run.
Speaker Change: Historically, this operation requires a minimum of three motor runs and two trips, which is a pause in drilling to pull a motor out of the wellbore and replace it with a new one.
Speaker Change: As a result, we have eliminated over one full trip per well in these shallower Delaware Basin targets.
Speaker Change: Given that each trip can cost $150,000 or more, the cost savings and efficiency gains from using better designed, higher quality motors continues to add significant value to our drilling program.
Speaker Change: This is just one of several examples of the value the EOG Motor Program has created. Looking company-wide, since the start of 2023, we have increased our drilled footage per motor run by over 20% versus third-party rental options.
Speaker Change: As we continue to test, learn, and redesign our drilling motors, we see substantial upside to our future drilling performance as we expand motor innovation throughout our multi-basin portfolio.
Speaker Change: In Ohio, we've made significant progress this year transitioning the 225,000 net acres of the volatile oil window in the Utica play from delineation into development.
Speaker Change: We now have five packages online and producing for more than a hundred days. Three of which have been producing well over a hundred and eighty days.
Speaker Change: Both oil and liquids performance continues to meet or exceed expectations, demonstrating the premium quality of this play. We are also capturing sustainable operational efficiencies through multi-well pad development and continuous operations.
Speaker Change: On the drilling side, the Utica provides an ideal operational environment to make significant gains quickly. We have decreased drilling days to drill 3-mile laterals 29% year-over-year, and have already achieved a record of drilling more than 2 miles in a single day.
Speaker Change: We also have made significant gains on the completion side, achieving a nearly 13% increase in completed lateral feet per day compared to last year.
Speaker Change: Over the next few years, activity in the Utica will continue to be primarily focused in the volatile oil window where we anticipate our well costs will average less than $650 per effective treated lateral foot.
Speaker Change: For 2025, we anticipate a 50% increase in Utica activity as we continue to leverage consistent operations to achieve additional economies of scale.
Previewing 2025 company-wide.
Speaker Change: With the outstanding performance we have delivered this year, we do not see a need to significantly adjust activity next year.
Speaker Change: This will allow us to continue to capture some economies of scale across our emerging assets and advance our Technological understanding of these plays while delivering the operational and financial performance that our shareholders appreciate Now here's Ezra to wrap up
Thanks Jeff.
Ezra Yacob: EOG recently celebrated our 25th anniversary as an independently traded public company. And while many things have changed across our industry, EOG's fundamental strategy and commitment to creating share value for our shareholders has remained consistent.
Ezra Yacob: Second, our strong operational execution begins with being a first mover in exploration to maintain a low-cost, high-quality multi-basin inventory.
Ezra Yacob: We leverage in-house technical expertise, proprietary information technology, and self-sourced materials to help drive well-performance and cost control. And we focus on a balanced approach to product, geographic, and pricing diversification to drive margin expansion.
Ezra Yacob: Third, we are committed to safe operations, leading environmental performance, and stakeholder engagement. Our sustainability report highlights progress on our emissions reduction pathway as well as overall environmental stewardship.
Ezra Yacob: And finally, our culture is our competitive advantage. A decentralized, non-bureaucratic organization places value creation in the field, at the asset level, and in the hands of each of our employees.
Ezra Yacob: We take pride in our collaborative, multidisciplinary teams that drive innovation, utilizing our technology and real-time data collection to drive decision-making.
Thanks for listening. Now we will go to Q&A.
Speaker Change: Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touchtone telephone.
Speaker Change: If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Questions are limited to one question and one follow-up question.
We will take as many questions as time permits.
Speaker Change: Once again, please press star 1 on your touchtone telephone to ask a question.
Speaker Change: If you find that your question has been answered, you may remove yourself by pressing star and then 2.
Speaker Change: We'll pause for just a moment to give everyone an opportunity to signal for questions.
Speaker Change: And our first question today will come from Steve Richardson with Evercore ISI. Please go ahead.
Speaker Change: Hi, good morning. I was wondering if we could start, Ezra, with the optimization of the balance sheet. This is a new wrinkle from the company, and I wonder if you could just talk about
Speaker Change: this incremental gross debt that you're looking at adding. The time frame, should we think about that $2 billion coming concurrent when you would look to re-apply the existing maturities and then also the...
You know, the knock on of that is.
Speaker Change: How do you look at redeploying that cash, assuming into the buyback, and does this mean that you'll be taking shareholder returns, you know, about, you know, kind of sustainably above that minimum commitment for the next couple of quarters? Maybe just talk about timeframe around that, please.
Yes, Steve, good morning. Thanks for the question.
Speaker Change: You know, the decision is aimed at really just making our capital structure more efficient.
Speaker Change: more appropriate for a company of our size and strength. You know, still being respectful that we're in a cyclical industry.
Speaker Change: And so really, you know, the timing right now looks pretty good as we have a couple of bonds coming into maturity in the next 12 to 18 months. The market is looking a little more favorable than it has in the last few quarters.
And so as we step into this,
to EBITDA at less than one times.
Speaker Change: Really, what I would look for is, yes, in the near term, that does imply that we'll definitely be in a position to exceed the 70% commitment and, quite frankly, be closer to 100% and, at times, more than 100% of return of free cash flow to the shareholders.
Speaker Change: But I want to put more, a more, you know, a specific time target on it other than kind of the next 12 month time frame, the next 12 to 18 months as we look to be opportunistic in the market, not only with share repurchases, but also the timing of reaching out on these bonds.
Speaker Change: That's great. Really strong choice capital allocation. Thanks. If I could...
Speaker Change: Maybe just follow up on natural gas. You have arguably the lowest cost dry gas asset in the market. And with
the Verde pipeline finishing. You've got some real
Speaker Change: Opportunities here, appreciate the comments on a one-rig program for 25, but you mentioned off the top, Ezra, how optimistic the natural gas demand outlook looks.
Speaker Change: How should we think about the contango of the gas curve and what signal you're looking for to, you know, apply more capital there, arguably, you know, that you are at the low end of the cost curve in North America?
Speaker Change: Yes Steve, that's a that's another great question on Dorado and you know we've highlighted last quarter that you know cash operating costs are right around that dollar already for the for the asset and so we do consider it to be one of the lowest cost
Speaker Change: natural gas projects in all of the U.S. and very well-positioned. Verde is online, which we're very excited about, but the North American gas inventory, as you said, is, you know, it's currently about 5% above the five-year average still.
Speaker Change: We'll see what happens with winter, but either way, whether it's warm or cold, industry does appear to have not only some curtailed volumes, but there is also some gas ducks that will likely come online pretty quickly.
Speaker Change: And so what we see, and this is somewhat in line with where we've been for the last...
Speaker Change: two years is that 2025 is really going to be an inflection point.
Speaker Change: for North American Gas Demand with LNG beginning to come online and then coming online really 25, 26, 27. And when we think about that, you know, it's as we calculated about 10 to 12 BCF a day of LNG that's under construction and should come online in that time frame.
Speaker Change: You know, we actually see another almost 10 to 12 BCF a day in demand growth between now and the end of the decade that's really associated with power demand, a little bit industrial, some Mexico exports, but really it's power demand driven not only by new power demand from AI and electrification, but also coal power retirements.
Speaker Change: And so, you know, our goal with Dorado is to continue to invest at a pace where we can capture some of the economies of scale, as Jeff talked about, which in the last two years has really been a one-rig program.
Speaker Change: And, you know, as the market starts to open up for us, we'd like to increase that. The next kind of critical point in these unconventional plays is to get to a continuous completion spread. But we're very excited about where we can go and the asset that we've captured there.
Speaker Change: And our next question today will come from Arun J.R.M. with J.P. Morgan Securities, LLC. Please go ahead.
Yeah, good morning.
Speaker Change: Ezra, I was wondering if we could talk about puts and takes in terms of 2025 capital.
Speaker Change: Jeff mentioned that you expect to run relatively flattish activity, but with the movements between some basins. I was wondering if you could kind of characterize how capital would move
Speaker Change: You know, you're going to be a little bit more active in Dorado, we think, and in the Utica. I think your strategic infrastructure spend is going to go down on a year-over-year basis, and there's obviously some of the efficiency gains that Jeff was highlighting.
Speaker Change: And where we're at now is really we want to focus on the emerging plays and really getting them to that critical activity level to maximize our efficiencies, which the first step in that is getting it to one full drilling rig. And then really the next hurdle is going to be getting those plays to one full frack fleet. So in the Utica, as we've touched on, we should be there next year. You know, we're looking at about a 50% increase in activity. We'll be up to two full rigs and one full frack fleet by year end.
Speaker Change: So we'll reach those critical points. And then in Dorado, which you talk about, we really anticipate maintaining just the one full rig that we've been running. We've been seeing outstanding performance and efficiencies from that consistent operations.
Speaker Change: But we'll continue to manage the investments in our completion activity just as we watch the natural gas market and move through the winter. So I think by doing all this, this really allows us to continue to progress each one of those emerging plays. But we'll still be able to deliver, you know, another year of strong results from the portfolio.
Speaker Change: And then just real quick on infrastructure, you did hit on it. You know, over the last few years, we've had a little bit of additional infrastructure spend that was strategic with the Janus gas plant and the Verde pipeline. This year, it was around $400 million and looking forward to 2025,
Speaker Change: Really, we just we're going to be finishing up that Janus plant and a few little things from a facilities aspect on the Verde pipeline. So we expect the strategic spend there next year to be somewhere around a hundred million dollars.
Speaker Change: And then, you know, as those continue to roll off and we look in the future, we'll start moving back towards that 15 to kind of 20% indirect level.
Speaker Change: Got it. That's helpful. Maybe just a follow-up to Steve's question on the optimization of the balance sheet. You mentioned, Ezra, that this could maybe drive higher cash returns to investors.
Speaker Change: How much does the potential to do A&D or bolt-ons, counter-cyclical A&D, how did that progress in terms of your thinking in terms of, you know, going to five to six billion of gross debt?
Yes, we're in. This is Ezra.
Speaker Change: will be very well positioned still to have, you know, what we consider industry's leading balance sheet, quite frankly, and that does going to preserve, it's going to preserve the financial strength.
of the business for us.
Speaker Change: You know, that'll give us the ability to still maintain the ability to continue to invest in counter-cyclic, you know, low-cost property bolt-ons, other things that we've done in the past along those same lines. And what I would say is the ability to return
that even leveraging up on this, on this debt side.
Speaker Change: It still puts us in a great position to be able to...
to continue to execute on a lot of our priorities.
Speaker Change: Like I said, including low-cost property bolt-ons to be able to be in a position to opportunistically step into larger share repurchases if the opportunity presents itself.
Speaker Change: And so we really see this as a very shareholder-friendly maneuver that we're doing, and like I said, you know, the timing of it is really just what we kind of see in the market, and the fact that we do have some of the bonds maturing.
Speaker Change: And our next question today will come from Scott Henold with RBC Capital Markets. Please go ahead.
Scott Henold: Thanks, and I'm going to hit on the balance sheet optimization and Ezra you just sort of answered part of my question there with regards to like the why now it's it's you know definitely unique to the sector and
Scott Henold: You're just kind of curious, was this a decision you've been contemplating?
Unknown Executive, Ann Janssen, Jeffrey Leitzell, Lloyd Helms, Pearce Hammond
Ezra Yacob: Yes, Scott, this is Ezra again. So, you know, on the strategic portion, maybe I'll hand over to Ann to get in a little bit more of the mechanics.
Speaker Change: But yeah, I think this is really in line with where management and board has been thinking for a long time. As I started off the Q&A session with Steve, you know, I mentioned that I think we've been pretty consistent talking about the, you know, the goal of the company has never been to go to an absolute zero debt level.
But really we like to be positioned
Speaker Change: to create, you know, long-term shareholder values and having different measures, different abilities to do that. One thing that we love about having that pristine balance sheet
Speaker Change: that I should have just mentioned when speaking with Arun is also the peer lead in regular dividend that we have. And this gives us confidence.
Speaker Change: in being able to continue to grow that and maintain that dividend. As I said in the opening remarks, you know, it's been 27 years that we've been paying that dividend without ever needing to suspend it or cut it, and that's something we're very proud about. So we really look at the entire
Speaker Change: You know Priority of our cash flows when we were thinking about this and the the trigger again, that's that's Caused it right now is just where we're at in the macro environment
Speaker Change: and not from the commodity side, but really from the financial side. If you recall, Scott, the last bond that we retired was about a $1.2 billion bond.
back in Q1 of 2023.
Speaker Change: So we refinanced that, or I'm sorry, we paid that off with cash on hand.
Speaker Change: And essentially since then, you know, interest rates have always been climbing up until the recent last couple of quarters where things have kind of plateaued and we're starting to see them.
Speaker Change: bend over a little bit. So those are really the things that have kind of given us the confidence to kind of go ahead and make this decision now. As far as moving the equity onto the debt side and the impact for us, I'll hand that off to Ann.
Ann: Yeah, the way we look at is the optimal capital structure is one where the balance sheet has more debt than what we have today. So basically, we're looking at putting on a level of debt that is more appropriate for our company of our size and strength in this point in the cyclical industry.
Ann: So if you want to look at those parameters, as we mentioned, first we want it to be less than one times total debt to EBITDA leverage ratio at approximate bottom cycle prices around $45. If you compute that out, that gives us a yield to total debt level of about $5 to $6 billion.
Ann: Conversely, if you look at the cash side of the business, we look at the appropriate level of cash.
Ann: We think that's currently about the level we've held for the last two years.
Speaker Change: So again, echoing Ezra's comments, our main objective is just to create long-term value for our shareholders, and we think setting up the balance sheet the way we are will better position us to have an appropriate level of cash to run the business, continue to make those investments as they present themselves, and backstop our regular dividend through the cycle.
Speaker Change: Understood, thanks. My follow-up is a little bit on the election.
Speaker Change: The outcomes certainly have created a lot of volatility in the markets, and as you look at what this means for the energy industry, and specifically for EOG, what are some of your initial kind of takeaways and the potential tailwinds at play?
Speaker Change: Yeah, Scott, you know, we've still got, obviously, the presidential and the Senate is getting close to, you know, you can kind of see who's going to control those two portions of our Congress.
Speaker Change: and then we'll see where the house finishes up after that. I think for us, you know, what we really prepare for is kind of this next couple of months.
Speaker Change: Whenever there's a change of administration, this is the time period when we really start to focus in, maybe take some steps to prepare just in case things can slow down. So we're feeling very good with where we're at right now. As far as going forward on the industry,
Speaker Change: You know, I think the industry has come a long ways.
Speaker Change: as far as our relationship with, not only at the federal level, but really at the local level, working alongside policy makers.
Speaker Change: regulators and such and I think the industry is in a very good spot to continue the performance that we've had over the last few years.
Speaker Change: I know I can speak a little more directly for EOG, but in the areas that we operate, even the new areas like in Ohio with our Utica play, we've really developed an outstanding relationship.
Speaker Change: many across industry, policy makers, really just stakeholders in general see that there is a long, that oil and natural gas are going to play a long, are going to play a part of the long-term energy solution.
Speaker Change: and that working with industry is really the best way to kind of achieve the goals of low cost, reliable, and lower emissions type of energy sources.
Speaker Change: And our next question today will come from Leo Mariani with Roth. Please go ahead.
Leo Mariani: Hey guys, why don't you just, you know, touch base, you know, a little bit here on, you know, the, the Utica again. So...
Leo Mariani: Just curious, you guys talked about, you know, six to eight dollars a BOE. I think that was exclusive to the volatile oil window.
Leo Mariani: You think there's room to kind of continue to get costs down over time? I know you guys have talked about a long-term goal of…
Leo Mariani: $5 a BOE fining cost, but I think that may have included
Leo Mariani: some of the gassier, you know, windows as well. So, you know, where are you at in the cost cycle on the Utica? And, you know, do you think there's still significant room to take that down?
Thank you. Thank you.
Leo Mariani: Yeah, Leo, this is this is Keith. The final cost range. Yeah, you're right. It is. It is specific to the volatile oil window and the 225,000 net acres we have there. The range represents the expectations for the next two to three years of development.
Leo Mariani: That's the same for the well cost range. If you, you know, back out, you know, the science on some of our early wells, we've hit the upper end of this range multiple times and we'll continue to drive it down with the economy to scale.
Leo Mariani: versus the $5 finding cost we previously disclosed. That reflects the entire 445,000 acre field.
Leo Mariani: That includes the up-dip oil window and the down-dip condensate window. It also incorporates full field of development. So we still see line-of-sight to that, but what we're doing here is giving more guidance in the near term.
Leo Mariani: Overall, we've made great progress in the play. The well productivity and well cost continue to demonstrate the premium quality and it really highlights our organic exploration strategy.
Okay, appreciate that.
Speaker Change: I wanted to see if there was any update on the PRB, feel like it's been a little time.
Speaker Change: Since we've kind of heard on that. How are you kind of viewing that play in terms of how it
Speaker Change: stacks up against others. And I think you're doing a little bit less on the well side this year than you did last year. You talked about adding a little bit of activity in the Utica for 2025. Just kind of any update in terms of how the PRB is performing and how you're kind of thinking about future activity levels there.
Speaker Change: Yeah, Leo, this is Jeff. So yeah, the powder is progressing nicely. You know, as we've talked about for the past handful of years, we've really been focused on the Maori formation, which is the deeper formation, and really kind of lining out our geologic model and what our development plans are there. And we had really good success with it. So we've shifted over since we've gotten all that overlying geologic data in the Niobrara to where we're really doing a split program this year of about 25 wells split between the Maori and the Niobrara.
and what I've
Speaker Change: would say is, you know, we've applied the new geologic models and we're continuing to refine our completion techniques up there. And through the first part of the year, we brought on some of those Niobrara wells. And I mean, the results are very early right now, but they're very encouraging. We are seeing an uptick, you know, of greater than probably about 10% increase in productivity versus 2023 in the Niobrara. So moving forward right now, I think we're in a very comfortable spot. We still have, you know, a little to learn there in the Niobrara on kind of just our development patterns and when to offset and depletion in space.
Speaker Change: and so I think we're probably going to be pretty consistent with our program as we move into 2025 as we continue to refine those models.
Speaker Change: And our next question today will come from Kalei Ackermann with Bank of America. Please go ahead.
Kalei Ackermann: Hey, good morning guys. Thanks for getting me on. My first question is on the gas guide.
Kalei Ackermann: Yeah, Kayleigh, this is Jeff. And no, you know, our plans are pretty secure as far as that goes. And really, there shouldn't be any advancement. I mean, all of any of the kind of midstream, or I should say, strategic infrastructure projects that we've talked about. I mean, they're on time, and they're on pace to come online when we expect it. With the Janus gas plant, as we've talked about, the plan is to complete that next year. So as we've talked about, we'll have a little bit of strategic infrastructure dollars associated with that, about 100 million. But other than that, no, there'll be really no acceleration in any of those projects.
Speaker Change: Got it. For my follow up, I'd like to go back to Dorado. I appreciate that it's got very low cash costs. I think in the past we've talked about a dollar and that falling by 50 to 60 cents because of Verde.
Speaker Change: and sort of given its position on the coast, I imagine that it's going to be quite a resilient play. My question is, are you going to optimize production around that cash cost figure, or do you think that there is a return threshold to consider that would cause you to maybe curtail production or maybe decelerate?
Ezra Yacob: Yes, Clay, this is Ezra. You know, Dorado is, the way we look at Dorado, quite frankly, is similar to the way that we invest in any of our basins, and it starts with a returns profile.
You know, are we investing at the right pace?
Ezra Yacob: to optimize the returns and the ultimate NP via that asset. And quite frankly, what we found in Dorado, especially with its location there close to the demand center, coupled with some of the strategic decisions we've been able to make on the marketing side, is that this dry gas play from an economics perspective really competes with many of our oil plays.
Ezra Yacob: And so that's really what governs how quickly that we invest into that play. On the lower level, as we've talked about, with any of these unconventional resources or these emerging assets, we like to try and get to these critical points of
Ezra Yacob: where you capture the economies of scale. So the first is consistent rigs.
Ezra Yacob: The second point would be a consistent completion spread where you're not, you know, mobilizing in and out of base on a lot of crews and things like that. It gives you the ability to.
Ezra Yacob: really know the crew that you're working with and the equipment and you can really start to leverage the learnings. On the upper end of it, you know, you can definitely outrun your pace of investment there and your ability to
Ezra Yacob: to learn on each well and make each well a little bit better, whether it's finding cost or well performance. And then layered on top of that, obviously, is the macro environment.
Now we've done a great job with Toronto.
Ezra Yacob: by strategically allowing that gas to reach multiple markets. It's got multiple outlets, and it's well positioned along the Gulf Coast, like we said, and so that does bring to it an inherent opportunity to continue to deliver that gas.
Ezra Yacob: And we think that it will be, you know, a significant portion of, you know, the future supply that should grow into the North American growing gas demand.
Speaker Change: And our next question today will come from Neil Dingman with Truist. Please go ahead.
Neil Dingman: Thanks for the time guys. I'm hoping that I could ask another one to you that specifically love to hear your latest thoughts on how you're thinking about the prospectivity.
Neil Dingman: More on the west side of the play, you know, my either in that black oil or volatile oil in the play. And then just one other question on this play. What's the latest on just the decline? I know it's still early, but I'm just wondering, are these wells declining more like typical oil wells or like a Marcellus gas well?
Speaker Change: Yeah, this is Keith. On the prospectivity overall, you know, we are still focused mainly on the volatile oil window and trying to, you know, dial down spacing there. We will eventually jump up, you know, to the west side or also to the condensate window at some point. We're still in the data gathering phase there.
Speaker Change: On the decline side, I'd say we're not seeing anything out of the ordinary. It's a combo play, and we see the, you know, it declines like a typical tight shale well, you know, similar to the Eagleford.
Speaker Change: Okay, and then maybe just a segment or follow-up just on overall inventory. I'm just wondering, you know, I understand you no longer
Speaker Change: put out the well count in your slides like, you know, you previously had in the appendix. I'm just wondering, I was hoping you could give a sense or maybe a ballpark of how many years you're thinking about of running room specifically in the Dell, Eagleford, and Bakken at the current rig paces. Unknown Speaker
Ezra Yacob: Yeah, Neil, this is Ezra. You know, what we do disclose is our resource potential, as far as resource.
Ezra Yacob: We've continued to show that we've got about 10 billion barrels of equivalents of the premium resource across the multi-basin portfolio.
Speaker Change: The ones that you're highlighting are, it's an interesting collection because you've got a mix of kind of...
Speaker Change: Those are our foundational plays, but they're all a different kind of legacy aspect.
In the Bakken, you know, we run...
Speaker Change: Basically a one-rig program, and we're at a point where we feel that we can...
Speaker Change: continue to do that and generate similar returns for a number of years to come.
Speaker Change: In the Eagleford, many things have changed in the Eagleford. And I think everyone's seen that we've slowed down our pace of investment, kind of just for lack of a better data point, say, pre-COVID until post-COVID, where these days we put the sales, maybe 120 wells to sales every year or something like that. And again, the slowing down of that investment,
Speaker Change: It's less about the inventory that we have remaining and it's more about what I was speaking with Clay about as far as investing in each of these plays at the right pace.
Speaker Change: slowing down there in the Eagleford, we've actually increased the returns and expanded the margin profile. And that's really the thing that we focus on. And then in the last one that I would mention is the Delaware Basin, of course, to be honest with the Delaware Basin,
Speaker Change: I think it's difficult, you know, industry has done a lot of drilling there over the past decade, but with the technology advancements, I think industry continues to unlock, especially on the Delaware Basin side, unlock additional targets every year.
Speaker Change: And so to be quite honest, it's a little bit difficult to quantify just how much inventory would be left in such a robust resource as the Delaware Basin. You're talking about, you know, literally a mile's worth of oil and gas saturated reservoirs in that basin.
Speaker Change: And so we feel very good about the the premium resource that we have in place or we've got a very high quality very deep bench of assets across multiple basins
Speaker Change: And really at the pace that we're operating in the last couple of years and where the macro environment looks
Speaker Change: You know, a lack of inventory is not really something that we really ever makes our radar. What we continue to look for is improving the quality of that inventory through our organic exploration effort, which is one of the things that's driven the success there in the Utica.
Speaker Change: And our next question today will come from Charles Meade with Johnson Rice. Please go ahead.
Speaker Change: Good morning, Dan. Good to see you and your whole team there.
Speaker Change: I wanted to go back to your Pear comments, you spoke a bit about
Speaker Change: about the commodity macro, and you gave a thought on the U.S.
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Speaker Change: Your point of view on what the range of possible outcomes is for 25 and not that looking for a specific tradition but more to just try to get an understanding of your thinking that that's informing your approach to 25.
Speaker Change: Yes, Charles, let me give you a little more background on that. You know, as you guys know, we kind of build our models, we start internally with the things that we know best, which are operationally in the field. And so the biggest thing that is driving our kind of US numbers
Speaker Change: liquids growth. Last year, or I'm sorry, this year, you know, it's looking more like it's going to be right around half of that, maybe about 700,000. And so in 2025, we see a little bit less than that even moderated growth off of that number for the US. And it really begins with where the rig counts are at.
Speaker Change: and where the oily, drilled but uncompleted well levels are at.
Speaker Change: Both of those are relatively low, and on the rig count side, it hasn't really moved. The rig count really hasn't moved in.
Speaker Change: just about a year now. And so that's really the biggest thing that's informing our expectation for slightly less growth year over year in the U.S.
Speaker Change: Got it. Got it. And then, could you give us a quick rundown of how or how or when BEHA is selected in the 25 program?
Speaker Change: I'm sorry, Charles, you broke up there. I didn't catch that. How or when? What was it? Beehive. Beehive. The Australia well. Yes, sir.
Speaker Change: Yeah, Jeff. Yeah, Charles, this is Jeff. Yeah, so we have secured the permit there and we're really excited to be testing the prospect. The plan is to test it next year.
Speaker Change: So obviously it's an oil prospect. It's a large untested structure there. It's really close to markets and it's there on the northwest shelf of Australia.
Speaker Change: The thing that I'd really point out is it's a prospect that's very similar in water depth and operations, the environment, I should say, is Trinidad. So we'll really be able to leverage all that shallow water expertise that we have there. So, you know, at this time right now, we've got a team in place here in Australia and we're excited to go ahead and test that prospect sometime next year.
Speaker Change: And our next question today will come from Scott Gruber with Citigroup. Please go ahead.
Speaker Change: Yes, good morning. You guys have mentioned keeping a activity largely consistent for 25
Speaker Change: Your oil volumes will be up about 2% year-on-year at the exit this year.
Speaker Change: Is that a number we should be expecting a, you know, kind of a similar figure for 25?
Speaker Change: And then obviously there's some concerns on the macro side. So curious just under what conditions, you know, would you look to dial back activity to ensure more of a flattish trend on your oil production?
Yes, Scott, this is Ezra.
Speaker Change: You know, like you said, it's a you know, I don't think we're at this point ready to talk about a percentage there on on 2025, but You can go ahead and count on kind of what we've talked about today with similar activity levels I mean the the way to really think about our capital allocation is
You know, it's not a
Speaker Change: It doesn't begin with that growth number. It really is a, you know, an output of our investment strategy.
Speaker Change: And as you highlighted, you know, we're not really growing that much right now. I mean, I think in the last 12 months, you know, we've grown about 10,000 barrels of oil per day, which for a
Speaker Change: is really pretty soft. It's certainly something that we could grow more aggressively if we wanted to focus on it.
Speaker Change: But quite frankly, what we focus on is, you know, we invest to balance returns.
Speaker Change: When we get it correct in each of our plays, you invest at the right pace as we've talked about today, that's when you really start to realize the operational efficiencies, the cost reductions.
and the performance improvement that Jeff really highlighted in his...
Opening Comments.
So that's what you should expect for us.
Speaker Change: You know, when we think about the success this year of managing the investment in that way, and how we manage our portfolio.
Speaker Change: You know, the exceptional results that we're seeing across our wells, I think in just the Delaware Basin and Eagleford alone, our foundational plays, you know, the wells that came on production in the first half of 2024 actually paid back their capital investment in aggregate by July 1st.
Speaker Change: So that's really the way that we approach it. As far as what scenario would we, you know, do something dramatically different, you know, we do have the flexibility to either increase or slow down.
Speaker Change: I don't want to call it guidance, but it gives you some scenarios between
Speaker Change: you know, a $65 to $85 range and the type of financial performance that we could expect if we invested it at similar levels to what we're talking about today. And you can see even at a $65 case,
Speaker Change: You know, it's a very compelling investment scenario where we've got a low reinvestment rate, 6% I think is the cash flow and free cash flow growth per share.
Speaker Change: which doesn't include any share repurchases. You're talking about a 20 to 30% double-digit ROCE and free cash flow generation not only to support our regular dividend but excess free cash flow to support, you know, either additional special dividends or opportunistic share repurchases as well.
Speaker Change: I appreciate all that color. I had a follow-up on your carbon capture initiative. With the pilot project up and running, can you speak to your interest in doing additional projects and would these be confined to internal projects or would you consider a third-party projects?
Speaker Change: Yes, Scott, that's a good question. You know, right now we view our carbon capture and storage projects as something internal to help our operations.
Speaker Change: and focus on that. We've had good success with our pilot project as I talked about just briefly in the opening.
Speaker Change: and it's really just turning into more of a standard piece of our business. And we are starting to look for other opportunities across our portfolio where we might be able to deploy that.
Speaker Change: And our next question today will come from Kevin McCurdy with Pickering Energy Partners. Please go ahead.
Kevin McCurdy: Hey, good morning. I think the market is appreciating the reconsideration of your capital structure.
My question is on
Kevin McCurdy: How dynamic do you plan to be on managing that capital structure as EBITDA grows with higher production and better margins over time? It seems like you should have a more of a safety net on the downside leverage targets.
Kevin McCurdy: Would you keep, you know, would you plan to keep returning a higher percentage of your free cash flow in the future, even if that moves you to a net debt position?
You know, we're...
Kevin McCurdy: Hi Kevin, it's Ann. You know, we're in a good place now. We have such a strong balance sheet that the level of debt we want to carry and the amount of cash we want to carry has some flexibility built into it, so that's the good side of it. So as we're looking at
Kevin McCurdy: how to return that free cash flow. We're going to stay in line with what our fundamentals are and how we want to return our free cash flow. We have the cash priorities.
Kevin McCurdy: and we will move forward based on what the business needs are at the time.
Speaker Change: Yeah, I mean, it seems like you highlighted the near term shareholder return benefit, but you know that this
Speaker Change: This structure could set you up for potentially even higher percentage of returns in the future.
Speaker Change: I guess my follow-up here is you mentioned low-cost property bolt-ons as part of your balance sheet plans. Do you have any color on where you see the most opportunities for that, and what is the dollar threshold between a low-cost bolt-on and significant M&A, which you've kind of avoided in the past?
Ezra Yacob: Yeah, Kevin, this is Ezra. That's a good question. It's not really defined, I think, as far as
You know, a low-cost property bolt-on or significant...
Ezra Yacob: merger and acquisition. I mean, I think on the on the on the one end, everybody knows what a significant M&A would be, it would be something corporate of magnitudes like that. Really, the way we think about it is on the value driver. And so maybe that's the best way to answer it is, you know, low PDP with high upside on undrilled acreage is what we really look for. And that high upside on undrilled acreage. Unknown Speaker
typically comes on emerging assets, to be perfectly honest, because
Speaker Change: So that's really what we look on. And I think that that also kind of speaks to where you're at with, you know, where, where are the opportunities for that? Typically, we find those opportunities more often than not in some of the emerging assets.
Speaker Change: Just because, again, we tend, we think we have the ability to potentially identify and unlock value that maybe gets bypassed by others. And, you know, when you think about building out our inventory that way and continuing to improve the quality of our inventory,
Speaker Change: That goes a long ways to what you were just implying as far as the long-term return benefit with this capital structure.
Speaker Change: As you've seen quite frankly in the last couple of years is our emerging plays as we've gained more confidence in those and those have Come to fruition. We've increased the percentage of cash return from
The End
Speaker Change: This will conclude our question and answer session. I would like to turn the conference back over to Mr. Ezra Yacob for any closing remarks.
Speaker Change: We appreciate everyone's time today. I just want to say thank you to our shareholders for your support and special thanks to our employees for delivering another exceptional quarter.