Q4 2023 Earnings Summary
- EOG is strongly committed to shareholder returns, aiming to return at least 70% of free cash flow to shareholders, with potential for increased share buybacks due to perceived undervaluation. The company views the current market as a dislocated environment, providing opportunities to enhance long-term shareholder value.
- Significant upside from organic exploration efforts, anchored by a 10 billion barrel of oil equivalent premium resource. EOG's three emerging assets—the Dorado (approximately 20 Tcf captured), Powder River Basin, and Utica (over 400,000 acres with low-cost entry around $600 per acre)—have the potential to represent the equivalent of a midsized E&P company ,.
- Focused on operational efficiency and capital discipline, EOG is increasing average treated lateral lengths by 10%, resulting in cost savings and improved capital efficiency. The company's strategic co-development approach across assets like the Delaware Basin flexibly targets different intervals to optimize returns and margins ,.
- EOG's cumulative free cash flow is projected to flatline despite production growth, raising concerns about efficiency and capital allocation.
- EOG's stock has underperformed peers, and its valuation multiples have compressed, potentially reflecting investor concerns about the company's performance.
- Uncertainties remain in EOG's emerging plays like the Utica, with significant testing still required to confirm the assets' full potential, indicating risks in future growth projections.
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Capital Returns
Q: Will you increase buybacks to support stock value?
A: We are committed to creating long-term shareholder value. Given the dislocated environment, we anticipate that more than 70% of our free cash flow returns could be in the form of buybacks. -
Free Cash Flow Growth
Q: Why is free cash flow flat despite growth?
A: Our cumulative free cash flow over the three-year period is roughly 10% higher than the previous three years, with expanding margins. We also see a 6% cash flow and free cash flow per share compound annual growth rate across that three-year scenario. -
Gas Production Strategy
Q: How will associated gas supply impact your plans?
A: We expect U.S. gas growth driven by associated gas from the Permian, with oil growth around 300,000 barrels. We consider the increased associated gas in our planning and focus on being the absolute low-cost producer. We remain constructive on the U.S. gas market 12 months out as LNG demand grows. -
Production Mix Shift
Q: How will your production mix shift going forward?
A: In 2024, we'll complete more Wolfcamp M wells as part of our co-development strategy. The Wolfcamp M is a prolific oil producer with premium returns and wells that pay out in about 8 months. Mix will flex over the next few years as we move across our acreage. -
Organic Growth Strategy
Q: Why focus on organic growth over acquisitions?
A: We generate shareholder value through organic exploration, low-cost operations, and capital discipline. Our significant resources like Dorado, Powder River Basin, and Utica allow us to improve inventory and bring value without needing acquisitions. -
Utica Development
Q: Will you ramp up Utica development aggressively?
A: We are pleased with the Utica's performance but plan to grow at a pace that matches our understanding of the resource. We focus on long-term value rather than rapid expansion. -
Permian Takeaway Capacity
Q: How do you view gas takeaway from the Permian?
A: We are well-positioned with over 1 Bcf/day of residue takeaway to the Gulf Coast. We have been part of many pipeline projects and have significant transportation capacity. -
Well Efficiency Improvements
Q: Where are you increasing lateral lengths?
A: We're extending lateral lengths across our portfolio, including the Eagle Ford, Utica, and Midland Basin. Overall lateral length will be up about 10% in 2024, improving efficiency and reducing costs. -
Powder River Basin Activity
Q: Why are you pulling back activity in the PRB?
A: We had great success in the Mowry but are shifting focus to the Niobrara formation to test package development. Activity will be equally split between Mowry and Niobrara to maximize the asset's value. -
Inventory and Cost Outlook
Q: Are you building inventory levels?
A: We carry between 6 months to a year's inventory, which allows opportunistic purchases. We expect tubular costs to be down 10-15%, and ancillary services down 10-15% in 2024. -
LNG Marketing Agreement
Q: Will your LNG sales to Cheniere start earlier?
A: We are well-positioned to commence deliveries when the facility starts up. If there's an early start-up, we can sell into our agreement. -
R&D Tax Credit
Q: Do you qualify for the R&D tax credit?
A: We previously took an R&D credit several years ago but are not planning on taking anything going forward.
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