All right, guys, we'll kick off here. So in our, in our fireside chat here, we're going to have EOG. We're going to talk about balancing growth, returns, and free cash flow. We're with Billy Helms, the President of EOG. Billy, thank you so much for being with Umang and I today.
Well, thanks for having us. We're excited to be here and, excited to participate in this.
Well, Billy, let's start on the macro. We've spent a lot of the morning talking about it, and we just heard from Conoco, Dom and Sam, about their perspective. But what are your thoughts about the oil outlook as we move our way in through 2024 and 2025? Certainly, a lot of volatility here recently. How does EOG see in the setup?
So I think you've probably heard this several times. I think for us, we're looking at a market that we feel like is going to be constructive going forward, I guess. We're seeing demand to be fairly strong, depending on whose forecast you look at. I think IEA has come out and said that they believe there's going to be a demand increase of 1.1 million barrels per day next year. OPEC's a little bit more aggressive. They're thinking 2.2 million barrels per day demand growth next year. You know, take whichever one you want. I guess for us, it means demand is going to continue to grow and be strong next year. On the supply side, I think everybody's aware, you know, OPEC's got a lot of supply off the market.
And, you know, if you look at the non-OPEC supply numbers, IEA, again, is forecasting about 1.6 million barrels a day of non-OPEC supply growth. OPEC's a little bit stronger on that, but if you look at the balance of the numbers, if you look at the IEA numbers, basically, you're looking at a small build in the first half of next year with a draw in the second half of next year, or this year, I'm sorry. Then OPEC numbers are a little bit stronger on the demand side. So you're looking at a draw throughout the year, which means OPEC will be able to start bringing on more volumes back by the end of the year. So to paint that story, I think we're looking at fairly constructive price levels going forward.
Now, I guess the wild card last year was the U.S. supply. U.S. supply certainly grew quite a bit last year, I think more than most, everybody would have forecasted, certainly outpaced our growth forecast. And so, but is the U.S. going to be able to contain—continue to maintain those levels of growth? And we're not seeing that being the possibility. I think, you know, last year, the rig counts were, were up at the start of last year. They basically are down 20% year-over-year. Frack crew counts down about the same amount. And so you had a lot of the private stepping up last year and increasing a lot of activity and brought a lot of supply on.
Since then, yeah, rig count's down, frack fleet count's down, DUC count's down, and on top of that, bringing on a lot of production last year, you've got a steeper decline to offset this next year. So that tells you that U.S. production is not going to be able to continue to grow at the pace that it did last year. So all that being aside, it says, you know, the market's going to look more constructive as you go through the year. So for us, that's kind of what we take into account when we put together our macro picture.
Billy, when you translated that into oil exit to exit this year, it looks like we're up 900,000 barrels a day. What does that look like for you in 2024?
It'll be measurably less. You know, probably, you know, it's hard to throw a number out there. I'm not very good at forecasting oil prices or demand, but, but I think it's going to be considerably less, less than half of that number.
Okay, thank you.
Maybe turning to natural gas. Right now, we are obviously running more closer to around 105, 106 Bcf per day, if you look at Genscape numbers. A lot of people, investors are questioning that number right now. So what are your thoughts on current production? And then when you think about the outlook for 2024, 2025, how do you think the macro is set up for U.S. gas prices?
So yeah, for gas, yeah, U.S. grew quite a bit last year, I think about 3.4-3.5 Bcf a day, year-over-year, with the latest EIA numbers. And, and so that's been on the back of, again, increased rig count at the start of last year, and that's been tapered off quite a bit. So activity's scaled down along with gas prices. So we're also in a period where it looks like we're going to have a warmer winter than probably was expected, so that demand has been off. So you've seen gas prices follow suit. So the, the next wave of demand to come on for gas is going to be the LNG that everybody's talking about, which would be late 2025 through 2028.
You'll see another 7-10 Bcf a day coming to the market at that through that time frame. So between now and then, I think the gas market is going to be largely dependent on several factors. I think one's weather, unfortunately. What's the weather look like in the summer and the winters? So with the shape of the winter season right now, storage is 10%-11% higher than last year and the five-year average. So, gas prices are correspondingly weak. So I think for us, you know, we're thinking, you know, gas, longer term, is going to be very strong, gas demand, and so we're more constructive longer term. Near term, I think we're in a period of softness, but longer term, the US is going to be positioned to be a big LNG exporter.
How do you take advantage of that and grow into that market? For us, we've captured a very large gas play along the Gulf Coast, 21 Tcf, very large resource to scale that out for everybody. That's over BCF a day for over 50 years. A very low-cost play right along the Gulf Coast, very well positioned to take advantage of the LNG market. What we want to do is to be able to understand that play well enough to grow into that market when the time's needed.
So, Billy, let's spend some time talking about capital spending. We're going to get some update on Q4, but as you have been going through budgeting season, you take into account the fact that we've seen some softness in the commodity. How does that affect your thought process about setting the budget for 2024? And talk about some of the increments and decrements as we work our way off of the 2023 base.
Okay. So as we look into 2024, again, we're constructive on oil prices, still a little wary of gas prices. So, we're running an activity level right now to... Basically, we try to run an activity level to make sure we always continue to improve the base of the company. So we're very pleased with the activity level we have in all of our core plays. So the Delaware Basin, the Eagle Ford, we have a very solid activity base there that will continue to improve the quality of those assets going forward. It's not just about a volume strategy. We invest for returns, and the volumes are really a byproduct of that investment. So we're not targeting a specific growth number. We're going to grow oil this year. 2023 would have grown.
We haven't reported numbers yet, but it'll be on that order of we've been talking about 3% oil growth, you know, 8%-9% BOE growth is kind of the numbers that we talked about for last year. As we move forward into next year, you know, we're very comfortable with the activity levels. We don't really see the need to increase activity based on what we see the macro look like. We want to continue to run at a pace that we can improve the company, as we've talked about. We do have some emerging plays in the Powder River Basin, Dorado, and then our newest, Utica play. We're very excited about our Utica play, so we may run a little bit more activity there, bring on a few more wells as we delineate that play.
But in general, that's kind of, we're very comfortable with the activity level we see. Now, just a reminder to the group, you know, we're investing at a $40 oil price, so we're, we're very comfortable with our investments and being able to generate the returns we're wanting. And in today's prices, those are monstrous returns. And that's gone to help improve the financial performance of the company. So overall, that's kind of how we think about it.
One of the points which you had made is you want to be the lowest cost operator within the U.S. If you think about investors and what they're concerned about today, it's maturity, right? Maturity in the Delaware, maturity in the Eagle Ford. When you think about those assets, both for the industry as well as for EOG, how do you think about shale maturity? How much running room do we have right now?
Yeah, that's a good question. Yeah, for us, I'd say we like to focus on returns first. So we want to be the highest return, lowest cost, and lowest emission producer out there because we think over time, the investors will gravitate towards those companies that can deliver those kind of things. So that's our ultimate strategy. So as you think about the broader industry, you know, all these plays, every play you're in, I don't care if it's conventional or unconventional, the quality of the wells you bring to market will degrade over time. Everybody should be drilling their best wells first. And so in any asset, whether it's Permian or Eagle Ford or wherever, the quality of the wells will degrade over time. For EOG, what we've tried to do is focus on continuous improvement.
So the Eagle Ford is the best example to look back at. We've been drilling in that play for 12 or 13 years now, and certainly we drilled the best wells of that play early on in that play. And you can look at the well quality we're drilling today, and it's certainly much less than it was years ago. But what we've done in that time frame, the same 12 or 13 years, we've improved the efficiency of that play. We're drilling wells much faster than we did. We found better ways to complete them, to get more oil per foot out of the rock than we did. So yes, overall well quality is down, but the economics are still very, very strong to be able to command a certain amount of activity in that play. The Delaware Basin is a little bit less mature than that play.
We're still finding ways to improve the quality of the wells in those plays. We have embarked on a new completion technique there, and I think you heard us talk about, we're very excited about the results of that. It's improving productivity about 20% earlier time, and EUR from where we're applying that, new technology. So, there's still improvement yet to come in some of these plays, but over time, they are gonna degrade. So for us, what we think about is, okay, how do we maintain relevance in the market? You know, inventory is always a question. You know, I've been with the company for four... over 40 years. I've been talking to investors for over 10, and I swear for 10 years, that question's been there every year.
So what's the quality of the inventory and what are you gonna do next?" And so since then, you know, in the last, I think, since 2019, we've brought on the Powder River Basin, the Dorado play, and now the Utica play. So we're adding to that inventory faster than we can drill it. And we have over 10 billion barrels of oil equivalent in our inventory at a finding cost that's lower than our current DD&A rate. So it tells you what the outlook is for the future of the company as we bring those properties to market, they can continue to improve the financial performance of the company. So we're pretty excited about that, and we're gonna continue to explore, and we have a stronger exploration effort going on today than we probably have in the history of the company.
And you're seeing the evidence of that in these plays we're bringing to market, and we don't see an end to that. We're also looking, not only domestically, but we are looking internationally as well. We've also developed a skill set. So we're very good at drilling horizontal wells in unconventional plays. We also have a skill set in drilling shallow water, offshore plays. We've been doing it in Trinidad for 30 years, and we're taking that expertise and looking around the world, as well as looking in unconventional plays in other parts of the world. We drilled a well in Oman a couple of years ago. Turned out to be gas instead of oil, and it was a long way from market, so we didn't pursue it.
But we're looking for more opportunities like that, where we can leverage our experience base and our technology to bring those volumes to market.
That 20% productivity improvement, new completion design, when can we start to see that in the results, which the company reports?
Well, I think you're seeing it today. I think there's even some sell side reports out in the Delaware Basin, I think as early as this last week, that show productivity improvements in the Delaware. So I think the market is seeing it. You know, because they don't have the details that we do, look at it by zone and by spacing pattern and where you are in the basin to make really good analogous comparisons. But you're seeing it in the public domain already. So it doesn't work in every particular zone, but... It does cost a little bit more to deploy this completion technique. But where it works, it works really well. So we're being very strategic about where we apply it.
Thank you.
How about in the Eagle Ford? What are your thoughts on the direction to travel for productivity there, which is, it's a more mature basin, for sure.
Yes. You know, as we talked earlier, you know, we've been drilling that play for 12 or 13 years, and it is a very much mature basin. We've drilled a lot of wells there. And, you know, so productivity per foot is not going to improve a lot there going forward. We're gonna maintain what we have and pretty much try to maintain a very consistent level of output in that play. That's a very economic play, it's a good, solid base of production, and it helps the company on a lot of metrics. So, you know, with the new Premium strategy, every barrel we're bringing to market is at a lower finding cost than our current DD&A rate in the field. So it improves the margins as it continues to mature.
And that's what we're about, is it's not just, you know, making better wells, but how do we improve the margins, and ultimately, how do we improve the shareholder value for the company-
Mm-hmm.
Going forward?
Yep. Well, that's a good pivot over to some of the emerging plays. Umang, you want to talk, kick it off there?
Yeah, maybe we can start with the Utica, because you guys provided a big detail update with third quarter results. Results have been stronger than what you had expected initially when you guided it. So talk us through the next stage in the evolution of Utica as a development play, and when does it start to garner more capital relative to some of the franchise assets which you have right now?
Yeah, we're... Thanks. We're very excited about the Utica play. It's our latest result of our exploration program that we've been talking about. We've put together 430,000 acres in the oil window of a very well-known gas play. And so from that standpoint, and then the play been tested, you know, in the past, you know, 10 or 12 years in the past. So we take a look at all the data. So as a company, we've collected a lot of technology and a lot of data. The ability to analyze wells in the past and the future, apply EOG's technology to those, productive metrics that we see in every play, and to understand what's the uplift we could get from applying those new technologies in these new plays.
The Utica is a textbook example where we took a look at some of the older wells in that play, analyzed it with our approach, and determined what the uplift could be. Lo and behold, it exactly matched what our results were. W e're very excited about our ability to understand the rock and what is expected from an approach like that. So since then, we've tested several wells. Our activity in that play has been focused really in one area, largely because that's where we had 3D. 3D technology in seismic coverage is really important in the development of these plays. So we built out a little bit of infrastructure that was needed to get those molecules to market. And our activity there has been consistent with that.
So, and it's been. The results have been consistent in every well we've tested so far in that play. So the economics are very strong, and on top of that, we have about 130,000 acres of minerals, which really enhances the economics on that part of the play. And then going forward, so let me back up a minute. So the latest four-well package we brought to sales was our Timberwolf package. Initially, we started out a fairly wide spacing, of a 1,000-foot spacing, and the productivity from those, the average 30-day rate from that four-well package was 2,150 barrels of oil equivalent per day. And that's an 85% liquid number, so pretty strong economics. And the performance has held up really well.
So the next step is try to increase activity, do some more spacing tests to understand what the ultimate spacing of that package of the play needs to be. It'll be less than 1,000 feet, most likely. And we'll work our way towards that number this year. So we expect to bring a few more wells online this year. Probably have more on the order of one drilling rig activity in that play versus a half a rig last year, and gradually increase that and understand the play, and then hopefully develop it out over time as we get more 3D seismic coverage. We did shoot some 3D last year. So as we develop more of that area, understanding and that technology, we'll bring it to market.
Makes sense. Can you talk about the quality of the liquids there? We talking black oil or, or more condensate and NGLs?
No, it's definitely in the volatile oil window. So the oil gravity—it's less than 50. I want to say it's like 48 gravity oil, if I remember right. So it's a very marketable oil product. So we're very excited about it, and that's, you know, that's not testing the other parts of the play. So there's obviously room for improvement even there. So we're very excited about what that play could do for us and where it could go over time.
Yep. Great.
Maybe turning to the Dorado play. Given where we are right now in gas prices, does that mean that Dorado will likely garner less capital this year, in terms of like-
You know, I think, I think for Dorado, we've been developing it at kind of a measured pace. Similar to the Utica, we want to operate enough to understand the play. How do we make better wells? How do we improve the performance of the play? What's the acreage quality look like? What's the potential across the area? And so the Dorado has been doing that in a sense. Last year, when we started the year, gas prices was lower, pretty soft. So we actually pulled back on activity there last year and completed a few less wells than we had initially planned. Going forward, we'd like to maintain some level of activity because we are constructive longer term on natural gas and where it's gonna go.
As we've talked about the LNG outlook, we want to be in a position to take advantage of that with a play. It's a very low-cost play right along the Gulf Coast to take advantage of that market, so it's exactly what we wanted to do. It's why we concentrated there versus some other parts of the country. It's just advantage in that respect. So we want to run a level of activity we can continue to do what we like to do, is improve the quality of the wells, understand the play, just to have continuous improvement in those plays. And so that commands a certain amount of activity. It'll be consistent with what we saw last year, I would guess in that play. Maybe a few more wells here or there, but not a large amount of activity.
But we want to be in a position to really increase the volume of that once the demand is there. So last year we started putting in... We saw a unique opportunity in that play to build out some of our own infrastructure. And we take a look at options, you know, in any play, we look at what's the best way to operate a play long term. You know, that play, as I mentioned, is the Bcf a day for 50 years. So it's a long-term asset, which is the way we run the company, is for the long term. And so we want to drive down our costs. We want to be the low-cost producer. So part of that is looking at, okay, is it best for us to contract to a third party to build out an infrastructure?
Or in this case, the fees were higher than what we could do it ourselves, so we just did it ourselves. We put in our own 36-inch pipeline. It's a 100-mile project. We put half of it in last year. We'll finish up the second half of it this year. That'll get it to the marketplace for the South Texas, Agua Dulce, where we can get the molecules to as far south as Mexico, or all the way to Louisiana, so we can take advantage of all the market opportunities that present themselves. So it's a perfect position to do that, and that will help lower the overall cost basis of that play. The cash operating costs will come down over time, and it just makes sense.
If you can save $0.20 or $0.30 an MCF on a play that's gonna be around for 50 years, seem like that's gonna make a lot of money for the company and for the shareholders. So those are the kind of things we look at, those opportunities.
And then maybe tying it to the LNG strategy, right? Because you have been ahead of the curve in terms of signing up LNG contracts with Cheniere. Do you plan to? As you grow production in Dorado, do you plan to increase the amount of LNG exposure you have over time?
That's what we ultimately want to do. Just to remind everybody kind of where we are, we currently sell about 140 million a day at JKM prices. We entered a contract back in 2019, where we get exposed to both JKM prices and Henry Hub Plus prices. So we're currently selling 140 million a day into JKM prices. And when Cheniere's Corpus Christi Stage Three project comes online, which will be, you know, probably in 2025, that volume will increase to 420 million a day at JKM prices, with an additional 300 million a day at a Henry Hub Plus contract. So we'll be selling, you know, 720 million a day at favorable market prices, and we feel really good about where that goes.
Now, obviously, for a play that's as large as Dorado, 21 TCF net to the company, we want to increase that exposure, so... But since we've done that deal, we were early on doing that, commercial structure. Everybody's kind of chasing that market, and so it's bid up the price.
Yeah.
So we're looking for what's the next strategic opportunity to capture another market rate that's comparative to what we're getting today. So we're not gonna just rush into it. We're gonna negotiate the best outcome for the market, and we're really good at marketing our products, or all of our products, we try to put in and control the infrastructure to be able to get to multiple markets, control the basically the marketplace where we can take those products to maximize the return. And that's why you see our realized price for most of our products is usually higher than the peer group average, because we take ownership of that, from investing in the infrastructure all the way to the marketplace.
Billy, and one of the conversation points is about product mix, and EOG was a gas-focused company. It evolved into much more of an oil company, and as Dorado scales and as DUCs exceed oil growth, the business mix does get a little bit gassier again, and maybe you'd share your perspective as the president of the organization. Is that a good thing?
Well, I think it's as the company grows, don't forget, you know, we're this last year, 2023, we're gonna grow oil production 3%. Well, that's not a bad thing when you're producing almost 500,000 barrels a day net to the company.
Totally.
So we're still an oil company at heart, but we've added some other plays. Dorado, I would say, is almost a gas company on top of an oil company.
Yeah.
Think about it that way. So we can play both sides of that equation. It's not that the mix is gonna get gassier for a corporation, but how do we manage all these assets? Remember, the ultimate goal here, for us, is invest in returns. We want to be the highest return, but also the lowest cost and lowest emissions producer. So, it's not necessarily what the mix is, but, we still have the assets in the Permian, we still have the assets in the Eagle Ford, and the other oil, the Bakken, has been there for a long time. We're still drilling wells there. So we still have a, the solid oil company.
But with the Dorado, with the Powder River Basin, and now with the Utica play, those are certainly, with the size of the acres position in those plays, it's like adding three small to mid-sized cap companies on top of the already existing EOG portfolio. So that's one way to think about it.
I think we talked about the PRB, so maybe any update on the Powder River Basin, where it stands right now?
Yeah. The PRB, you know, we announced that play. We have 400, roughly 360,000 acres, I think, in that play, in the company. And we announced that back in 2019, and then, of course, 2020 hit, and we pulled back on activity and stopped investment in, in a lot of areas, including that one, for a while. Since then, we've built out some infrastructure. We're testing several different zones. As everybody's aware, that has really four basic zones. The deepest is the Mowry, then you have the Turner and Niobrara and the Parkman. Some are more oily than others, but the deepest zone is the Mowry.
Our development efforts, just like any play, we try to start on the play that's gonna give us the most knowledge, and that happens to be the deepest zone, the Mowry. It is also the most gas-rich play. It's a combo play, oil, gas, and NGLs. Highly economic. We've put in the infrastructure, we're developing that play. We're gaining insights on the shallower targets as we drill through those, to have a more strategic approach to development of those shallower targets over time. It's, it's still commanding some activity. We have a couple of rigs there now, and we expect that to continue. We're excited about the, the productivity improvements we're seeing there, and we're seeing opportunities to continue to improve the cost basis of that company going forward. So we still think it's gonna command a decent level of activity next year.
So, Billy, let's spend the last couple minutes talking about capital allocation. We'll save the most important part for last here, which is, maybe start on M&A. And we talked about this last night. There are a lot of companies in the industry who've taken a consolidation approach. EOG's taken an organic, go-it-alone, exploration-oriented approach. Talk about why this is the right strategy, what's the good that comes with the strategy, and what are the risks that come with that strategy?
That's a good point. You know, for EOG, we've been an exploration company since our inception. And so certainly we have a lot of expertise in understanding and finding and developing what we think are very attractive plays. So let's talk a minute about our inventory. We already have 10 billion barrels of oil equivalent of resource in our inventory that is at a finding cost lower than the current DD&A rate. So the outlook for our investment is really good, and if we just were to maintain flat production, that's enough resource to maintain flat production for 30 years. So we don't need necessarily more of the same. We need... Our constant drive is to continue to improve in everything we do, and that includes the inventory. So how do we get better inventory?
We're certainly aware of all the deals that have been done out there, and we understand those assets fairly well, but we're more excited about the things we're seeing on our exploration portfolio to bring value to the table that would compete for capital today. For us, it wouldn't make sense to bring things into our inventory if we're not going to drill it for 10 or 20 years. It dilutes our efforts. So if we're gonna continue to improve, how do we find things that will compete with what we're drilling today? And we think in all these 3 plays I just mentioned, they will do that. And our exploration effort is more robust today than it ever has been in the history of the company. So I guess for us, why would we not do that?
Why would we change direction and switch to an acquisition strategy? It's what we're good at. It's our core strengths. It doesn't mean we haven't done... We did, you know, a deal back in 2016. The Yates deal added to 1.4 million acres in good plays, very low production. If we could find more of those, we would do them in a heartbeat, but we just haven't seen those present themselves again. So we constantly look, but we find more upside in our exploration program.
Let's round out with return of capital.
Okay.
The company has committed to returning in excess of 70% of its free cash flow to shareholders. There's always a debate whether buybacks or dividends were relatively agnostic to that, but be curious on your perspective on what does at least 70% mean, and, and, what do you view as the optimal mechanism to return the capital?
Yeah. Yeah, I think the thing to take away is that our goal is to constantly look at increasing shareholder value, and there's several mechanisms we do that. First is investing returns. I think if we have a good, solid investment portfolio and investing for returns and deploying that capital towards growing the business in a very efficient way, that's one way we're doing that. We're also highly committed to the regular dividend. We increased it this last year again, and it's a very solid dividend, and we've never cut or suspended that dividend going forward. And then, yes, we made a commitment to return at least 70% of our free cash flow back to the shareholders, and we have two forms of doing that. It's either through a special dividend or share buybacks.
I'd say if you look at this last year, we increased the amount of share buybacks we've done in the company. We're gonna do that opportunistically, and I think if you look at where we bought the shares last year, you'd recognize that it was very opportunistic timing in every case-
Yeah
... and we're gonna continue to do that. How we manage that depends on the market and the macro environment and what the share price looks like. But, at the end of the day, we have several mechanisms to return share, cash to the shareholders, and we're very committed to that. That's our ultimate objective, is to increase shareholder value.
Well, appreciate it, Billy. Umang, anything else?
I think we covered a lot of ground here.
Okay.
Thank you.
Thank you.
Great.
Have a great conference. It means a lot, you being here.
All right. Thank you.
Thanks.