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EOG Resources (NYSE: EOG)
Q3 2024 Earnings Call
Nov 08, 2024, 10:00 a.m. ET
Key Highlights from EOG Resources’ Earnings Call
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and welcome to the EOG Resources’ third quarter 2024 earnings results conference call. As a reminder, this call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to Mr. Pearce Hammond, Vice President of Investor Relations at EOG Resources.
Please go ahead, sir.
Pearce Hammond — Vice President, Investor Relations
Good morning, and thank you for joining our earnings call today. An updated investor presentation has been posted on our website, where we will reference certain slides during this discussion. A replay of this call will be available on our website later today. Please note that this conference call includes forward-looking statements.
Factors that could cause our actual results to differ materially from those mentioned in our forward-looking statements have been outlined in our earnings release and EOG’s SEC filings. This conference call may also contain historical and forward-looking non-GAAP financial measures. Definitions and reconciliations for these non-GAAP measures can be found on our website. Some reserve estimates may include potential reserves that are not calculated according to SEC reserve reporting guidelines.
Strong Financial Performance Reinforces Company’s Resilience
Joining us on this call are Ezra Yacob, Chairman and CEO; Jeff Leitzell, Chief Operating Officer; Ann Janssen, Chief Financial Officer; Keith Trasko, Senior Vice President of Exploration and Production; and Lance Terveen, Senior Vice President of Marketing and Midstream. Here’s Ezra.
Ezra Y. Yacob — Chairman and Chief Executive Officer
Thank you, Pearce. Good morning, everyone, and thank you for being with us. Since the end of 2020, EOG has generated over $22 billion in free cash flow and more than $25 billion in adjusted net income. We have raised our regular dividend by 160% and returned over $13 billion directly to our shareholders through dividends and an additional $3.2 billion through share repurchases, all while reducing our debt by 35%.
Our track record highlights consistent financial and operational strength. In the third quarter alone, we outperformed on oil, natural gas, and NGL volumes, exceeding expectations in cash operating costs. We reported $1.6 billion in adjusted net income and $1.5 billion in free cash flow, distributing $1.3 billion of that to shareholders through dividends and strategic share buybacks. Additionally, we are confident in our future cash flow generation, which is evident through a 7% increase in our regular dividend and a $5 billion lift in our share repurchase authorization.
The regular dividend has never been reduced or suspended in the 27 years since we initiated it, reflecting our commitment to shareholder returns and operational efficiency. We continue to leverage technology to enhance our capital efficiency across multiple basins, granting us a competitive edge in drilling activities and operations. This approach allows us to improve performance and drive sustainable value.
As we look towards 2025, our investment strategy centers on maintaining capital discipline while ensuring healthy cash flow and returns to shareholders. The current macro environment for oil and gas remains dynamic, with inventories below five-year averages and both supply and demand growing moderately year-over-year. We anticipate strong demand as we conclude 2024, followed by seasonal fluctuations in the first quarter and continued growth through the remainder of 2025.
In North America, while production efficiency gains are ongoing, we expect slower liquids growth due to fewer active drilling rigs. Natural gas inventory levels have aligned more closely with five-year averages, driven by disciplined production and increased demand from power generation. Our optimism for long-term gas demand growth is supported by upcoming LNG projects and rising power generation needs.
Last month, we released our annual sustainability report for 2023, showcasing our commitment to high environmental standards and safe operations.
EOG Resources Achieves Major Milestones in Sustainability and Financial Performance
Significant Sustainability Advances Underline Operational Success
EOG Resources has successfully maintained a greenhouse gas (GHG) intensity rate below its 2025 target for the second consecutive year. Additionally, it has achieved methane emissions at or below its 2025 target for three straight years. The company’s in-house methane monitoring solution has advanced past the pilot stage and is now a part of its standard operating procedures. Furthermore, the operational carbon capture and storage pilot project sets the stage for future applications. EOG’s strong sustainability outcomes stem from a collaborative workforce and ongoing investments in technology to boost environmental performance alongside safety standards across its operations.
This year’s report showcases EOG’s innovative culture, which supports its mission to be among the highest return producers with the lowest costs and emissions. Now, Ann will provide insights into the company’s financial performance.
Ann Janssen — Executive Vice President, Chief Financial Officer
Thank you, Ezra. EOG continues to create long-term shareholder value. In the third quarter, we reported $1.6 billion in adjusted net income and generated $1.5 billion in free cash flow, aligning with our $1.5 billion capital expenditures forecast. Our projected full-year capital expenditures remain approximately $6.2 billion.
Cash reserves at the end of the quarter are temporarily elevated due to delayed tax payments stemming from disaster relief related to severe weather events in Texas, such as Hurricane Beryl. Our proactive marketing strategy, which aims to diversify access to premium markets, led to exceptional results in the third quarter, featuring U.S. price realizations of $76.95 per barrel of oil and $1.84 per mcf for natural gas. Moreover, we paid a $0.91 per share dividend and repurchased $758 million in shares during this quarter.
Year-to-date, we have produced $4.1 billion in free cash flow, which financed $3.8 billion returned to shareholders—$1.6 billion through regular dividends and $2.2 billion via share repurchases. Our commitment to return $4.3 billion to shareholders in 2024 is on track. We aim to exceed both our minimum cash return commitment of 70% of annual free cash flow and last year’s cash return of 85%. EOG’s focus on high-return investments is yielding impressive returns for shareholders.
Recently, we announced a 7% increase in our regular dividend, further emphasizing our competitive position within the industry and the wider market. This increase reflects confidence in our business’s fundamental strength, supported by consistent execution of EOG’s value proposition. Through advancements in efficiencies and technology, we are improving capital efficiency across our multi-basin portfolio. A robust and sustainable dividend serves as the foundation of our cash return strategy and signals company confidence in future performance.
In addition to the dividend increase, the Board approved a $5 billion increase in our share repurchase authorization, supplementing the $1.8 billion still available as of the quarter-end. The overall buyback capacity of $6.8 billion preserves our flexibility to meet our cash return obligations. We have recently favored buybacks alongside our dividends and will continue to explore market opportunities to repurchase shares as the year progresses. Maintaining a strong balance sheet is paramount for our company.
Looking ahead, we plan to structure our balance sheet to achieve a total debt-to-EBITDA ratio of less than one times at $45 WTI crude oil pricing. This strategy represents an efficient approach for our cyclical industry, enabling us to uphold our commitment to delivering shareholder value. Consequently, we anticipate refinancing short-term debt maturities and adjusting our debt levels in the $5 billion to $6 billion range over the next 12 to 18 months, while sustaining cash balances similar to previous years. By refining our debt levels, we enhance our capacity to return cash to shareholders.
Operating Results Confirm Strong Performance Across the Multi-Basin Portfolio
Jeffrey Leitzell — Executive Vice President, Chief Operating Officer
Thank you, Ann. Our team has again delivered an excellent quarter, owing to their dedication and execution across our multi-basin operations. We have focused on ongoing improvements through innovation, technological advancements, and operational control, resulting in third-quarter production and reduced cash operating costs surpassing expectations. Stronger oil production was driven by increased productivity from new wells adhering to improved completion designs.
Over the past year, we have enhanced our maximum pumping rate capacity by approximately 15% per fracturing fleet, providing advantages such as expedited pumping times and improved well performance. These higher pumping rates enable tailored completion designs catering to the unique geological features of each site, which maximizes the stimulated rock volume in reservoirs.
Efficiency gains from quicker pumping operations and superior well performance have outweighed the additional costs tied to these enhanced rates. Our strong showing in the third quarter has led us to again raise our full-year guidance. We now project an increase of 800 barrels per day for oil production, 2,800 per day for natural gas liquids, and an additional 24 million standard cubic feet per day for natural gas. We also beat per unit cash operating cost targets during the third quarter.
The main contributors to our success were lower lease operating expenses and fuel savings, leading us to anticipate lower than expected cash operating costs for the full year. Our expected capital expenditures remain intact at $6.2 billion at the midpoint, with minor timing variations contributing to this figure. Moreover, well cost deflation is occurring as anticipated, resulting in a year-over-year decline in well costs of 3% to 5%.
The operational efficiencies we have experienced this year underline the value of our multi-basin portfolio and decentralized operations. Innovations in one area are adapted across multiple basins, enhancing overall performance. This year, extended laterals and our in-house motor program have been key drivers of efficiency.
Our average lateral lengths for domestic drilling programs have consistently increased. In the Delaware Basin, we now expect to drill over 70 three-mile laterals, significantly up from our initial target of 50. Additionally, we recently set a new record for lateral length in the Eagle Ford, achieving over 22,000 feet with our Aspen A 1H well, marking a notable milestone for both EOG and Texas.
EOG Resources Reports Strong Operational Efficiency and Financial Strategy Ahead
Optimizing Drilling Practices Yields Significant Cost Savings
EOG is reducing the time spent moving equipment and decreasing overall downtime in drilling operations. Longer well laterals unlock potential from existing acreage that may not have previously met economic thresholds. Furthermore, EOG’s in-house motor program is generating impressive results in the Delaware Basin, as the company tests its drilling motors in the Leonard Shale and Bone Spring formations.
During the drilling of production holes, EOG aims to perform as much drilling as possible with a single motor run. Traditionally, this process involved a minimum of three motor runs and two trips, which means pausing drilling to switch motors. This new approach has eliminated over one trip per well in the shallower Delaware Basin targets. Given that each trip can cost upwards of $150,000, the efficiency and cost savings from improved motor design are significant for EOG’s drilling operations.
Record Performance in the Utica Play
Since the beginning of 2023, EOG has increased drilled footage per motor run by more than 20% compared to third-party rentals. The company continues to innovate and enhance drilling motors, predicting substantial improvements in future operations across its multi-basin portfolio. In Ohio, EOG has made notable strides transitioning the 225,000 net acres in the volatile oil window of the Utica from initial delineation to active development.
Currently, five packages have been online for over 100 days, with three of those producing for more than 180 days. The extraction performance in both oil and liquids has met or surpassed expectations. Operational efficiencies have improved through the development of multi-well pads and continuous operations. In the Utica region, significant time reductions in drilling have been achieved, with a 29% decrease in drilling days for three-mile laterals compared to the previous year. EOG even set a record by drilling more than two miles in a single day.
Looking Ahead: EOG Sets Ambitious Goals for Utica Development
On the completion side, a nearly 13% increase in completed lateral feet per day over last year illustrates EOG’s consistent performance. Moving forward, the company will focus its efforts in the volatile oil window of the Utica, expecting well costs to average under $650 per effective treated lateral foot, with finding and development costs between $6 to $8 per barrel of oil equivalent. By 2025, EOG forecasts a 50% increase in activity within the Utica as it continues streamlining operations for better economies of scale.
EOG’s extensive contiguous acreage positions the company competitively with other premier unconventional plays in North America. As management looks forward to 2025, there are no major changes anticipated in overall activity levels, aside from slight adjustments between basins. Increased focus on the Utica will accompany continued management of the Dorado investment through a one-rig program, allowing the company to improve efficiency and financial performance for its shareholders.
Ezra Y. Yacob — Chairman and Chief Executive Officer
Thank you, Jeff. Recently, EOG celebrated its 25th anniversary as a publicly traded company. Throughout evolving industry challenges, our commitment to creating shareholder value remains steadfast. Our focus on capital discipline emphasizes reinvesting to support continuous improvement across our assets. This strategy delivers returns through cycles while maintaining a strong balance sheet for sustainable, growing dividends.
Operationally, our execution strategy includes being first movers in exploration for a low-cost, high-quality multi-basin inventory. We leverage in-house expertise, proprietary technology, and self-sourced materials to enhance well performance while managing costs efficiently. A balanced approach to product, geographic, and pricing diversification enables us to expand margins effectively.
We prioritize safe operations and environmental performance, which are highlighted in our sustainability report detailing progress on emissions reduction and stewardship. Additionally, our decentralized organizational culture empowers employees and emphasizes value creation at the asset level through collaboration and real-time data-driven decisions. Thank you for your attention, and we now welcome your questions.
Questions & Answers:
Operator
[Operator instructions] Our first question today will come from Steve Richardson with Evercore ISI. Please go ahead.
Steve Richardson — Evercore ISI — Analyst
Hi, good morning. I’m interested in discussing the optimization of the balance sheet, which seems new for the company. Can you share insights on the incremental gross debt you’re considering and the timeframe for this? Will the $2 billion reflect concurrent refinancing efforts for current maturities? Also, how do you plan to redeploy this capital, especially regarding share buybacks? Should we anticipate surpassing your minimum shareholder return commitments in the upcoming quarters?
Ezra Y. Yacob — Chairman and Chief Executive Officer
Good morning, Steve, and thanks for the query. Our goal is to enhance our capital structure. We’re aiming for a level of debt that aligns with our company’s size and strength, while still remaining cautious due to industry cyclicality. This move will allow for more equity to transition to the debt side, aligning with our vision not to aim for zero absolute debt.
The timing appears favorable, with bonds maturing in the next 12 to 18 months. Our target is to keep total debt to EBITDA ratio under one times at a $45 WTI, which amounts to roughly $5 billion to $6 billion in total debt. By doing this, we anticipate freeing up additional cash that would enable us to surpass our 70% return commitment to shareholders, possibly approaching or exceeding 100%. I prefer not to provide a specific timeline beyond the next 12 to 18 months as we remain opportunistic.
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Dorado’s Strategic Moves in Natural Gas Market Set to Drive Future Growth
Steve Richardson — Evercore ISI — Analyst
It’s great to see strong capital allocation choices being made. I have a follow-up regarding natural gas. Your company possesses one of the lowest-cost dry gas assets in the market. With the Verde Pipeline operational, several opportunities lie ahead. You mentioned a one-rig program for 2025, but given your optimistic outlook on natural gas demand, how do you plan to navigate the gas curve? What indicators will you watch to determine if more capital should be deployed, especially considering your favorable position on the cost curve in North America?
Ezra Y. Yacob — Chairman and Chief Executive Officer
Thank you for the insightful question, Steve. As we noted last quarter, our cash operating costs for this project hover around $1, making it one of the most cost-effective natural gas operations in the U.S. The Verde Pipeline’s completion excites us, but it’s important to note that North American natural gas inventory remains approximately 5% above the five-year average. We will monitor how this winter unfolds. Regardless of temperature, there are curtailed volumes in the industry along with gas DUCs (drilled but uncompleted wells) that could be activated quickly.
Looking forward, we anticipate 2025 to mark a significant turning point for North American gas demand, particularly as LNG (liquefied natural gas) projects come online. There’s about 10 to 12 billion cubic feet per day (bcf/d) of LNG under construction that should begin operation around 2025 to 2027. Additionally, we foresee another 10 to 12 bcf/d increase in demand by the end of the decade, primarily from power generation needs. This change is driven by a combination of AI-driven electricity demand and the retirement of coal plants.
Our aim with Dorado is to invest strategically so we can leverage economies of scale, as Jeff outlined. For the last couple of years, we’ve operated with one rig, and as market conditions improve, we hope to increase our activity. The next key phase involves achieving a consistent completion spread. We are optimistic about the future potential for this asset.
Operator
Our next question comes from Arun Jayaram with JPMorgan Securities LLC. Please go ahead.
Arun Jayaram — Analyst
Good morning, Ezra. I’d like to discuss your 2025 capital plans. Jeff mentioned maintaining steady activity levels, but there might be shifts between some basins. How do you foresee capital allocation shifting?
It looks like Dorado will see some increased activity, while your strategic infrastructure spending might decrease year over year. Can you elaborate on these changes?
Jeffrey Leitzell — Executive Vice President, Chief Operating Officer
Thanks for your question, Arun. As we shared in our opening comments, our plan remains to sustain mostly flat activity in the upcoming year. Minor adjustments might occur, but these will be minimal and not materially affecting our overall strategy. We do expect a slight uptick in the Utica region.
We’re pleased with the advancements we’ve made across our portfolio. Our focus is on emerging plays and pushing them to optimal activity levels. This starts with ensuring one full drilling rig is operational, with the next step being a fully operational frac fleet. In the Utica, we anticipate reaching those milestones next year, with around a 50% increase in activity, resulting in two drilling rigs and a full frac fleet by year-end.
Regarding Dorado, we plan to maintain the same rig we’ve been consistently using, as it has yielded excellent results. We will manage our completion investments based on natural gas market trends as we progress through winter. This strategy allows us to advance our emerging plays while still delivering solid portfolio results.
On the infrastructure side, we’ve made strategic investments in recent years, such as the Janus gas plant and the Verde Pipeline, amounting to about $400 million this year. By 2025, as we finalize work on Janus and complete minor aspects of the Verde project, we foresee infrastructure spending around $100 million. Following this, we aim to return to a more typical indirect spending level of 15% to 20%.
Arun Jayaram — Analyst
That’s helpful, thanks. Going back to your balance sheet optimization, you mentioned this could lead to higher cash returns for investors. How does your strategy around acquisitions and countercyclical buying factor into your plans for moving toward $5 billion to $6 billion in gross debt?
Ezra Y. Yacob — Chairman and Chief Executive Officer
You’re absolutely right, Arun. As we refine our capital structure, we strive to maintain a leading balance sheet in our industry. This will enable us to preserve our financial strength while simultaneously investing in low-cost asset acquisitions. Our objective remains to return over 100% of annual free cash flow to shareholders while gradually shifting equity towards debt. Starting from our robust cash position allows us to leverage debt without sacrificing our financial stability.
By maintaining a strong foundation, we can seize opportunities for larger share repurchases and strategically invest in property acquisitions, promoting long-term growth and returns for our stakeholders.
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Company aims to optimize balance sheet amid changing market conditions
This strategic move comes as EOG Resources plans to enhance its financial structure in response to market developments and upcoming bond maturities.
Scott Hanold — Analyst
Thanks for taking my question. I’d like to discuss the balance sheet optimization. Ezra, you’ve partially addressed the timing behind this decision, which seems unique to the industry.
I’m curious about the duration of your consideration for this move. What prompted action now? Additionally, as you shift toward a lower-cost capital structure, how much value improvement do you anticipate from this shift from equity to debt?
Ezra Y. Yacob — Chairman and Chief Executive Officer
Hi, Scott. This is Ezra. I believe this strategy aligns with our long-term vision. As mentioned at the start of our Q&A, our goal has never been to eliminate debt entirely. Instead, we focus on building long-term shareholder value through various approaches.
Having a strong balance sheet is key, especially with our competitive dividend policy. We’re proud that for 27 years, we’ve maintained our dividend without suspension or cuts. When discussing our cash flow priorities, the current macroeconomic environment has influenced our decision to act now.
To give you some context, we retired a $1.2 billion bond in Q1 2023. At that time, it was a strategic choice, particularly due to rising interest rates and a developing banking crisis. We paid it off using our cash reserves.
Since then, interest rates have continued to rise, but we now see signs of stabilization. These factors bolster our confidence to proceed with this adjustment. I’ll pass it over to Ann for more on the debt and equity transition.
Ann Janssen — Executive Vice President, Chief Financial Officer
Thank you, Ezra. We view an optimal capital structure as one with a higher debt level than we currently hold. We intend to adopt a debt level that reflects the size and strength of our company within the cyclical industry.
To clarify, we aim for a total debt to EBITDA leverage ratio of below 1x at bottom cycle prices, which is around $45. This could translate to a total debt level of roughly $5 billion to $6 billion.
On the cash side, we believe the current cash level we’ve maintained for the past two years is appropriate. We require a minimum of $2 billion for daily operations, and any excess cash can help support our regular dividend and capitalize on opportunities as they arise. Aligning our balance sheet with these objectives will position us better for future investments while ensuring we support our ongoing dividend through market cycles.
Scott Hanold — Analyst
Thanks. I have a follow-up regarding market volatility from the recent election. How do you envision this impacting the energy sector and specifically EOG? What potential benefits do you foresee?
Ezra Y. Yacob — Chairman and Chief Executive Officer
Yes, Scott. As the presidential and Senate races finalize, we anticipate some market fluctuations. We prepare for these transitional periods, often initially focusing on what could slow down our momentum. Currently, we feel confident about our standing.
The energy sector has made significant progress in its relationships with federal and local policymakers. It’s essential to collaborate in achieving our shared goal of providing low-cost, reliable, and cleaner energy. I am optimistic about EOG’s position, especially in our newer operational areas, like the Utica play in Ohio. We’ve built strong relationships with stakeholders who recognize that oil and natural gas will remain integral to long-term energy solutions.
Operator
Now we’ll move to our next question from Leo Mariani with ROTH. Please proceed.
Leo Mariani — ROTH MKM — Analyst
Hello, team. I’d like to revisit the Utica discussion. You mentioned a finding cost of $6 to $8 per BOE, primarily related to the volatile oil window.
Do you foresee opportunities to further reduce costs H over time? Previous statements referenced long-term goals that included gassier areas. Can you clarify your position regarding the cost cycle in the Utica and whether significant reductions are feasible?
Keith Trasko — Senior Vice President, Exploration and Production
Hi, Leo. This is Keith. You’re correct that the finding cost range pertains specifically to the volatile oil window for our 225,000 net acres. This range reflects our expectations for development over the next two to three years. The same applies to our well cost range, ensuring we remain competitive in the current environment.
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Future Prospects: Company Reports Progress in Oil and Gas Operations
Company executives recently provided updates on their operations, indicating a focus on lowering finding costs and improving well productivity across various fields. They noted that the current finding costs, which are significantly lower than previous figures, reflect the comprehensive development of their 445,000-acre field, including both oil and condensate windows.
Operational Developments in the Powder River Basin
Jeffrey Leitzell, Chief Operating Officer, shared insights on progress within the Powder River Basin (PRB). “We’ve concentrated on the deeper Mowry formation to enhance our geological understanding and planning,” he explained. The company is conducting a split drilling program this year, with approximately 25 wells developed between the Mowry and Niobrara formations.
Initial results from the Niobrara wells show a promising increase in productivity, exceeding 10% compared to 2023. Leitzell emphasized the need to refine techniques and strategies in the Niobrara as they gather further data and adjust their development patterns.
Midstream Development and Gas Performance
Kalei Akamine from Bank of America raised questions on the company’s gas forecast, which has seen continuous quarterly increases this year. Leitzell reassured that they remain on schedule with midstream projects, particularly highlighting the Janus gas plant expected to come online the following year. Strategic expenditures related to this development are projected around $100 million.
Dorado’s Economic Viability
On the topic of the Dorado project, CEO Ezra Y. Yacob emphasized the asset’s compelling returns profile given its proximity to demand centers. He indicated that the company aims to optimize production while considering overall economic returns. Yacob noted that Dorado’s gas could effectively compete with many oil projects due to its strategic advantages along the Gulf Coast.
Utica Play Prospects and Well Performance
Analyst Neal Dingmann inquired about the Utica play’s potential, particularly regarding its west-side prospects. Keith Trasko, Senior Vice President of Exploration and Production, confirmed that while the focus remains on developing the volatile oil window, they are still gathering data before expanding to other areas. He added that decline rates have been consistent with typical shale wells, similar to those found in the Eagle Ford.
The company continues to refine its strategies and techniques as it navigates the current landscape of oil and gas exploration, remaining optimistic about its future engagements and productivity.
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Company Leadership Discusses Inventory and Future Oil Production Strategies
Insights on Inventory Management and Rig Count Changes
During a recent discussion, CEO Ezra Y. Yacob addressed inquiries regarding the company’s inventory levels and future drilling plans in major oil regions, namely the Delaware Basin, Eagle Ford, and Bakken.
According to Yacob, the company maintains a significant resource potential, estimating about 10 billion barrels of oil equivalent across its multi-basin portfolio. In the Bakken region, the company operates a one-rig program, which it believes can generate similar returns for several years. Conversely, the Eagle Ford region has seen a slowdown in drilling activity post-COVID, with about 120 wells brought to sales each year. This strategic reduction in investment has led to improved returns and an enhanced margin profile, reflecting a focus on quality over quantity.
Addressing the Delaware Basin, Yacob noted the challenges in estimating remaining inventory due to extensive drilling and advanced technologies that continually unlock new targets. The basin is rich with oil and gas-saturated reservoirs, suggesting strong long-term potential.
Market Outlook and Predictions for 2025
Analyst Charles Meade raised questions about the economic landscape and the company’s growth expectations for 2025. Yacob provided context around U.S. oil production growth, citing an estimated 1.5 million barrels per day increase in 2023, which may decrease to around 700,000 barrels per day in the coming year. The current rig count remains steady, influencing expectations for modest growth moving forward.
Yacob emphasized that decisions regarding production levels are based on operational realities and investment priorities rather than aggressive growth goals. The company aims to balance capital allocation strategies while focusing on maximizing returns and free cash flow, which ultimately supports shareholder value.
Exciting Developments in Australia
Analyst Meade also inquired about the Beehive project in Australia. CCO Jeffrey Leitzell confirmed that the necessary permits have been secured, with plans to conduct testing next year. This prospect, set in a familiar operational environment similar to Trinidad, holds promise due to its proximity to key markets.
Maintaining Production Levels Amid Market Changes
Scott Gruber from Citigroup asked about production expectations for 2025. Yacob noted that while he couldn’t provide a specific growth percentage, the company expects to maintain similar activity levels, with modest increases in oil volumes. Financial discipline guides their strategy—focusing on balance returns and long-term sustainability rather than aggressive output growth.
In summary, the leadership remains optimistic about their resource potential and the ability to adapt amid evolving market dynamics while prioritizing consistent shareholder value.
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EOG Resources Achieves Strong Financial Performance Amid Strategic Investments
Today, we learned about the operational efficiencies and cost reductions that EOG Resources has achieved. Jeff highlighted the improvements in performance during his opening remarks. Looking back, these strategies have led to exceptional results in key areas such as the Delaware Basin and Eagle Ford, marking them as foundational plays for the company.
Wells that began production in the first half of 2024 have already paid back their capital investments by July 1st. This efficiency is translating into substantial returns for shareholders; in the first nine months of the year, EOG has returned 92% of its free cash flow to them. This commitment to shareholder returns will continue to shape our future operations.
Future Activity Levels and Financial Scenarios Under Review
Flexibility in operations is a core part of EOG’s strategy. Earlier this year, the company presented a three-year scenario outlining potential outcomes for oil prices ranging from $65 to $85 per barrel. In a $65 scenario, the investment outlook remains strong, with a cash flow growth rate of 6% per share projected. Importantly, this does not factor in any share buybacks. The anticipated return on capital employed (ROCE) is a healthy 20% to 30%, allowing for dividends and potentially special dividends or share buybacks as needed.
Carbon Capture Initiative: An Internal Focus with Possible Expansion
Scott Gruber, an analyst, raised a question about EOG’s carbon capture initiative. CEO Ezra Y. Yacob confirmed that the company is currently focusing on internal projects and has seen success with its pilot program. There are plans to explore additional opportunities within their portfolio. However, they have not prioritized third-party projects, as the technology’s primary value is seen as being better utilized internally.
Dynamic Capital Structure Management in Place
Kevin MacCurdy, another analyst, inquired about managing EOG’s capital structure. CFO Ann Janssen responded that the company possesses a strong balance sheet, allowing for flexibility in both cash and debt management. EOG is committed to returning free cash flow to shareholders while maintaining adequate liquidity. They are open to increasing their debt levels if it serves the long-term interests of the business.
Potential for Strategic Acquisitions
MacCurdy also asked about the distinction between low-cost property acquisitions and significant mergers and acquisitions (M&A). Yacob noted that the primary factor in these decisions is value rather than a strict dollar threshold. EOG prioritizes low production-decline properties with good growth potential. Emerging assets often provide the best opportunities, as they allow the company to unlock value that may have been overlooked by others.
Historically, EOG has increased its cash return from just under 70% to around 85% of free cash flow, demonstrating a strong commitment to enhancing shareholder value. The company combines solid operational performance with financial strategy to yield impressive returns, highlighting a positive trajectory overall.
Conclusion and Acknowledgements
As the call concluded, Yacob expressed gratitude to the shareholders for their ongoing support and commended EOG employees for their contributions to another exceptional quarter.
Duration: 0 minutes
Call Participants:
Pearce Hammond — Vice President, Investor Relations
Ezra Y. Yacob — Chairman and Chief Executive Officer
Ann Janssen — Executive Vice President, Chief Financial Officer
Jeffrey Leitzell — Executive Vice President, Chief Operating Officer
Steve Richardson — Evercore ISI — Analyst
Arun Jayaram — Analyst
Scott Gruber — Analyst
Kevin MacCurdy — Analyst
This article is a transcript of the conference call produced for The Motley Fool. While we strive for accuracy, there may be errors or omissions. We encourage readers to conduct their research and consult EOG’s SEC filings. See our Terms and Conditions for further details.
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