EOG Resources Inc Earnings - Q1 2025 Analysis
Positives
- The company realized a 10% increase in well productivity on a per foot basis in Q1, boosting the returns of already prolific gas wells.
- The company had a strong quarter of cash returned to shareholders, anchored by its sustainable regular dividend of over $500 million and share buybacks of nearly $800 million.
- The company has consistently delivered exceptional operational performance across its core assets, while also advancing new opportunities in emerging plays.
- The company is proactively optimizing its 2025 capital investment while maintaining first quarter oil production levels throughout the year.
Q&A Highlights - Q1 2025
Analyst asked about the capital number for EOG Resources Inc's three-year scenario.
The company's three-year scenario is not intended to be guidance, but it is directionally accurate. The scenario assumes low single-digit year-over-year oil growth, high single-digit year-over-year total production growth, and a cost structure that is static from 2024 levels. The company has taken a step to protect shareholder value and shareholder returns by optimizing its plan and pulling back on $200 million in capital, which delivers a more capitally efficient plan, protects free cash flow, and reflects shareholder returns.
Analyst asked about the company's capital flexibility and how it relates to its spending and sustainability.
The company has a range of maintenance capital cases, from $4.3 billion to $4.9 billion, that contemplate different scenarios, such as keeping oil flat, equivalents flat, or investing in exploration. The company has grown year-over-year by 11,000 barrels a day and continues to invest in its business, emerging assets, and gas growth. If the company were to reduce capital investment further, it would be in legacy assets where it has the most flexibility. The company would have to monitor the environment and balance its near-term free cash flow generation and long-term potential.
Analyst asked about EOG Resources' approach to acquisition targets in the current market environment.
Ezra Y. Yacob, the company's CEO, stated that EOG Resources is focused on creating shareholder value and does not consider buybacks and M&A to be mutually exclusive. The company has a strong position in the market and is set up for counter-cyclic opportunities. In the first quarter, EOG Resources repurchased a significant amount of stock and also executed a small bolt-on acquisition that met the company's criteria for M&A. The company considers both M&A and exploration opportunities to be competitive with its existing portfolio and looks at them through a returns-focused lens.
Analyst asked about EOG Resources' capital allocation strategy in light of a weak oil market but firm gas prices.
Ezra Y. Yacob, the company's CEO, stated that EOG Resources remains very optimistic and bullish on the long-term outlook for natural gas. The company sees 2025 as an inflection point, with LNG nameplate capacity up 2.5 Bcf a day, year-over-year, and strong increases in natural gas for power demand. The company is well-positioned to progress into the summer months and throughout the rest of 2025, with inventory levels at the five-year average. EOG Resources' focus with developing Dorado has been maintaining a low-cost structure and investing in the asset at the right pace to ensure value creation on the gas side through the cycle. The company has increased drilled feet per day by 15% and completed feet per day by 15% recently, and has driven the breakevens in Dorado down to the $1.40 level. The company does not plan to lean in on Dorado any more aggressively, as it wants to maintain a pace of learning that is commensurate with its gas takeaway position.
Analyst asked about the timing of the company's $200 million CapEx and activity reductions.
The majority of the $200 million reduction is expected in the second half of the year. The company is focusing on its more active areas, the Delaware Basin and the Eagle Ford, while maintaining activity in its emerging plays, the Utica and the Dorado. The company expects to have 20% more completions in both the Utica and the Dorado, with two full rigs and one frac fleet in the Utica, and one rig in the Dorado. There are no changes to the international front, and the company has strategically optimized its plan to maintain flexibility heading into 2026.
Analyst asked about the drivers of the beat in 1Q cash costs and the potential for further OpEx reductions.
The company has a lot of room to go in reducing OpEx, as it continues to drive forward and look for ways to optimize its operations. The variance in 1Q expenses was due to lower workover expense across the company's divisions, resulting in less labor costs and workover expense. The company also saw strong base production and less downtime across its portfolio, which contributed to the lower expenses. The full-year guide is down due to anticipated compression-related costs and fuel savings, as well as a decrease in headcount and employee-related costs. The company is happy with its current efficiency and will continue to look for ways to drive down operating expenses.
Analyst asked about lessons learned from EOG's 2020 experience and how they would apply them to the current situation.
EY Yacob stated that the company's low-cost structure, strong balance sheet, and cash on hand allowed them to protect their free cash flow and return to shareholders, and that they continue to focus on capital discipline. They also took advantage of counter-cyclical opportunities, such as purchasing pipe and acreage, and small bolt-on acquisitions. The management team's execution of the company's value proposition will determine its flexibility in times of a pullback or downturn.
Analyst asked about the 125 feet of consistent oil-bearing sands found in the Gulf of Mexico and the major steps towards FID.
Jeffrey R. Leitzell stated that the discovery is still early and they are refining their reservoir models and working through other decisions, such as facility size, platform specs, and completion and production design. The economics of the initial estimates justify setting the platform, and the company is engaging with partners to reach a final decision. They will continue to assess the discovery and provide more detail as they work towards FID.
Analyst asked about the availability of similar deals like the one EOG Resources acquired recently.
The company is always looking for bolt-on acquisitions that meet their criteria, including compatibility with the existing portfolio, returns, and other metrics. However, they do not expect to find a deal as large and undrilled as the recent acquisition.
