The EOG Resources Second Quarter 2024 Earnings Results Conference Call began with an introduction from the Operator, followed by opening remarks from the Investor Relations Vice President, Pearce Hammond. The call included forward-looking statements and non-GAAP financial measures, and participants included the Chairman and CEO, Chief Operating Officer, Chief Financial Officer, Senior Vice President of Exploration and Production, and Senior Vice President of Marketing. The company had exceptional second quarter results, thanks to the outstanding execution by their employees in their multi-basin portfolio.

In the second quarter, EOG had excellent financial performance, surpassing targets in production volumes, operating costs, and free cash flow. They have updated their full year forecast for liquids production, cash operating costs, and free cash flow, with an increase in production and decrease in costs. This is due to the company's unique culture and decentralized structure, which allows for innovation and improvements across all assets. EOG's multi-basin portfolio of premium assets is a major advantage, and their focus on capital discipline allows for thoughtful investment across all assets.

EOG is able to adapt to changing market conditions and does not rely on any one specific factor for success. Their focus on capital discipline has allowed them to generate free cash flow for eight consecutive years and deliver consistent performance to shareholders. They have a balanced investment strategy and a strong balance sheet, positioning them to increase free cash flow in the near and long-term. The overall macro environment is positive, with global oil demand increasing and domestic oil supply growth moderating due to industry consolidation and reduced activity. They expect U.S. oil supply to remain relatively stable through 2024, with modest gains from offshore production.

During the second quarter, EOG saw a decrease in inventory levels and expects this trend to continue due to supply curtailments and increasing demand. They remain optimistic about the long-term outlook for gas demand and have expanded their marketing outlets to deliver natural gas to demand centers in the Southeastern U.S. EOG's operational execution has led to exceptional financial performance, resulting in higher free cash flow for the year. In the second quarter, they earned $1.8 billion of adjusted net income and generated $1.4 billion of free cash flow on $1.7 billion of capital expenditures. They also paid a dividend and repurchased shares during the quarter.

In the first half of 2024, EOG generated $2.6 billion in free cash flow and returned $2.5 billion to shareholders through dividends and stock repurchases. They have already committed to returning $3.5 billion in 2024 and are on track to exceed their cash return commitments. EOG's focus on high-return investments is delivering strong returns to shareholders. They have also repurchased $2.4 billion worth of shares since authorizing a $5 billion share repurchase program. Jeff Leitzell thanks employees for their exceptional execution this quarter.

In the second quarter, EOG exceeded targets in production volumes, operating costs, and capital expenditures. This was due to better well performance, improved base production, and the use of proprietary technology for artificial lift optimization. Timing also played a role in the volume beat. As a result, EOG is increasing their annual volume guidance and lowering their per unit operating cost guidance. Total well costs are also trending in line with expectations, resulting in a decrease from the previous year. These cost improvements are seen across EOG's multi-basin portfolio.

EOG Resources is seeing expected depletion in service costs and has secured contracts for high-demand services to maintain consistency in their program. Operational efficiencies are being driven by longer laterals and their in-house drilling motor program. In the Eagle Ford, they are on track to extend laterals by 20% and have seen a 7% increase in drilled feet per day. In the Delaware Basin, they are using more 3-mile laterals and have seen a 10% increase in drilled feet per day. In the Utica Shale, they are collecting data and testing spacing patterns and completion designs. Two new well packages have shown strong initial results, highlighting the premium quality of this play.

In addition to strong well results, the company has added 10,000 net acres to their Utica Shale position and will focus on developing the 225,000 net acres in the volatile oil window. They plan to complete 20 net wells in the Utica by 2024 and have seen a 13% increase in drilled feet per day in Dorado. They will maintain a steady drilling program to capture efficiencies and respond to the natural gas market. The company remains focused on cost reductions and generating free cash flow.

In this paragraph, the article discusses the strategic infrastructure investments in the Delaware Basin and Dorado, including the Janus Gas Processing Plant and the Verde Pipeline. These investments will help lower operating costs and improve netbacks, while also providing access to premium natural gas markets. The article also mentions the expected low Waha gas exposure and the agreements for interconnects at the Agua Dulce market hub, which will further expand margins and make Dorado one of the most competitive and highest return natural gas plays in North America.

Enbridge's Valley Crossing pipeline and Williams Transco pipeline expansion, the Texas to Louisiana Energy Pathway Project, will provide access to valuable markets for EOG. This includes a valuable liquid market center and multiple premium markets, such as LNG, industrials, and utilities. EOG's capacity on TLEP is contracted for the entire firm capacity and will serve supply from multiple EOG assets. This is in line with EOG's strategy to diversify its end market options and optimize its transportation position. Overall, EOG has delivered strong operational and financial performance and is focused on increasing capital efficiency and generating strong free cash flow.

EOG has made several announcements this quarter, including a new Brent-linked gas sales agreement and additional natural gas pipeline connections. The company is committed to delivering cash returns through dividends and share repurchases, and has already committed to $3.5 billion in cash return. During the Q&A session, the company discusses their progress in the Utica Shale, with strong results and a cautious approach to ramping up development.

As the company continues to invest in their multi-basin portfolio, they expect to see a decrease in costs and an increase in margins. Recent well results have been meeting expectations, with some areas showing consistently strong results at tighter spacing. However, the company is still early in the play and will need more production history to make informed decisions. They are constantly incorporating new data and learnings into their decisions as the basin is large and geology may vary.

The company takes pride in not relying on manufacturing and instead focuses on developing acreage packages by integrating the latest data and learnings to maximize returns and value capture. They have been incorporating artificial lift technology, such as optimizing gas lift, plunger lift, and rod pump, which has contributed to the increase in production and better base production across their portfolio. This technology has also helped during downtime events by diverting gas to higher producing wells and then switching back to optimal operations. It has been implemented across their multi-basin portfolio and has had a positive impact on base production.

The speaker, Ezra Yacob, is discussing the macro perspective on the oil industry, particularly in the Lower 48 region. He notes that global demand is increasing, but at a slower pace than in previous years. In terms of US supply, he expects a modest increase of 300,000-400,000 barrels per day for crude and 500,000 barrels per day for total liquids. He also mentions that the rig count and completion spreads have remained flat in the Lower 48, resulting in relatively flat production from December to December.

The paragraph discusses the moderate growth in the US oil industry due to consolidation and industry discipline. It also mentions the current rig counts and the steep decline in production that needs to be filled before new barrels can add to growth. The focus is on the activity and capital efficiency of plays at the asset level. The volatility in natural gas prices is also mentioned, and it is implied that the company may focus more on oil rather than gas in their 2025 plan. The current inventory levels for gas are above the 5-year average.

The natural gas price is currently below the 5-year average, but it is expected to increase throughout 2025 due to an increase in demand from LNG and electricity. The company is actively managing their Dorado program to align with demand and is confident in the low cash operating cost of $1 per Mcf.

Steve Richardson from Evercore ISI asks about EOG's impressive realizations in the quarter and how they are able to achieve such high returns. Ezra Yacob, EOG's representative, explains that their unique marketing organization is a competitive advantage, especially in a multi-basin portfolio. Their overall marketing strategy focuses on netback pricing, flexibility, diversification, control, and duration. They prefer to have firm capacity and avoid long-term commitments.

The company aims to minimize long-term high cost commitments and instead invest in partnerships that align with their growth strategy. They challenge their marketing team to be a low-cost operator and invest in strategic infrastructure projects that will lead to margin expansion over the long term. The company's integration of marketing and operations allows them to have a strong grasp on global and in-basin fundamentals, giving them the ability to access new markets and strengthen their netbacks. They are currently 50% to 60% contracted for 2024, but are seeing increasing costs on the leading edge of the supply chain. They are closely monitoring and managing these costs for the remainder of the year.

The company breaks down service costs into two categories: standard and high-spec services. Standard rig and frac prices have weakened in the second half of last year, with the Permian being the most resilient. Overall, standard rig and frac prices are down 15-20%, while coiled tubing, wireline, and workover rig costs have reduced about 15%, 15%, and 10%, respectively. These reductions have slowed in the first half of this year as the rig and frac fleet count has stabilized. High-spec services have seen relatively stable pricing, with some moderation and spot availability in gas plays and outside the Permian. The company's contracting strategy involves staggering contract renewals and renegotiating with the spot market to take advantage of pricing.

Leo Mariani asks how the company plans to manage its Dorado activity in light of current weak pricing. Jeff Leitzell responds that they will continue with their 1-rig program and monitor prices, with some flexibility to push some wells into the second half of the year. They are focused on maintaining operational efficiencies and will make the best economic decisions for the play.

The company is seeing expected performance from its Utica wells, but is still experimenting with spacing and completion design. They believe that performance will vary across their large acreage position, but are generally positive about the play. When it comes to marketing gas and NGLs in the Utica, the company does not anticipate needing major infrastructure build-out.

The company is focused on getting the local gathering systems in place in the new play and selling crude oil to local refineries. They will have a measured pace of production and will follow a similar strategy to their other plays. The plan for NGLs and gas will depend on the pace of development and commitments.

The speaker discusses the success of the Utica and ShadowPad wells, noting their attractive IP30 rates and high liquid content. They also mention the ongoing evolution of the spot rates and expect a 60-70% liquids mix for the UR product. They reference the Timberwolf well as an example of a successful well with a longer production history.

The Timberwolf and Xavier packages have been on for about six months and have seen a moderate 50% oil cut. It will take at least six to nine months to determine if the spacing is a success. The TLEPP project was a result of a long-term marketing strategy and partnership with Williams. The company was able to secure all of the capacity through a precedent agreement.

The speaker discusses the importance of foresight and market knowledge when making business decisions. They highlight their company's strategic positioning in the South Texas and Gulf Coast markets and their use of advanced technology in artificial lift. They also mention the company's competitive edge and improvements in base decline rates.

The company's technology is integrated within all of their different systems, allowing for real-time monitoring and optimization of production. This sets them apart from other third-party systems. The optimizers also help minimize downtime and maximize production across their multi-basin portfolio. As for increasing activity levels, the company looks for certain preconditions in order to determine the right time to accelerate rig activity and bring on new wells.

Ezra Yacob, a spokesperson for the company, explains that the key factors for increasing activities and bringing more gas to the market in the Dorado gas play are being a low-cost supplier and having exposure to diverse markets. The company has maintained minimal rig activity in order to learn and be prepared for the emerging demand for gas in the next few years. This will allow them to bring low-cost gas reserves to the market.

The company has flexibility in completion operations and tries to avoid overspending by keeping drilling rigs going and coordinating completion spreads. They consider internal learning, returns, market inventory levels, and supply and demand fundamentals when deciding when to take the next step. They expect increased demand in the next few years and are focused on generating higher returns and investing at the right pace.

In this paragraph, Doug Leggate from Wolfe Research asks Ezra Yacob about the progress of the Utica play. Yacob explains that they have quickly secured acreage and have shown promising results, but they are currently focused on the volatile oil window and are still working on determining the optimal spacing. They are confident in the play and continue to acquire more acreage.

The speaker discusses the spacing of wells in North American shale plays and mentions that they are planning to double the amount of wells to sales in 2023. They also mention that early-time wells are competitive with parts of the Permian Basin. The speaker also addresses the company's gas realizations and their preparedness to commit to international pricing, mentioning that they are currently about halfway locked in and may increase their international exposure in the future.

The company has entered into gas sales agreements that provide exposure to pricing diversification, including international markets. These agreements were negotiated during a counter-cyclic time period and limit the company's risk exposure. The company's size and scale, particularly at the Dorado site, has allowed them to enter into these agreements. Currently, only 140 MMBtu per day is exposed to JKM pricing, but this is expected to increase significantly in 2025 and 2026 with the addition of Corpus Christi Stage 3. The company has also recently entered into a Brent link gas sales agreement, which has not been seen in North America in quite some time.

The speaker discusses the percentage of their portfolio that is exposed to international markets, stating that there is no set percentage and it depends on available agreements and marketing structures. Their strategy is to increase their exposure to international markets. They thank shareholders for their support and employees for a successful quarter. The conference has now ended.

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