Q3 2024 Earnings Summary
- EOG is optimizing its capital structure by increasing debt to $5-6 billion, targeting less than 1x total debt-to-EBITDA at $45 WTI, enhancing long-term shareholder value and supporting increased cash returns to shareholders .
- EOG has increased cash returns to shareholders to at or exceeding 85% of free cash flow, and potentially plans to return over 100% in the near term due to their strengthened capital position .
- EOG focuses on low-cost bolt-on acquisitions with high upside in emerging assets, improving inventory quality and driving operational performance that contributes to higher financial performance and shareholder returns .
- EOG Resources plans to increase its debt levels to $5-6 billion in the next 12-18 months, which could increase financial risk and impact its balance sheet strength.
- The shift to a higher debt capital structure may reduce EOG's financial flexibility, making it potentially less capable of managing through cyclical downturns if commodity prices decline.
- There is uncertainty about maintaining high shareholder returns while increasing debt and potentially moving to a net debt position, which could affect future cash returns to shareholders.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -4% YoY | The decrease was driven by lower realized commodity prices for both crude oil and natural gas, partially offset by modest production gains and higher revenues from select international operations. These pricing headwinds outweighed incremental volume increases. |
Crude Oil & Condensate | -6% YoY | A weaker composite average price for crude oil led to reduced wellhead revenues compared to the prior year, only partly offset by stable or slightly higher production in core assets. |
Natural Gas | -11% YoY | Lower spot and contract natural gas prices resulted in a significant revenue decline. Although associated gas output continued to increase from U.S. plays, it did not fully compensate for the weaker price environment. |
Gains on Mark-to-Market Commodity Derivatives | +84% YoY | This jump reflects favorable changes in the fair value of existing derivative positions. The company benefited from hedging strategies that turned more positive compared to the prior year. |
Revenue from Trinidad | +75% YoY | The substantial increase stems from higher natural gas deliveries and a slightly improved price realization in Trinidad, boosting regional revenue performance despite global price volatility. |
Operating Income (EBIT) | -18% YoY | Despite some revenue benefits from derivatives and international operations, lower overall commodity prices and higher operating costs (including DD&A) weighed on margins, reducing EBIT year-over-year. |
Net Income | -17% YoY | Lower wellhead revenues from crude oil and natural gas due to weaker commodity prices contracted net income, partially offset by profitable international operations and derivative gains. |
EPS (Diluted) | -16% YoY | The drop in net income was the primary driver. Although share repurchases and certain efficiency gains provided support, they did not fully offset the impact of lower commodity prices on earnings per share. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Oil Production | FY 2024 | Increased by 1,800 barrels of oil per day | Midpoint increased by 800 barrels of oil per day | raised |
NGL Production | FY 2024 | Increased by 10,000 barrels per day | Midpoint increased by 2,800 barrels per day | raised |
Natural Gas Production | FY 2024 | no prior guidance | Midpoint increased by 24 million standard cubic feet per day | no prior guidance |
Per Unit Cash Operating Costs | FY 2024 | Reduced by $0.15 per unit | Expected to be lower than previously forecasted | lowered |
Capital Expenditures (CapEx) | FY 2024 | no prior guidance | $6.2 billion at the midpoint | no prior guidance |
Shareholder Returns | FY 2024 | no prior guidance | At least 70% of annual FCF returned; on track to exceed 85% for 2024 | no prior guidance |
Strategic Infrastructure Spending | 2025 | no prior guidance | $100 million allocated for the Janus gas plant in 2025 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Operational Efficiencies | Continued focus on longer laterals (e.g. 3-mile wells), proprietary drilling motors, and artificial lift optimizers to reduce downtime/costs | Higher pumping rate capacity (+15% per frac fleet), extended laterals, and in-house motor program reducing trips/costs | Continued emphasis on efficiency gains across multiple basins |
Capital Discipline | Repeatedly committed to 70%+ FCF return, raised dividends, opportunistic buybacks, and disciplined well investments at $40 oil/$2.50 gas | Maintains balance sheet strength, invests for long-term free cash flow, returns 92% of FCF to shareholders | Ongoing priority with consistent shareholder returns |
Low-Cost Dorado | Highlighted as one-rig program, deferring completions to capture improved market conditions and linking to premium markets | Remains a prime low-cost gas asset ($1/Mcf operating cost), projected to meet 2025+ LNG-driven demand | Key growth avenue; stable rig activity and strong margin profile |
LNG Growth Prospects (2025+) | Emphasized long-term gas demand from LNG, noting strong 2025-2027 expansions and additional 10-12 Bcf/day by decade-end | Views 2025 as inflection point; 10-12 Bcf/day of LNG capacity under construction | Bullish sentiment continues, expecting demand surge |
Utica Development | Showed strong IP rates and efficiency gains (29% fewer drilling days on 3-mile laterals), with promising returns in the volatile oil window | Transitioned 225k acres to development; well costs <$650/ft, 50% activity increase in 2025 | Accelerating activity, driven by lower costs and strong well results |
Modest Oil Production | Historically targeted 3% oil growth, stressing disciplined capital allocation and value creation over high growth | Growth of 10k BOPD over 12 months; prioritizes returns over aggressive volumes | Steady, lower-risk growth approach remains intact |
Debt Levels | No new debt initiatives mentioned in Q2/Q1/Q4 calls; previously highlighted strong balance sheet and debt reduction | Plans to increase debt to $5-6B, keeping total debt-to-EBITDA <1x at $45 WTI | Newly introduced leverage strategy, still maintaining financial strength |
Maturing Eagle Ford & Bakken | Eagle Ford laterals extended (20% longer) with improved returns, Bakken described as mature but still oily | Eagle Ford slowed to 120 wells/year; Bakken at 1-rig pace, each generating consistent returns | Stable, more selective investment in mature zones |
Technological Advancements | Consistent enhancements in drilling motors, artificial lift, super zipper completions to boost efficiency | Frac rate improvements, fewer trips per well, extended laterals (record Eagle Ford 22k ft) | Ongoing innovations driving cost and time savings |
Emerging Plays Impact | Previously framed as high-return additions to core assets, supporting balanced growth amid commodity cycles | Dorado, PRB, and Utica poised for significant long-term contribution; disciplined ramp-up | Expanded activity as these plays mature and show strong economics |
-
Balance Sheet Optimization
Q: Why are you adding $2 billion of debt?
A: To make our capital structure more efficient, we're increasing debt to a level more appropriate for our size, targeting total debt of $5–6 billion with a leverage ratio less than 1x at $45 WTI prices. This move allows us to shift equity into debt, aligning with our consistent approach that absolute zero debt isn't our goal. -
Increased Shareholder Returns
Q: Will you exceed the 70% free cash flow return commitment?
A: Yes, the additional cash from optimizing our balance sheet positions us to exceed the 70% commitment, potentially reaching 100% or more return of free cash flow to shareholders over the next 12–15 months. -
2025 Capital Spending
Q: How will 2025 capital spending change?
A: We plan to maintain relatively flat activity levels, with modest shifts between basins. We'll slightly increase activity in the Utica, reaching 2 rigs and 1 frac fleet by year-end, while strategic infrastructure spend will decrease from $400 million in 2024 to about $100 million in 2025. -
Dorado Gas Investment
Q: What are your plans for the Dorado gas play?
A: We'll maintain a 1-rig program in Dorado, given its position as one of the lowest-cost dry gas assets with cash operating costs around $1 per Mcf. We see significant demand growth from LNG starting in 2025, and Dorado is well-positioned to supply this market. -
Utica Cost Improvements
Q: Can Utica costs decrease further?
A: Yes, in the volatile oil window, we're achieving finding costs in the $6–8 per BOE range. We expect to drive costs down further with economies of scale as we increase activity. -
Potential M&A and Bolt-ons
Q: Will you consider acquisitions or bolt-ons?
A: Our strong balance sheet enables us to pursue low-cost property bolt-ons that offer high upside on undrilled acreage, focusing on opportunities that enhance long-term shareholder value. -
Impact of Election Outcomes
Q: How does the election affect EOG?
A: We prepare for potential regulatory changes during administration transitions, but we believe the industry is well-positioned with strong relationships at all government levels. Oil and natural gas remain essential for long-term energy solutions. -
2025 Oil Production Outlook
Q: What oil growth do you expect in 2025?
A: With similar activity levels, oil production growth will be modest, consistent with our focus on balancing returns, NPV, and free cash flow generation rather than targeting a specific growth rate. -
Carbon Capture Initiatives
Q: Any updates on carbon capture projects?
A: Our pilot project is successful, and we're looking to deploy the technology across our operations, focusing on internal projects rather than third-party ventures. -
Inventory Levels in Plays
Q: How much inventory do you have in key plays?
A: We have about 10 billion BOE of premium resource across multiple basins, including the Bakken, Eagle Ford, and Delaware Basin. Inventory levels are strong, and we continue to improve quality through organic exploration.
Research analysts covering EOG RESOURCES.