All right, we'll move on to the next company in the E&P track. Really delighted to have Jeff Leitzell from EOG Resources especially on the back end of a great update on 2Q, where EOG continued to highlight, you know, a lot of capital efficiency improvement, and we're just talking about some of the advantages that you've been able to show on the gas side. So really looking forward to this discussion, and Jeff, thank you for being here.
Yeah, thank you so much for having me here. It's a pleasure.
Great. So jumping right in, I think, since last year, we always tend to get the question of, of the quality of EOG's development program over time as, U.S. shale is maturing and, will continue to push through the efficiency frontier.
Mm-hmm.
Yet, EOG continue to demonstrate, especially on the cost side, continued capital efficiency gains and able to show better production and lower costs. Would love to just get your take on what is really driving that performance, and are we really, how far are we pushing at the edges of the efficiency frontier yet?
Mm-hmm. So great question, and what I'd say is, you know, really, it's kind of a simple answer that it all boils down to, and it has to do with the culture of the company. You know, us as a management team, it's our job to really put our employees in a position to where they can maximize value and, you know, really focus on driving efficiencies. That's exactly what our teams have done kind of across the board. You know, from an efficiency standpoint, we've had an outstanding, you know, last couple of years. I think, one of the big movers, as in with the majority of industry, is longer laterals. You know, we've applied longer laterals pretty much across our multi-basin, our portfolio, with quite a bit of success.
Obviously, there's a lot of advantages with longer laterals where you're, you know, drilling less vertical section, you're able to keep your rigs and frack fleet on location longer, you have less move time. Obviously, there's a lot of efficiency benefits that go along with that. We also benefit from, you know, the advantage of a lot of the EOG strategic services that we have in-house and how we actually stand up some of these, you know, to kind of benefit our overall performance. One of those being the EOG Motor Program. You know, we got to a point where the quality control just wasn't there, and, you know, we really wanted to kind of push things to the point of even breaking them so we can improve them, and that's exactly what we've done. We've stood up our own motor group.
We're actually building a big machine shop with it, and we're actually R&D-ing our own parts to make sure that we are as efficient as possible from the drilling aspect, and we can stay on bottom as long as possible. Another piece to it that I would say has really helped us is on the completion side. We focus on primarily using these high-rate electric fleets. It's about 75% of the frack that we use, and you see big efficiencies with those fleets.
You obviously have a lot of flexibility with your completion design and what you can do with the well, but also with some of those higher rates, you're able to see added efficiencies there, where you're able to have faster pump times and you're on location less time, which really, you know, obviously, boils down to those efficiencies you're talking about. So when you really roll all this up, it really is just, it, it's evident and it's within EOG's value proposition. You know, the first is we wanna make sure we're capital disciplined, and we're investing at a measured pace in each one of the assets in our portfolio. We wanna make sure we focus on operational execution, and that's really what we do.
We put markers, we put goals out there, and we wanna execute on a quarter-to-quarter basis and make sure we do what we say. We wanna be a leader in sustainability, and we have focused on that, you know, since inception, and we'll continue to, and we feel like we're a leader there and continue to focus on our safety and environmental metrics. And as I said at the very beginning, you take all of this and you roll it up, I mean, it really is underpinned by the culture of the company, which really, really kind of, I think, sets us apart.
Yeah, and it shows through in the numbers. So how does that, what were you able to realize and the efficiency, mean to your three-year outlook? You have a three-year outlook out there for a low single-digit oil growth. Are we likely to see a, you know, costs are coming down? Is it more volume, or is it lower spending?
So that's a great question, and what I'd say is, the first thing is, the three-year scenario that we put out there, it's by no means meant to be guidance, and it's not guidance. It's just supposed to give you kind of a look at, multiple commodity prices, just the resiliency of the underlying business within EOG and our ability to really maximize our profitability and our, free cash flow generation. And in that scenario, what we did was we didn't improve costs, we didn't improve efficiencies, we didn't improve any production. We basically just held everything equal throughout it and, you know, really showed the resiliency of the company there.
So, no, I don't think, you know, as far as if we have any improvements, you know, from an overall cost perspective, performance perspective, you know, really, that's not gonna affect because that's a scenario. I would say, though, obviously, on our forecast and looking forward in our plans, obviously, we will build those into our plans as we move forward and take advantage of those.
Got it. That's great to see. Shifting to the M&A conversation, it's EOG has ostensibly been missing in the M&A wave. You imagine that, given operator of your efficiency level, you can actually capture more value for any assets that you acquire. So what's just been the hurdle so far that is it the asset value just too expensive in the market? Because we'll imagine that any asset you buy will be worth more under EOG's hands.
I appreciate you saying that. I think in many cases, we do believe that it would potentially be more valuable in EOG's hands. The thing that we really got to look at is how does it compete with our current inventory? You know, we're not looking to just add inventory. We want to add to the top end of our inventory. I think that's by far the most important. And when we really look at M&A, and we start to kind of break it down, we look at it and what are we buying? Are we buying PDP or are we buying developable acreage? You know, PDP is great, but really what we want to do is organically bring the value forward by developing virgin acreage. And I think that's one of the big things.
Is it operated acreage or non-op acreage? You know, the way I look at it, all, all acreage on the maps, not all, you know, that's yellow, isn't equal. You know, we really like to have control of our assets, and I think that's how we're able to maximize the value we bring forward from it. What are the contracts? What are the agreements that come through with it? You know, we're obviously very focused on our strategic marketing strategy and a lot of our contracting strategies with services, and a lot of the agreements that we see are, dilutive to what we're really trying to do. And then last but not least, I would say is how's the acreage been developed to date?
You know, have they went in and have they drilled wells offset, created depletion, left very productive adjacent targets alone, left secondary targets alone, and once you start creating those depletion sinks, is really when you start, you know, having, you know, issues, so we look at all those factors and, you know, really the goal is for it not just to be financially accretive, but also accretive on a portfolio level, so when we look at it all, we compare it to our exploration opportunities, and we just see a lot more value right now in our exploration opportunities. I'll use the Utica and Dorado as a perfect example. You're able to go in and accumulate large amounts of resource for extremely low, low entry costs.
We don't want to burden the asset at the very inception with large leasehold costs and other dollars. We'd like to, you know, obviously go in extremely low cost, and as I said, organically extract the value out. We just see more opportunities right now with that.
Yeah. Now, I imagine the resource development case piece by itself removes a lot of the asset packages, if a lot of some of the assets in the market have been developed, might not be developed the way you want it. Maybe the so moving on to exploration, I think it's really a big part of the EOG story now, and we're seeing some momentum both on the Utica oil side and on the Dorado side. Wanted to dig in on Utica oil a bit more.
Mm-hmm.
Is it likely going to be another foundational asset for EOG? I know it's early days.
Sure.
so but the results have been, seemed very promising, fairly comparable to Permian so far. But, how does it look now, and how much more work does it take for you to feel comfortable to come out, really?
Yeah. Yeah, no, I think you hit it on the head, and I think it absolutely has the opportunity to be a foundational play, and you know, it's on the pathway to be there. What we've been able to do is put together 445,000 acres there in Ohio, that basically stretch 140 mi north to south. And we've been able to do so with an average entry cost per acre of about $600 an acre. So you can obviously compare that to some of the deals that are happening out there, and you know, it's very, very attractive. And what we've done is, for the preliminary portion on what we would call the volatile oil window on the east side, there's about 225,000 acres.
That's where we preliminarily really started to kind of delineate, do our spacing test, because that's where we had geologic data, and we've broken it into three different areas, the north, the central, and the south, and seeing outstanding results both through delineation and with our spacing tests in all three areas, and really everything so far has you know basically met type curve or exceeded type curve, so really I'd say on that 225,000 acres, you know, we're just about there. You know, we're really everything's kind of came in the way we want without any misses and stuff, so we'll continue to move forward.
If you look at last year to this year, we were able to about double our activity there in the Utica, and we'll continue to watch here through the end of this year. But if we continue to have the success that we expect to, I think you can expect us to go ahead and allocate more capital there.
Could that be a 2025 event, or you still need a bit more time on?
As long as everything holds, we got to see kind of what happens with the macro and, you know, other points. But I would say if everything holds with our process right now of delineating it, yeah, we definitely could see a slight ramp-up moving into next year.
Got it. And what specific objective on the delineation side you're targeting for? Is it testing spacing? Is it the areal extent?
Yeah. So the areas, at least within that, 225,000 of the volatile oil window, we feel very good about our geologic models and our delineation process, and we've performed spacing tests in each one of those areas, you know, the north, central, and south. The great thing about it is, I mean, it's early in the data that we've accumulated from them, but we see fairly minimal interaction, so that's a positive, and I think that's really what is going to be the key, is making sure we have the optimal development plan before we do, you know, ramp up any kind of activity.
Because, you know, we're really a big believer in making sure we move at a measured pace to where we're able to take all of our learnings and reinject it into the program to make sure we get better on a day-by-day basis.
Great. Well, look forward to more of that results to come forth, and more capital getting allocated there. Shifting gear to Dorado, the other play. Our view is that the fact that you're building a dedicated 36 inch pipeline for the Dorado play says a lot about the potential size of that project. Is it just the gas macro that's keeping you guys from allocating more capital to it? How should we expect that play evolve from here?
Yeah, I think, you know, in Dorado, what we've done down there is we have a hundred and sixty thousand acres that we've accumulated. It's in Webb County, very close to the coast. And, you know, obviously, it's about 20+ Tcf of gas, so, extremely excited about that. And when we look at Dorado, I mean, it's very much like the Utica. It's in the early innings, you know, so we don't want to get going too fast. I think that's probably the primary driver at the moment right now, is just making sure we don't get going too fast and that we're learning and to be able to reinject it.
But the one caveat I'd say to that is we have a lot of flexibility with Dorado, which is great, and we've actually shown some of that, leveraged it earlier in the year, where we deferred a handful of completions to the second half of the year when we saw depressed gas prices. And you know, we'll continue to manage our activity, you know, with that asset through the macro. But what we did do is we made sure that we didn't drop below one rig, 'cause we wanted to make sure we were maintaining those operational efficiencies and continuing to build upon improving Dorado. So you know, the way we look at Dorado is, it's a huge resource, and we really kind of stood up a separate gas business, is how I would say.
With that, in order to do it, we understand with gas, there's gonna be long periods of low pricing with short duration periods of high pricing, and you've got to be able to make returns and margins all the way through those periods on the gas side. So what we really need is, number one, a prolific play, extremely prolific play, and that's what we have in Dorado. Not just the resource of 20 Tcf, but the wells come on, whether you target the Chalk or the Eagle Ford, at 20 million or so a day, choked back, and they'll stay that way for a substantial amount of time. So very, very prolific resource. It has the opportunity... extremely low cost.
So with us, only a handful of years in development right now, our cash operating costs on it are right around $1 an M. So pretty phenomenal with the early days in this, and we'll continue to drive down our finding cost on this and improve it, but we feel as if Dorado can easily be the lowest cost gas in the U.S. And then the last thing that we look for is, which, you know, it may be the most important with gas assets in the U.S., is proximity to the market. And that's what we... You know, obviously, we're right there against the Gulf Coast. We've got, obviously, the LNG capacity that's there.
Currently, through existing agreements and future agreements that are gonna come on, we're gonna have upwards of nine hundred thousand MMBtu of export capacity at advantage pricing there off of the coast. And then on top of that, other agreements, like our most recently signed Transco TLEP agreement, which gives us some additional capacity, to be able to take any kind of molecule up and around the coast into the Southeastern market center. So, Dorado perfectly sets up for that and really checks all three of those boxes. So that's why we're so excited about it and really looking forward to move it forward.
Yeah. Maybe double-click on that. One of the lowest cost gas plays in the U.S., do you have a number in mind where, like, that's a gas price that you need to see to start allocating more capital?
You know, as low as possible, I think that's what the key is, first and foremost. And like I said, you know, the goal is for it to be the lowest cost gas. And I'll say this, when we saw some lower prices earlier in the year, even though we did regulate our completion activity, we'd never shut in any volumes. We didn't need to with that low of cash costs. I mean, so it's already producing at extremely low cost, to where I don't think we'll ever have to regulate our volumes once they're actually online. We'll just really manage, you know, activity with the flexibility that we have down there if we really get into tight markets.
Okay. If I can circle back to that three-year outlook, that actually infers a double-digit growth in gas and NGL. Within that, is it mostly associated volume growth, or do you see Dorado playing a piece, playing into that?
You know, so when we locked in that three-year scenario, really, it said everything. First, I'll say, you know, we didn't have any improvement. It was just a snapshot. So really, probably the go forward is, yes, there is emerging plays in there, but it's moving forward at a very measured pace as far as the investment there. And then, you know, continuing our standard development and our foundational plays, which have obviously the residual gas associated with it. And then lastly, we have our Trinidad asset, so that obviously goes into it because that's very prolific offshore gas. So yes, it is accounted for, but it's accounted for in just a conservative development metric in that three-year scenario.
Right. Thank you. You mentioned gas marketing briefly, and I think that is one area that really stood out with 2Q results when you're able to show a strong gas realization despite the market conditions. But before we talk about what EOG is doing, could you help us think, like, your view on the regionalization of gas markets, especially in the Gulf Coast? We're seeing like Permian gas creating new bottleneck in East Texas. Like, how do you guys think the Gulf Coast market is evolving?
All right, well, we definitely see, you know, those dislocations in those markets, and I think that's why we do focus so much on our marketing strategy, and really, what that is, is to make sure we've got as much flexibility, you know, diversification within our portfolio, as much control as possible, that we can move the molecules around, and then that we've got the right contract duration, so we basically have terms that last for a good period of time to be able to benefit from the play, so, you know, that's really where the core of our marketing strategy comes in, and the beautiful part on the gas side is what we've tried to do is, you know, originally, we have as many markets as possible.
We can move it around, we can control the molecule real-time with our control rooms, and we'll see if there's any kind of downtime events. If we see any kind of pricing fluctuation with certain markets, then we can actually move the molecule real-time to make sure we are maximizing that price realization. So that's one of the first things we do. And then the second thing is, really, once we discovered Dorado, we really ramped up our focus on getting advantage pricing, especially offshore and international. And just to give you a little bit of color on it, you know, we've done our Cheniere agreements, which is obviously phenomenal. You know, we started out with 140,000 MMBtu. That'll ramp up, and that 140,000 we can elect monthly to either JKM or Henry Hub.
So, great pricing there. Great agreement. That will actually go up to 420,000 MMBtu, coming, you know, kind of the end of 2025 to the beginning of 2026, and, that'll be tied to the exact same agreement there. On top of that's another three hundred thousand MMBtu, which will be, directly linked to Henry Hub. And then going back out to market after we signed this, you know, great Cheniere agreement, we were looking for similar terms and didn't have a whole lot of luck. It was kind of, you know, I like to call it, it was a unicorn deal in a way, but our marketing teams have done an outstanding job.
And most recently, we just signed a deal that we, it's Brent linked, so it's linked to Brent pricing, and that's with Vitol for 140,000 MMBtu. So once you roll all that up, like I said, you've got close to a Bcf of export capacity, you know, over the next three, four years. And the beautiful part about it is it's not tied to any one of our plays. It's not tied to Dorado, it's not tied to, you know, the Permian. We can move any molecule we want to that LNG export or also to TLEP or any other export and contract capacity that we have. So it gives us a lot of flexibility.
So if we roll all that portfolio marketing contracts together, what type of uplift do you think EOG could get for the gas you produce?
You know, it's really tough just with the multi-basin portfolio, all the different assets and all the different contracts. It's really tough to boil it down to just one uplift. But you know, I just lean back on our performance, you know, versus peers as far as price realization when you look at it. I think in 2023, we reported versus our peer average, we had about a $0.70 M uplift compared to them from a pricing aspect. Same thing on the oil and the NGL side. I think we were about $3 to the positive on oil and about $2 to the positive on NGL. So I think that just shows the focus of our teams in each one of the divisions and our marketing groups to really make sure we're focused on.
As I said, it's not about flow assurance. We're way past flow assurance. It's about maximizing our price realization and our net backs, and that's exactly what we've done.
Great. One last question on this area. This TLEP pipeline that you signed with Williams really stood out this quarter. How did that deal came about? And if someone were to do that contract today, how long would it take?
Yeah, that was a unique agreement. The first thing I'd say is we've got an outstanding relationship with Williams. You know, we've loved working with them, and we're really excited about this agreement. It was a great opportunity. What it is is you know, on an existing pipeline, it's some brownfield capacity that they had, and we were able to go ahead and capture all of it. So it was three hundred and sixty-four thousand MMBtu, and you know, we're expecting it to come on sometime around the first half of 2025.
Really, what it does is, as I said, we can move any one of our molecules to that, but it gives us access to move all the way from Agua Dulce up around the Gulf Coast into Louisiana, to that Southeast market center, which, in many times we do see advantage pricing. So I think it's just one more layer to that marketing strategy and just gives us that much more diversification and flexibility.
Right. Step back a bit, on the E&P industry in general. I think, I mean, E&Ps continue to show, substantial free cash flow, you know, and, and then focus on cash return. EOG has bought back more shares this year than you have ever before. You're sitting on, in that cash position, should we expect that to continue? Is that? Would that be, a continued focus on just allocating that free cash flow back to shareholders?
Yeah, great question, and you know, really, I'll just quickly walk you through a cash return strategy, which, as an example, we gave back around 85% of our free cash flow to shareholders last year, and I would say if everything kind of holds pace the way that it has right now in the market, you know, I'd say we'd at least be able to do that, so so feeling really good about where things are. I mean, the first thing that we focus on is our regular dividend. We, we feel as if that is the foundation to a really strong company. It's forward-looking, and it shows just, you know, how sustainable you think the execution of the company is.
And you know, our dividend, we've raised it or held it flat for 26 years straight, which we're extremely proud of. Really, more recently, we focused on raising that dividend, and since 2020, we've increased it 240%. So it sits right now, it's at $3.64 a share, and it's about 2.8% yield, which you know, we're extremely happy with and we feel is extremely competitive with the S&P. So we'll continue to monitor that on a year-by-year basis. And you know, the goal is to obviously make sure that we have an extremely strong, resilient regular dividend... The second you had talked about, which we hopefully don't spend too much time on, is the balance sheet. And we have worked on the balance sheet.
The balance sheet's in spectacular shape right now. It's in a net cash position, and really, we just need to be smart and make sure we're using that balance sheet opportunistically for the company and the shareholders to really create value. The third piece, which you touched on, is really the additional cash returns to shareholders. So initially, we had leaned in a little bit on the special dividend, but more recently, probably the last six quarters or so, we've switched over and really focused on the share buybacks. And I think that just has to do with where the company is at today, the strength of the company. Our inventory has never been better. It continues to get better in our foundational and emerging plays. Our exploration plays are having lots and lots of success.
We obviously have the Utica play, which we've talked about, which we really don't think we're getting a lot of value for quite yet, since it's so early on in the play, so we just feel, you know, we feel very positive about where the company's at, and we think that we've got, you know, obviously a really, really bright future, so if everything, you know, maintains, I would suspect that probably we would, at least in the near term, be focused a little bit more on the opportunistic, and we'll make sure we look on a quarter-by-quarter basis at really good opportunistic times to lean in, but more opportunistic buybacks than the special dividends.
Yeah, and then, that certainly has stood out in the first half of this year. Hopefully, we'll see that continuing, and Jeff, if we look out next three to five years, and this is fairly open-ended, what gets you most excited about the portfolio today?
Oh, that's, you know, I think the company as a whole roll up. We're slightly different. We're multi-basinal. We have some international assets. We obviously explore everywhere. There's not one that's my favorite, to be honest with you. The emerging plays that we have, I mean, it's fun to watch them. They're obviously in a great position right now. They continue to improve, and the ones that we have right now really haven't had too many misses. You know, it's obviously very, very successful. The foundational plays, I mean, they're obviously in the middle of development. We continue to gain efficiencies, and in many ways, they're like a laboratory for us, where we can continue to innovate and drive forward, obviously, improvements there, but we're also able to spread it around our portfolio.
And then lastly, you get down to, you know, what we really do and we're good at is, you know, organic exploration. And at any given time, I tell people we have, you know, in essence, 10, 15, 20 prospects, which we're just analyzing. We're looking at the data. We're seeing if it has an opportunity to have a space in our portfolio, and we want to move it over to exploration. And we still see a lot of exciting opportunities out there in the U.S. So I don't think I have a favorite, but really, I just love, you know, how our whole portfolio and inventory is rolling up at this point, and just how it continues to get stronger.
Maybe on the exploration side, like, international has came up a few times.
Mm-hmm.
At least this year. Do you see, like, or how, I guess, how many of these ten to fifteen, twenty prospects are located outside of the U.S., or do you still see a pretty strong backlog of opportunities that's attractive in the U.S.?
Yeah, we, well, we still see quite a few opportunities here in the U.S., both new opportunities or bypassed opportunities. So, we don't see any end of the tunnel there, and we're extremely excited about it. But also on the international front, we see a lot of opportunities, just because, A, a lot of different countries haven't been exposed to unconventional, especially onshore, and many of them are just learning about it right now. So I think as they learn about it, they understand, you know, the financials of unconventional development and the kind of fiscal terms that companies are gonna need to make it work. And, you know, you're seeing those opportunities start to become, you know, a little bit more, how do I say?
You know, they're coming up here, you know, every once in a while to where we're starting to see that they get it, and they really do want to get a U.S. operator in there to exploit the opportunity. So, internationally, I think there's a lot of running room. You know, we haven't really used the technology we have here domestically. And then, you know, so there's gonna be a lot from the onshore and then even offshore. I think there's a lot of opportunities in the shallow front, where we've shown our expertise down in Trinidad.
Great. We'll continue to look at the capital efficiency gains on the foundational play, keep on watching Utica, oil and Dorado, and watch how the gas marketing portfolio evolves. But, a lot of exciting things going on with EOG, so thank you very much.
Yeah.
for being here.
Thank you.