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EOG Resources Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company lowered average well cost by 6%, primarily through extended laterals in EOG's in-house drilling motor program.
- The company delivered strong FCF generation and return on capital employed over the past few years.
- The company increased its regular dividend by 7% and to an indicated annual rate of $3.90 per share.
- The company's plan is grounded in its commitment to capital discipline, returns-focused investments at a pace that supports continuous improvement across each of its assets.
- The company has the flexibility to remain opportunistic on issuing additional debt.
- The company is seeing a weakening in the Houston Ship Channel along the Gulf Coast.
- The company is expecting an increase in operating expenses.
- The company has flat activity in the Delaware Basin.
- The company expects to continue momentum with longer laterals and foundational plays, resulting in a YoY percentage reduction in well cost in the low single digits.
- The company expects to have an increase in operating expense.
- The company expects to be opportunistic in share repurchases.
- The company expects to minimize its exposure to Waha, which is expected to be limited to 5% to 7% of its total natural gas sales this year.
- The company expects to have a cash flow breakeven price to fund its capital budget and the regular dividend in the low 50s.
Q&A Highlights from EOG Resources Inc Earnings Call Q4 2024
- Analyst asked about the increase in international spending in EOG Resources' capital program for 2024, specifically in Trinidad and Bahrain.
- EOG Resources has increased its international spending by $100 million, reflecting its continued investment in both Trinidad and Bahrain. The company is excited about its Mento program in Trinidad, which is expected to produce four net wells in 2025, and its Coconut project, which is expected to access an estimated 500-plus Bcf of resource potential. However, volumes from these programs will not be seen in 2024, but pushed to 2026.
- EOG Resources has increased its international spending by $100 million, reflecting its continued investment in both Trinidad and Bahrain. The company is excited about its Mento program in Trinidad, which is expected to produce four net wells in 2025, and its Coconut project, which is expected to access an estimated 500-plus Bcf of resource potential. However, volumes from these programs will not be seen in 2024, but pushed to 2026.
- Analyst asked about EOG Resources' approach to accelerating activity in its pipeline and LNG facility, given the current gas price environment.
- EOG Resources is not waiting for confirmation of the $4-plus gas price environment to accelerate more activity. Instead, the company is evaluating activity levels from a long-term perspective, rather than just looking at near-term commodity price volatility. The company believes that the current activity level of 20% increase in 2024 is a good level to continue to push forward year-over-year for operational improvements, and to drive down costs while taking advantage of the proximity. The company is not looking to invest at a particular price point, but to invest to lower its costs through the cycles.
- EOG Resources is not waiting for confirmation of the $4-plus gas price environment to accelerate more activity. Instead, the company is evaluating activity levels from a long-term perspective, rather than just looking at near-term commodity price volatility. The company believes that the current activity level of 20% increase in 2024 is a good level to continue to push forward year-over-year for operational improvements, and to drive down costs while taking advantage of the proximity. The company is not looking to invest at a particular price point, but to invest to lower its costs through the cycles.
- Analyst asked about the reason for the decrease in total completed feet in 2024.
- The decrease in total completed feet in 2024 was due to the company's focus on the Eagle Ford in both 2023 and 2024, with an increase in activity levels in 2023 and sharing a frac crew between Dorado and the Eagle Ford in 2024. This resulted in more completions in the Eagle Ford, while deferring completion activity in Dorado due to weaker gas prices. The company is getting back down to its background levels in terms of completed feet.
- The decrease in total completed feet in 2024 was due to the company's focus on the Eagle Ford in both 2023 and 2024, with an increase in activity levels in 2023 and sharing a frac crew between Dorado and the Eagle Ford in 2024. This resulted in more completions in the Eagle Ford, while deferring completion activity in Dorado due to weaker gas prices. The company is getting back down to its background levels in terms of completed feet.
- Analyst asked about the company's international gas opportunities, specifically the Bapco JV.
- The company has been active not only on domestic exploration front, but also internationally, with the Bapco announcement highlighting their focus on returns and additive potential to their existing inventory. The company has an active domestic program and plans to drill a few more wells this year, but typically does not comment on exploration programs beyond that. The company remains optimistic that there are still resources in the US that will continue to be additive to their overall inventory.
- The company has been active not only on domestic exploration front, but also internationally, with the Bapco announcement highlighting their focus on returns and additive potential to their existing inventory. The company has an active domestic program and plans to drill a few more wells this year, but typically does not comment on exploration programs beyond that. The company remains optimistic that there are still resources in the US that will continue to be additive to their overall inventory.
- Analyst asked about the potential for EOG Resources Inc. to drive F&D costs with the benefit of both working in the Powder River Basin and the Niobrara.
- EOG Resources Inc. has gathered data on the Niobrara, which is shallower than the Powder River Basin, and has shifted activity to be more focused on the Niobrara. The company has increased well productivity in the Niobrara by 20% year-over-year and reduced the days to drill by 10% year-over-year. The company also has a multi-basin portfolio in the Powder River Basin, with the Mowry play having good finding cost numbers and the Niobrara play needing a little more oil with a higher return.
- EOG Resources Inc. has gathered data on the Niobrara, which is shallower than the Powder River Basin, and has shifted activity to be more focused on the Niobrara. The company has increased well productivity in the Niobrara by 20% year-over-year and reduced the days to drill by 10% year-over-year. The company also has a multi-basin portfolio in the Powder River Basin, with the Mowry play having good finding cost numbers and the Niobrara play needing a little more oil with a higher return.
- Analyst asked about the potential for Bahrain to be as significant or larger than Trinidad in terms of gas production and if the returns are as competitive as domestic exploration.
- EOG Resources Inc. is excited about the opportunity to expand internationally, and they have strong conviction that they will be able to turn the opportunity into something that is meaningful for their shareholders. They have found a good partner in Bapco Energies, and they will consider the potential sales price in the market, well productivity, and cost structure when deciding whether to invest in the project.
- EOG Resources Inc. is excited about the opportunity to expand internationally, and they have strong conviction that they will be able to turn the opportunity into something that is meaningful for their shareholders. They have found a good partner in Bapco Energies, and they will consider the potential sales price in the market, well productivity, and cost structure when deciding whether to invest in the project.
- Analyst asked about the company's approach to spacing in the Utica region, specifically whether they are focusing on development or testing.
- The company's approach to spacing in the Utica region is to constantly incorporate new data and learnings to improve every well and every package across all plays, including development and testing. The company does not employ a set spacing or completion design throughout an entire field, and spacing can vary depending on the area. The company has tested spacing between 800 and 1,000 feet and plans to continue incorporating new data and learnings to improve spacing and completion designs.
- The company's approach to spacing in the Utica region is to constantly incorporate new data and learnings to improve every well and every package across all plays, including development and testing. The company does not employ a set spacing or completion design throughout an entire field, and spacing can vary depending on the area. The company has tested spacing between 800 and 1,000 feet and plans to continue incorporating new data and learnings to improve spacing and completion designs.
- Analyst asked about the company's opportunities to partner with hyperscalers, specifically in the Appalachian, Del, and Eagle Ford regions.
- The company has spent a lot of time looking at how data center development may progress and what role industry and EOG specifically would play in that. The company benefits from data center development due to the proximity of data centers to urban areas, which can lead to increased electrical demand and regional pricing uplift. The company also sees potential for data center development in the Gulf Coast and South Texas regions, which could benefit the Dorado field.
- The company has spent a lot of time looking at how data center development may progress and what role industry and EOG specifically would play in that. The company benefits from data center development due to the proximity of data centers to urban areas, which can lead to increased electrical demand and regional pricing uplift. The company also sees potential for data center development in the Gulf Coast and South Texas regions, which could benefit the Dorado field.
- Analyst asked about the evolution of EOG Resources Inc's dividend, the dividend growth rate, and the dividend breakeven.
- EOG Resources Inc's management agreed with the analyst's statement that the dividend is an important part of market recognition and value. They explained that they focus on a sustainable and growing regular dividend, which is the foundation of their cash return strategy. They raised their regular dividend by 7% last year and have raised it 2 times the peer average as a compound annual growth rate since 2019. They have 27 years of sustainable growing regular dividend. They grow the dividend in concert with expanding margins, including both growing top line revenue and top line cash flow from operations, and lowering the cost basis of the company. They also have a strong balance sheet as a backstop for the regular dividend. They aim to see the dividend increasing and the yield decreasing.
- EOG Resources Inc's management agreed with the analyst's statement that the dividend is an important part of market recognition and value. They explained that they focus on a sustainable and growing regular dividend, which is the foundation of their cash return strategy. They raised their regular dividend by 7% last year and have raised it 2 times the peer average as a compound annual growth rate since 2019. They have 27 years of sustainable growing regular dividend. They grow the dividend in concert with expanding margins, including both growing top line revenue and top line cash flow from operations, and lowering the cost basis of the company. They also have a strong balance sheet as a backstop for the regular dividend. They aim to see the dividend increasing and the yield decreasing.
- Analyst asked about the AMT, specifically if EOG Resources Inc is already a full cash tax payer.
- Ann Janssen, the company's CFO, explained that the current tax revision in 2024 included $212 million in alternative minimum tax credits, which were fully exhausted when the company exited 2024. Therefore, there will be no impact of the AMT in 2025. The company's current guidance for 2025 does not contemplate any material or unusual items, and 2025 is a good proxy as they move forward.
- Ann Janssen, the company's CFO, explained that the current tax revision in 2024 included $212 million in alternative minimum tax credits, which were fully exhausted when the company exited 2024. Therefore, there will be no impact of the AMT in 2025. The company's current guidance for 2025 does not contemplate any material or unusual items, and 2025 is a good proxy as they move forward.
