Q1 2024 Earnings Summary
- EOG has significantly strengthened over the past few years, with strong performance in core assets like the Permian and Eagle Ford, and emerging plays such as Utica, Dorado, and Powder River Basin, making the company undervalued relative to the broad market.
- EOG continues to improve economics in mature assets like Eagle Ford, achieving higher rates of return over the last 3 years, by increasing operational efficiencies, drilling longer laterals (increased by about 20% this year), and reducing costs, resulting in improved capital efficiency.
- EOG's strategic infrastructure investments offer compelling rates of return upfront and margin expansion over the life of the assets, helping to lower the cost basis of the company and expand free cash flow margins, demonstrating a focus on long-term shareholder value.
- EOG's core assets, such as the Eagle Ford and Bakken fields, are mature with some productivity degradation, moving into lower quality pay zones, which may impact future production growth.
- The company is cautious about ramping up activity in the Dorado gas play due to gas price volatility, suggesting limited growth in gas production unless prices improve significantly.
- Retirement of key executive Billy Helms after 43 years may lead to leadership transition challenges and potential impacts on company strategy.
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Cash Returns and Buybacks
Q: Why return over 100% of free cash flow this quarter?
A: EOG returned over 100% of free cash flow this quarter—above the 70% target—primarily through share buybacks rather than special dividends. This reflects confidence in the company's strengthened business and belief that the stock remains undervalued relative to the market. -
CapEx Spending and Guidance
Q: Explain first-half CapEx and confidence in full-year guidance?
A: EOG is spending 56% of its full-year CapEx in the first half due to standard indirects and strategic infrastructure investments like the Delaware gas plant and Verde pipeline. The company remains confident in meeting its $6.2 billion full-year CapEx guidance for 2024. -
Utica Development Plans
Q: What must happen for Utica to grow meaningfully?
A: EOG is pleased with Utica's performance, with wells exceeding expectations and competing with top U.S. plays. The company focuses on not outrunning its learning curve, optimizing costs, and building infrastructure before ramping up activity. -
Gas Outlook and Dorado Activity
Q: How does gas outlook affect Dorado plans?
A: EOG maintains flexibility in Dorado, preferring to keep some rig activity to capture efficiencies. In a $3.50 to $4 gas price environment, activity could increase, but the company avoids outrunning its learning pace. -
Macro Oil Outlook
Q: What's EOG's view on the oil market outlook?
A: EOG expects oil demand to strengthen, reaching over 104 million barrels per day in the second half of the year. U.S. supply growth is anticipated to be moderate at 300,000 to 400,000 barrels per day year-over-year. -
Strategic Infrastructure Spending
Q: How will strategic infrastructure impact future CapEx?
A: The $400 million spent on strategic infrastructure are fixed projects offering compelling returns, like the Verde pipeline and Janus gas processing plant. These aren't recurring expenses, and future capital intensity is expected to decrease. -
Eagle Ford Maturity and Efficiency
Q: How is EOG managing Eagle Ford's maturity?
A: EOG improves Eagle Ford economics through operational efficiencies, including drilling faster, using super zippers, and increasing lateral lengths by 20% this year. Returns remain strong despite natural productivity declines in mature areas. -
PRB Niobrara Competitiveness
Q: Can the PRB Niobrara compete with core plays?
A: EOG is making significant progress in the Powder River Basin, achieving premium returns. While different from the Permian, the PRB offers low F&D costs and extensive scale. -
Trinidad Operations and Pricing
Q: What's the status of Trinidad operations and pricing?
A: EOG operates a one-rig program in Trinidad, with activities proceeding smoothly. The company is pleased with attractive price realizations, effectively meeting local demand. -
Exploration and DD&A Rates
Q: What's driving exploration efforts and higher DD&A rates?
A: EOG continues to explore high-return oil plays that add value to its portfolio. The higher DD&A rate in Q1 was due to a one-time prior period adjustment; it is expected to moderate to about $10.50 for the remainder of the year.
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