The EOG Resources Second Quarter 2023 Earnings Results Conference Call began with an introduction by Chief Financial Officer Tim Driggers, who reminded listeners of the forward-looking statements and non-GAAP financial measures included in the call. Ezra Yacob, Chairman and CEO, then thanked Tim and reported that the quarter's results reflected exceptional execution in their multi-basin portfolio. This resulted in $1.5 billion of adjusted net income and $1 billion of free cash flow. Year-to-date, they have generated $2.1 billion of free cash flow and returned $2.2 billion to shareholders, including $600 million of share repurchases.

EOG has committed to return $3.1 billion to shareholders in 2023 and has deployed more than $600 million to repurchase shares through the first two quarters of the year. EOG's regular dividend remains a priority, and the company has invested in five premium basins, with productivity and cost performance meeting or exceeding expectations.

This paragraph discusses the company's efforts to lower their cost basis, strengthen their balance sheet, and generate free cash flow in order to deliver consistent shareholder value. It also highlights the current market conditions, such as resilient oil demand, strong inventory drawers, and reduced natural gas drilling. The company remains constructive on the long-term gas story for the U.S. due to recent LNG project approvals and the growing petrochemical complex on the Gulf Coast.

EOG reported excellent financial and operational performance in the second quarter, with a 3% year-over-year increase in oil production and 5% increase in total production. Per unit cash operating costs remained flat from the prior year period and decreased 5% compared to the first quarter. The company had a 10% year-over-year decrease in DD&A rate due to the addition of reserves at lower finding costs. Capital expenditures were $1.5 billion, slightly above the first quarter level, and year-to-date CapEx was 50% of the full year budget. Adjusted net income was $2.49 per share and free cash flow was $1 billion. Return on capital employed for the last 12 months was 29%.

EOG had a successful quarter, meeting targets and exceeding expectations. This was due to several factors such as new well performance, less downtime due to market interruptions, investments in infrastructure, and data analytics. Unit cash operating costs were 5% lower than expected due to lower lease operating expenses and transportation costs. This success was due to the cross functional efforts of production, marketing, and information systems teams, as well as technology transfer across EOG's multi-basin portfolio.

EOG is utilizing technology to lower costs and improve well performance in its operating areas. This quarter, they are highlighting performance improvements in the south Texas Dorado, South Powder River Basin Mowry and the Ohio Utica Combo plays. Real time high frequency data and analytics are helping employees to collaborate and make decisions faster, resulting in an increase of up to 25% in drilling feet per day. Capitalization expenditures for the first half are running light due to deferred infrastructure, and their realized U.S. oil price in the second quarter was $1.23 above WTI. CapEx for their drilling and completion program are on track.

Billy is pleased with the progress made by the company this year despite the challenges they faced. He is optimistic about the second half of the year and the progress made in lowering emissions. He mentions that they have a $6 billion capital program which is forecasted to deliver 3% volume growth and 6% total liquid growth. They have also seen a 16% improvement in their drilling times for Dorado.

EOG has achieved three significant near-term goals ahead of schedule: a GHG intensity rate of 13.3 metric tons of CO2e per Mboe, a methane emissions percentage of 0.04%, and a zero routine flaring goal in 2023. They have also confirmed a wellhead gas capture rate of 99.9% and have expanded their in-house continuous methane monitoring technology, iSense, which allows them to identify potential leaks and prioritize repairs. They are proud of their employees' dedication and are currently assessing new goals to be publicized in the first half of 2024.

EOG Resources reported strong second quarter results, demonstrating that their value proposition of investing in high return and low cost assets across diverse multi-basin portfolios, leveraging technology to reduce costs and emissions, and delivering consistent shareholder value through their culture is successful. They are committed to their transparent cash return strategy, which includes returning more than 100% of free cash flow to shareholders and buying back stock. They have decided to delay five wells in Dorado this year, though the reasoning behind this decision is not yet clear.

Ezra Yacob explains that the company's guidance of a minimum of 60% of free cash flow has always been in place and is easy to understand and communicate. He further explains that the regular dividend is the true hallmark of a strong and improving underlying business, and that the company has increased the regular dividend to create shareholder value and strengthen their balance sheet. Additionally, he states that they buy back shares in an opportunistic manner to return cash above and beyond the minimum of 60%, in addition to the regular dividend and sometimes instead of paying a special dividend.

The company evaluates buybacks as they do any other investment decision, focusing on long-term shareholder value. The company has given a minimum of 60% cash return and has already committed or paid 67% in the current year. The company has decided to maintain their drilling operations in Dorado and has delayed some of their completions due to gas price and inventory levels, pushing five wells into the next year.

Ezra Yacob and Jeff Leitzell discuss the improvement of well productivity in the Delaware Basin and how the new completion design is responsible for the increase in first year production and EUR for both oil and BOEs. They also mention that they are planning on bringing on about 70 total Wolfcamp wells with this new design in 2023 and are testing and expanding the technique in other areas and targets in the Delaware Basin and across their multi-basin portfolio. Neal Dingmann then asks a second question about OFS costs.

Billy Helms explains that service costs have begun to soften, but these savings will not be seen in lower well costs until later this year and into 2024. He also explains that the company focuses on sustainable cost reductions through operational efficiency gains and seeks out the highest performing equipment in order to be less exposed to headline inflation numbers. Additionally, they try to secure 50% of their well costs in the beginning of the year to insulate themselves from inflationary impacts. Lastly, their management strategy helps them to be less exposed to the volatility in service costs.

Billy Helms explains that EOG operates in different basins and plays, and the quarter-to-quarter production is driven by the timing of the well packages coming online. He also notes that the change from the first quarter to the second quarter is larger than what is forecasted from the third quarter to the fourth quarter, indicating that they are maintaining a steady activity level throughout the year.

EOG is making excellent progress on their Utica program this year, with plans to bring a 4-well package online this month and a frac crew starting up in a few weeks. They have drilled and completed wells in 2022 that have delivered expected performance, and they are continuing to add acreage and look for additional low-cost opportunities to add to their position in the region. So far this year, they have either met or exceeded their volume forecast and are confident in reaching the midpoint of their guidance.

Ezra Yacob discusses how OPEC's decision to support the artificially high oil price affects their business. He notes that inventory levels are in the lower half of the five-year range, and that they discuss different scenarios around the situation. He states that they look at whether it is crude products, gasoline, or distillates, both globally and domestically, when deciding how to allocate their cash flow.

The demand for crude oil has increased this year due to historically displaced barrels coming back online, such as those from Venezuela and Iran. OPEC Plus has offset some of this spare capacity, and oil demand is expected to reach a significantly high point by the end of the year. Internally, the company evaluates the correct investment level and activity levels for each of their premium assets to ensure that they will improve year-over-year.

Billy Helms clarified that the 10% inflation comment was based on the expectation that rig counts would peak in November 2020 and that well cost in 2023 would not increase more than 10% relative to 2022. Doug Leggate asked if there was still upside risk to capital in 2024 from inflation, to which Helms responded that it was too early to predict what level of deflation would do to well cost in 2024 due to market dynamics.

EOG Resources has seen limited competition in exploration domestically and is focusing on drilling down and specialized manufacturing. They are still looking for low-cost, high-quality bolt-on opportunities in certain plays. With respect to the Utica and PRB specifically, they are pleased with the operations side in the Utica and have had a strong year in the PRB.

Billy Helms explains that the PRB in Dorado have been benefiting from a continuous operations program this year, with most of their focus on the Mowry. Internationally, they are exploring both onshore and offshore, but only for opportunities that can compete with their domestic portfolio. Regarding CapEx, drilling and completion activity has been steady throughout the year and is on track with their plan.

Billy Helms states that the company is still seeing efficiency gains in their portfolio, although at a slower rate than their foundational plays such as the Delaware Basin and the Eagle Ford. These emerging plays benefit from the transfer of technology more rapidly.

Ken Boedeker discusses how the company is continuing to experiment with technology across all of their assets and have seen improvements in their drilling times and completed lateral feet per day in their Permian and Eagle Ford programs. He is encouraged by the efficiency gains they are seeing and believes they can continue to find ways to lower their cost basis. He notes that while it is still early to tell how the macro side will play out, they are open to pursuing more 15,000-foot laterals, taking into consideration lease geometry and legacy development.

EOG has been drilling longer laterals in the Eagle Ford for the past five years in order to increase capital efficiency. Billy Helms adds that the lessons learned from the Eagle Ford are being applied across their portfolio. Ken Boedeker states that the five wells deferred in the Dorado play will be completed early in 2021 and are performing as anticipated. Finally, EOG is open to the idea of further consolidation in the U.S. shale market.

Ezra Yacob, speaking with Roger Read of Wells Fargo, discussed the low carbon emissions advantage of Dorado. Yacob stated that the company evaluates M&A opportunities, but often come up short with their evaluation. He stressed that every investment decision is based on returns and creating long-term shareholder value. He further discussed that the challenge with M&A is determining if the opportunity will be additive to the corporate portfolio and will it offer a higher return than what the company is already drilling.

Ken Boedeker and Billy Helms discussed the current market situation of oil prices and inflation/deflation. Boedeker expressed confidence in Dorado's gas production, and Helms said that it is too early to predict what will happen in 2024. The company is well-positioned to take advantage of any opportunities that come up, and Yacob thanked the shareholders and employees for their support.

This summary was generated with AI and may contain some inaccuracies.