Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EOG Resources Inc (EOG, Financial) delivered exceptional second quarter results with $1.8 billion of adjusted net income and $1.4 billion of free cash flow.
- The company increased its full-year forecast for total liquids production by 11,800 barrels per day, leading to a $100 million increase in forecasted free cash flow to $5.7 billion.
- Operational efficiencies and technological innovations have reduced per unit cash operating costs by $0.15, enhancing overall financial performance.
- EOG Resources Inc (EOG) has maintained a pristine balance sheet while committing to return $3.5 billion to shareholders in 2024 through dividends and share repurchases.
- The company has expanded its marketing outlets, capturing additional interstate pipeline capacity to deliver natural gas to demand centers in the southeastern U.S., thereby reducing exposure to in-basin differentials.
Negative Points
- Despite strong performance, EOG Resources Inc (EOG) faces a challenging macro environment with moderated domestic oil supply growth and fluctuating natural gas prices.
- The company has deferred some completions in its Dorado program due to current market conditions, which could impact short-term production targets.
- Service costs, particularly for high-spec rigs and frac equipment, remain relatively stable, limiting potential cost reductions in the near term.
- The Utica Shale play, while showing promising results, still requires further delineation and longer production history to fully understand its potential and optimize development.
- EOG Resources Inc (EOG) has significant exposure to market volatility, particularly in natural gas, which has seen inventory levels above the five-year average and prices below the five-year average.
Q & A Highlights
Q: Can you provide insights into the key learnings from your initial tests in the Utica Shale and discuss the glide path towards shifting into development mode? What are the key risks you need to get comfortable with before shifting into development?
A: Ezra Y. Yacob (CEO & Chairman) - We are very happy with the results we've seen to date in the Utica Shale. The southern wells, the wireline, are right in line with expectations, and the northern wells are consistently strong and repeatable. We want to invest at the right pace to continue learning and embedding those learnings into the next well. Keith Prasco (SVP of Exploration & Production) - The recent well results are meeting expectations. We are seeing consistently strong results at tighter spacing and are incorporating data for future development decisions. We need longer production history and will continue to integrate the latest data and learnings to maximize returns.
Q: Can you elaborate on the artificial lift technology you've been incorporating and its potential financial implications?
A: Jeffrey R. Leitzell (Executive VP & COO) - We have developed in-house Artificial Lift optimizers for gas lift, plunger lift, and rod pump operations. These optimizers use algorithms to automate adjustments, maximizing production and reducing interruptions. This technology has been a significant factor in our increased guidance this quarter and has been implemented across our multi-basin portfolio, resulting in better base production and less downtime.
Q: What is your perspective on the oil macro, particularly around the Lower 48, and how do you think this will play out in 2025?
A: Ezra Y. Yacob (CEO & Chairman) - Global demand is increasing year over year, in line with our expectations. For US supply, we expect moderate growth, with lower 48 supply remaining relatively flat from December to December. Rig count and completion spreads have remained flat, indicating moderate growth. The US has a steep decline rate, requiring significant new barrels to add to growth. We expect this trend to continue into 2025 and beyond.
Q: How do you think about the 2025 natural gas market, and will you keep your portfolio more oil-weighted versus gas?
A: Jeffrey R. Leitzell (Executive VP & COO) - Inventory levels are above the five-year average, and we foresee this overhang continuing into 2025. However, we expect inventory levels to normalize throughout 2025 due to increased LNG and electricity demand. We are actively managing our Dorado program to align with demand and maintain flexibility in our investments. We are bullish on long-term gas pricing and will continue to manage Dorado to optimize economic decisions.
Q: Can you expand on the nature of your marketing organization and how it adds value to EOG?
A: Ezra Y. Yacob (CEO & Chairman) - Our marketing team is a competitive advantage, focusing on netback pricing and flexibility. We invest in strategic infrastructure projects to expand margins and minimize long-term commitments. Lance Terveen (SVP of Marketing) - Our marketing team is integrated with division operations, allowing us to optimize transportation and access multiple premium markets. This integration and strategic approach differentiate us and enhance our netbacks.
Q: What are you seeing on the leading edge of service costs, and what are your thoughts on the back half of the year?
A: Jeffrey R. Leitzell (Executive VP & COO) - Standard rig and frac prices have decreased by 15-20% since mid-last year, with support services like coil tubing and wireline down 15% and workover rigs down 10%. High-spec services remain relatively stable, with some moderation in gas plays outside the Permian. We strategically stagger our contracts to constantly renegotiate and optimize costs.
Q: How are you managing your Dorado activity given current gas pricing?
A: Jeffrey R. Leitzell (Executive VP & COO) - We are maintaining a one-rig program for the rest of the year, focusing on building operational efficiencies. We have deferred some completions to the second half of the year and will monitor prices to make the best economic decisions for the play.
Q: Are you seeing well performance trends in the Utica Shale improving compared to the end of 2023?
A: Keith P. Trasko (SVP of Exploration & Production) - The well performance is meeting our internal expectations. We expect performance to vary across our 445,000 net acre position, focusing on the 225,000 net acres in the volatile oil window. We are constructive on the play overall and continue to integrate data to optimize development.
Q: How do you think about marketing gas and NGLs as you scale development in the Utica?
A: D. Lance Terveen (SVP of Marketing) - We focus on getting local gathering systems in place, which are both cushion and online, to access markets efficiently. Our strategy is to ensure we have the necessary infrastructure to support scalable development while optimizing netbacks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
