Good afternoon. Bob Brackett at Bernstein here, head of Americas Energy and Transition Coverage. It's my pleasure to welcome EOG Resources and their Chairman and CEO, Ezra Yacob, to SDC's fireside chat. I encourage you to stay in this room for the next three hours. ONEOK will be joining us next, followed by Cheniere. With very little effort, you can have an amazing afternoon. We are not expecting a fire drill, so if the alarms ring, please take it seriously. The primary exit is the stairwells exactly to my right that I am pointing out now. Go straight down those stairwells, exit on the north side. If, for whatever reason, that is blocked, you'll go out to the left, you'll go to the south side of the building, keep going left, left, left past all the rooms, and there's another set of equivalent stairwells there.
This is a fireside chat. This is your conversation. You have on the screen in front of you, you'll see it cycle through. There'll be a QR code that appears. You can grab that. It'll be on your phone. There it is as we speak. You can drive the conversation. While we're waiting for your questions, I will take a pyramid approach. We'll start high level. We'll talk about macro. We'll talk about strategy. We'll work our way down through financial strategy, operations, et cetera. With that, I will sit and welcome Ezra.
Thanks, Bob. Appreciate it. Glad to be here. Like I was just saying, I really appreciate the new event center.
Here we are. We just came out of Q1 results. There are OPEC headlines sitting there in the background. You clearly are concerned about oil price and how you allocate capital. To the degree you have one, what is your outlook for oil price? And then secondarily, what do you do even if you cannot figure out your outlook?
Yeah, figuring out the outlook is one thing, but you're right, how you kind of manage and capitally allocate it is a bit of a different. Maybe if we start there, you know a core piece of our strategy has always been to think about bottom cycle pricing and take that into consideration. In a lot of ways, you think about, you know it's popular in our industry to say, look, we're a price taker, we're not a price maker. That is true to a point, right? That is how your revenue works, of course. At the same time, your investment strategy, you can choose the price that you want to invest in. One of the things that we do is we look at bottom cycle prices, which we just updated this year to $45 oil and $2.50 natural gas.
We measure our investments based on that. It's not the only price deck we look at. We look at $45. We look at a mid-cycle price range. We obviously take into consideration strip price to make sure we're not leaving any value behind. We try to protect our investments by looking at a bottom cycle pricing because our core value proposition is creating shareholder value through the cycle. With that as a kind of a foundational piece, what do we think of the current macro environment? You know, it's obviously dynamic to say the least. We've had a lot to go on. Where we started the year is we started the year personally with a 3% oil growth target, double-digit gas growth. I'll stick on the oil side right now. What we saw was inventory levels below the five-year average.
Strategic petroleum reserve, as everyone knows, lower than it typically has been, historically has been. We saw strong demand growth, really. We even saw strong demand growth in Q1. Last year, a little bit softer with the China growth issues, but really Q1 ended up being a pretty robust demand story. We also saw the scheduled-out OPEC spare capacity coming back online. Quite frankly, I feel that there is enough room between inventory levels, demand, strategic petroleum reserve. There really is enough room for those OPEC barrels to come back into the market. Maybe not at the pace at which they have started to bring it back with these, as they call them, triples, but definitely getting those barrels back on the market, we think would return the oil price to a more historically kind of fundamentally driven number.
What I mean by that, again, is price has been a little bit soft historically compared to where the inventory levels reside right now. That spare capacity has been offline so long that it is actually starting to affect kind of the five-year running average on inventory levels. It is starting to pull it down, especially with regard to increasing demand if you think about days to cover and things like that. That is where we were for the first quarter. What has happened since then, obviously, has been an awful lot of uncertainty that has been created through the potential, not potential, but the discussions of potential tariffs, maybe put it that way. What does it mean and where are they going to land? We really model oil demand right now as being affected in basically more of a transitory way until that uncertainty clears up.
I'm not even sure, you know, when we look at it, if you apply tariffs, whether it's a 10% or 20% or 30%, wherever things land, if it's going to have that strong or large of an impact longer term on demand, it really is the uncertainty that's being created right now by not knowing where they're going to land that's causing a lot of upheaval in the demand market. To us, what we're seeing right now, global supply and demand balances, it's more of a demand side story than necessarily supply side. We still feel that even with the more aggressive supply coming back online, the fact that you have U.S.
Moderated growth, some of the longer cycle projects kind of coming online, and then there being a gap in the next couple of years, we really feel pretty good about the overall market in, say, the medium to long term. In the near term, a little more volatile still.
Yeah, to some degree. Most oil price cycles end when things really hurt and feel painful, and it has not felt quite painful enough. Maybe I am conditioned to need a little bit of pain before I call the bottom. On the positive side, talk about natural gas prices. Why should I not be enthusiastic about natural gas prices?
Yeah, it's hard not to be excited right now. It really is. Everybody is. Everybody's pumped up on hyperscalers and data centers. For us, what I'd say is, you know, our natural gas model really started a couple of years ago when we discovered Dorado. Dorado is a South Texas, Austin Chalk Eagle Ford natural gas play that we have. Strategically, it happens to be strategically located, you know, geographically in one of the best spots in the U.S. because it's located close to a pretty robust demand center. We actually have a pipeline that transports our gas essentially from the wellhead over to an area named Agua Dulce.
From Agua Dulce, you can access Mexico, you can access petrochem industrial demand, you can also access the LNG, and you can also access the Transco pipeline, which we have some capacity on that takes our gas over into Louisiana for a premium pricing as well. Overall, what we see when we started looking at this was at that time, LNG that was going through FID, we forecast originally about 10 or 12 BCF a day of increased demand. We've already started that. That's the LNG that's coming online right now. In fact, I think this year, year over year, we're up about 2.5 BCF a day in nameplate capacity that's already come online. We've thought, we've seen with the scheduling that 2025 really is kind of that inflection point for North American demand. It really starts to ramp up and take off from here.
More exciting than that, you know, we think we've got another six or seven BCF a day under construction. We think another probably four, five, or six BCF a day will go through FID and be under construction for the back half of this decade. We see increase in industrial demand, increase in Mexico exports, and then a large increase in electrical demand. Some of that due to data centers, but a lot of that actually more in line with coal-fired power plant retirements. When you add all that up, we actually see North American gas demand by, you know, between now and the end of the decade having a growth potential of about 4%-6% compound annual growth rate, which we think is very robust, and we're excited to be a big part of that supplier.
What's interesting about Dorado, it sits in Reeves County. If you moved Reeves County to East Africa and somebody else built an LNG terminal, it's almost a standalone. It feeds a global price of LNG. It has the benefit, of course, it can get anywhere it wants through Agua Dulce. Part of your strategy in the last few years has been accessing prices other than Henry Hub. Talk to that and maybe talk to where you see global LNG prices.
Yeah, part of our strategy really has been, the first part of it has been able to get our gas offshore. You know, we definitely do not want our molecules backing up. The second thing has been diversity of markets. The third thing has been diversity of pricing. Okay. I say all of that because, you know, with all the gas demand that is coming on, we do see upside to the mid-cycle gas price going forward. We really do. That does not necessarily mean that you are going to stop the volatility of gas price. Gas price is still determined by days to cover. It is still determined by weather. You have got to figure out what your associated gas is doing. Now you need to understand your oil model and things like that. Really, LNG is going to expose North American gas to the world.
All that means is now it's not a Gulf Coast hurricane or a winter storm, Yuri, or, you know, a cold winter up here in New York, but now it's going to be a blizzard in Japan, a power outage across Europe, or something else that's going to create these arbitrages. What you know about gas is you can't chase those arbitrages. You know, the market is very efficient, and those gas prices come up and go down pretty quickly. You have to have your gas exposed to either the market or the pricing mechanism at that time. The way we've approached our exposure to LNG is we wanted to limit our exposure. We actually have set up our agreements. It's gas sales agreements. We don't have any equity stake in LNG. We don't have to worry about creditors or buyers overseas.
We do not have any gas on the water. We actually FOB stateside. What we have elected to do is that we have an election on the pricing mechanism. For much of our gas, we can elect whether we want a JKM-linked or a Henry Hub-linked price. That is very important because, like I said, the arbitrages move around. For a couple of the years, you know, we have had these, we have had the first tranche of our agreements in place since 2020. We have netted about a $1.3 billion uplift cumulatively during that time period for only 140 million a day that we have been supplying to that. It is because of that pricing mechanism. Sometimes we are choosing Henry Hub-linked. Sometimes we are choosing JKM-linked, whichever one happens to be in the money. Starting this year, that 140 MMBTU per day actually increases over the next couple of years to a 720.
About 420 of that is exposed to the same election mechanism that I talked about. The other, the remaining 300 is tied to a Henry Hub-linked price, which is still, quite frankly, a premium market in the U.S. because you do not have any differentials based off of the Henry Hub price. Just last year, we layered in one additional agreement that is actually a Brent-linked pricing mechanism for getting some of our gas offshore. It has 140 MMBTU per day that is linked to a Brent price and another 40 million a day that is in combination with that contract that is linked to a Henry Hub price. Really diversity of indices, diversity of markets, and a consistent gas supply. We think we have got a winning strategy.
The history of LNG contracting was what JCC or kind of a Brent-linked contract. We are taking a Henry Hub product, but linking it to what it at all has been linked to, which is pretty rational. I am going to come back to capital allocation. If we were to wind the clock back 10 or 15 years, the industry used to send out press releases of 24-hour IPs and 120% wellhead IRRs. The industry had, the industry spent all of that IRR and flooded the market. Over time, the industry matured and frankly grew up. One of the things that you led the way on at EOG, I should say, was this concept of premium locations. The way I had always explained premium locations to investors is if the wellhead IRR is X, divide X by three to get to a corporate-level IRR.
You got to include the fixed infrastructure, and you got to pay some interest, and you got to pay some taxes, and da, da, da, da. To me, premium drilling and premium locations were about enforcing discipline at the wellhead, therefore cascading it to the corporate level. You went to double premium. Now it kind of feels that that language has evolved or softened or adapted. Talk to what is happening there.
Yeah, it's the evolution of our investment strategy, right? Premium, double premium is always about protecting returns through the cycle. Like I said, that's in line with our corporate value proposition is generating, you know, shareholder value through the cycle. We base our investment, we start with our investment criteria, bottom cycle pricing. The first thing we've done is, like I said, we've increased our bottom cycle pricing from $40 to $45 oil. We still use $2.50 natural gas. You're right, the original outgrowth was a simple red light, green light. If it's 30% direct after-tax rate of return, so as Bob said, that's a half-cycle price, then at $45 and $2.50 for the life of the asset, for, you know, the 20 years that an oil well might be producing, then that was great. That was investable. That's what we like to see.
To Bob's point, if you throw everything else in there, you know, a full cycle rate of return, and then eventually into an ROCE, you kind of land at about a double digit, right around a 10% at that low price. That is incredible. You know, to think that you can have an EMP company that could deliver an ROCE at $45 and $2.50 natural gas, that is something that's special. That's something that will take the company and really make it compete outside of the EMP industry and really with the broad market. That is kind of the goal.
You know, if you can have a competitive regular dividend, a pristine balance sheet that supports it, a deep inventory of high return assets, and deliver a 10% ROCE at the bottom of the cycle, that's as close to a blue chip stock as you can really get to when you don't get to set your own pricing mechanism, right? That's kind of the logic there. What we've evolved that to, though, as we become more mature is, you know, the real goal is not to sacrifice NPV either. There are times you can appreciate that if you're investing on a $45 deck and the oil price is 90, there's a good chance that you're hyper-focused on returns and you might be leaving NPV behind, things like that. We actually have the luxury of a lot of internal software.
Each of our employees has kind of real-time software for drilling, completions, production on their phone. We also have one that's a scorecard. Very quickly, you can bring up a scorecard. You can look at proposed wells or actual wells, and you can look. Did it make 30% rate of return at $45? What does that return translate to at strip price, at mid-cycle price, $65, 350 gas? You can also look at other things. What is the simple payout? What's the NPV of the well? Or what's the NPV of the package of wells? Ultimately, what you really want to do is you want to find that optimal, that balance between returns and NPV of the, you know, let's call it every acre that you're drilling.
You want to be able to do that and gut check yourself through a whole series of price decks to really make sure that you're creating value for the shareholder, you're not leaving value behind, and at the same time, you're kind of optimizing both near-term and long-term free cash flow generation.
Yeah, it reminds me in the old days when you're trying to get projects done in Norway, the NPD, the Norwegian Petroleum Directorate, would basically want you to maximize recovery factor of a field until that last dollar spent earned nothing, right? You might, as a company, try to optimize for somewhere in between, right? That tension is healthy. I like the idea that you're maximizing multiple variables. That is sensible. Talk to the regulatory environment in the U.S. today. What would you, and maybe more globally, what would you like more clarity on?
Yeah, you know, we're not really the type of company to, you know, work on the margins of the regulatory environment. I think we've proven, especially with our sizable acreage footprint on federal acres, that, you know, we can work well with a wide range of different, you know, administrations, either at the federal, state, local level, things like that. I think the one thing that would benefit industry in general is, you know, maybe a more durable or stable, consistent regulatory policy. Just, you know, things that come up, whether it's approaches to sustainability, emissions calculations, pipeline infrastructure, or even federal regulations. You know, it seems to sway a little bit back and forth. I think if there was a little more line of sight on that, that might help the industry do a little bit better job planning for value through the cycle.
Sort of part and parcel of the regulatory environment, for some reason, the planet has politicized ESG, right? As regulations have waned and waxed, ESG forces or pressures or focus has waned and waxed. Talk to EOG and ESG. How has that changed amidst this change in regulation environment backdrop?
You know, we focus on sustainability basically as corporate social responsibility. It is just one of those avenues. It is something we have always focused on even before, you know, the most recent kind of wave of popularity. What I mean by that is, you know, we run a decentralized organization where our employees live and work basically in the same areas. What we have recognized always is that if you are operating like a good neighbor, you will get benefits from that, whether it is, you know, helps with permits or additional leases or word of mouth providing benefits for you. We always focus on that. You know, the most recent wave of sustainability focuses on emissions. Just imagine for our industry, you know, years ago it was surface use.
Our industry, you know, went a long ways, took a big step towards that by drilling horizontally, quite frankly, and limiting the surface footprint. The next thing was water. Water was a big issue. And quite frankly, our industry has done a lot with water recycling. The most recent is emissions. I think our industry has done a good job in driving down the emissions, GHG and methane emissions intensity, and even starting to, let's say, pilot or experiment with CCS projects. At EOG, we're involved in all of those. We actually set GHG intensity and methane intensity targets, reduction targets in 2020, and actually achieved those targets, achieved those targets for the last few years. Just last month, introduced new targets, new emissions targets, which include a 25% reduction in our GHG intensity from our 2019 levels. We want to achieve that by 2030.
We also have committed to maintaining a near zero methane intensity emissions threshold, which is 0.2% based on the OGCI limit thresholds. We have also, for a few years now, achieved zero routine flaring as defined by the World Bank Initiative. We have committed to do that as well. We also have taken a step towards carbon capture and storage. We have got a pilot project in one of our legacy assets where we have a pure stream of CO2 that we have been capturing and injecting now for over a year. Really just to move into that space, we apply some technologies, some proprietary, a mix of proprietary and off-the-shelf technologies to really learn about that side of the business and where it might go to.
Yeah, it's interesting. Surface use, if you went back 15 years ago, in the first shale gas era, it was all verticals out in the Uinta Basin with five acres spacing. And from a satellite photo, it looks like Verdun from World War I. We don't do that anymore. There's another interesting role on the ESG front, which is around water disposal. And with every earthquake in an oil-producing region, I'll get some inbounds. I think there was some in the last few weeks again. How to treat water disposal, how to think of water reuse, what's EOG doing there?
Yeah, EOG in our core plays, Eagle Ford and the Permian Basin, we have a significant reuse structure in place. We actually reuse approximately 99% of the water that we are sourcing is basically reused water for completions and drilling activities. We've also made sure that we partner with, you know, prudent SWD operators that really transport our water outside of the basin to make sure that, you know, basically water disposal needs to start with the geology. You need to identify where your deep-seated faults are. You do not want to be injecting into those because ultimately, you know, your water is just acting as a lubricant and could potentially set up some earthquakes from there, some seismicity events. It is typically in the Permian Basin, deep-seated faults.
We have taken an active role with the Texas Railroad Commission and some of the seismicity groups out there to monitor and try to remediate some of the SWD issues out there. The last thing we are doing, again, on more of a research and development side is we recently had a press release issue between us and Tetra Tech where we are partnering with the state on some state lands and investigating some different agricultural uses in a controlled environment for some of our cleaned-up water. We call it synthetic water is what it is called after we kind of clean it up to a point where, you know, it is not quite distilled, but it is very clean water, almost in some circumstances too clean to be naturally disposed of in the surface environment.
We're doing a controlled study there over the next couple of years to, again, try and look for, you know, real solutions to some of these challenges that the industry faces overall. I would say the industry has done a great job working alongside the regulatory bodies to try and get in front of these issues. Had great success in Oklahoma and down in South Texas in the Eagle Ford. Also in the Utica, which is one of our new plays, if you have some good seismic response plans up there. I think we're zeroing in on it in the Permian right now.
I do have a question on the app around exploration. I could spend the entire 50 minutes talking exploration, so I appreciate the question. Let's start with the future opportunity set for North America, U.S. exploration for unconventional resources.
Yeah, we continue to have an active exploration program. I think we've built the company, you know, the company has a very low-cost basis. The reason for that is we built it with organic exploration being low cost and a first mover. Really what that is, is right now that means collecting a lot of data and using that data to formulate new opinions and revisit, quite frankly, old basins with what a lot of people consider bypass pay or uneconomic pay and see if technology has unlocked those resources. Not just from a cost perspective, but has technology allowed us to identify different landing zones, different completions technologies to really make economic wells out of these bypass pay opportunities. The Utica is probably our most recent example of a big success story.
The Utica is something that we had looked at off and on for about a decade. It was really the third time of seriously looking at it that we applied some technologies, some techniques for reservoir characterization that we developed in a different play in the Woodford play. That really unlocked a different landing zone. We coupled that with some of our completions technology and really started to see the significant uplift we needed. Those are the types of things that I think are going to drive forward North American exploration right now. There is not a lot of companies doing it. I would say most companies have focused in on exploitation and unlocking maybe tier two acreage and making it more economic, which is great. That is a great avenue to do, and everyone should be doing that.
There are not a lot of companies out there exploring for absolutely new resources. I think we are one of them. The Utica is one. Dorado is a resource. The Uinta, as you mentioned, has had kind of a rebirth from the exploration side. I still think there are a lot of opportunities out there for unconventional horizontal exploration. I would not say there is another Permian lurking somewhere around there, but I think you can find, you know, another Uinta, another Utica, another Dorado. I think you can still unlock some of those scale of resources.
In the past, you've talked about 50,000 acres of a high-quality unconventional resource in the U.S. It is a sizable enough meal for you to put capital against that has scale. Is that still the right number?
Yeah, it may be a little bit bigger than that, quite frankly. You know, there are four things that we look at, and this is for organic exploration. It is for bolt-on acquisitions. It is even the way we look at M&A and why we have such a high bar for M&A is to really be competitive with the portfolio. We think we need to have scale, as you mentioned. You need to have something sizable enough to make a difference to the size of our company. You also need to have scale because you need to leverage infrastructure, right, to drive down the cost. Again, that is where that 50,000 acres kind of comes from. The other thing is you need to have repeatability. You need to have enough wells because unconventional is all about, you know, people say rinse and repeat.
There is a lot of technology that goes into it, but you need to drill wells and learn and apply those learnings to the next group of wells to really be able to expand your margins and drive down costs. Scale is the first thing that is major. The second thing is it has to be, for us, a competitive rate of return. You know, we have over, we think we have captured over 10 billion barrels of equivalents that altogether make up about over a 55% direct after-tax rate of return. That is half cycle again at that $45 price tag. At a bottom cycle pricing, 10 billion barrels that makes a 55% rate of return. It has to be, whatever we discover has to have scale, and it has to be additive to that, that return profile.
We want it to have ideally an as good or lower finance development cost as what we've already captured in the company. Then preferably, we'd also like it to have a lower decline. You know, one thing that the unconventional resources are plagued by is steep decline rates. Anything we can do to shallow out the decline rate of the company is very advantageous and will build shareholder value. Those are kind of the four things. It is not just a scale anymore. It has really got to tick off a couple more of those boxes.
Coming back to the scale notion, on average, there is about two rigs running for every frac crew across the U.S. When you get going, and I'll say in the Eagle Ford, you have four rigs feeding one frac crew. You have that same ratio out in the Delaware, maybe 15-16 rigs feeding about four frac crews. Is that the, do we call those anchor assets or do we call those scale assets? Is that what scale means, keeping a frac crew busy the year round?
Yeah, that's great. Let me make a couple of comments on that. Yeah, I think when you have a new play, if we go to what we call our emerging assets, Dorado and the Utica, there are two critical points you want to get to to drive down costs from logistics, operations, efficiencies. The first is a full-time drilling rig. You know, as long as if you don't have to bring a drilling rig in, set it up, you got a new crew, and then you send it away and bring it in, obviously, if you can keep a drilling rig busy, you can really start to make hay. You can drive down your drilling times. You can really increase your efficiencies. Last year in the Utica was the first year we've had a consistent drilling rig operating.
We actually increased our drilled feet per day by 50%. The next step is a frac spread, trying to keep a frac spread busy. Again, it is not only, you know, the obvious gains of having, you know, muscle memory and people on location doing the same thing, but it is more important because you can start to figure out your water infrastructure, your sand infrastructure, your other logistics that are added to it. In the Utica, again, and Dorado, hopefully this year we will be getting close to exiting the year with full-time frac fleets. That will make a big difference for us. That is scale. Now you take it a step further. What happens when you really get into a core play, as we call it, or a foundational play, which is the Permian and the Eagle Ford?
Now you're getting enough data coming back to you because you're really starting to turn on wells. You're starting to drill multiple wells. You're getting that data. If you're working that data correctly, you can really start to turn that into improvements. Just, you know, you say that basically we've doubled up on industry's average of drilling rigs for frac spread and how have we done that? You know, on the drilling side, it's a good example. We keep in mind kind of four different things. First is safety. You know, if you're working a safe environment, then your folks on the rig can really focus on the task at hand. If you create a safe environment there, they're going to work their best. That's the first thing. The second thing we think about is mechanically.
You know, it starts with having high-spec equipment, high-spec rigs and things like that. The people on them are high-performing people. It's a safe environment. Take it a step further. We develop our own drilling motors. We have proprietary bits and cutters and things of that nature. Again, there's data from thousands of wells, unconventional wells we've drilled in multiple basins across the U.S. that kind of feed into that. Okay, the third thing would be planning, upfront planning and logistics, strategically placing your pad locations, putting more wells per pad, putting those pad locations in an area where there are short moves in between. There's plenty of space on the pad where you can start doing simultaneous operations on there, things of that nature that speed up the process.
The last one comes back to kind of where I started with, and it's data integration, optimization, being able to have a lot of automation, data collection, and real-time transparent apps where our engineers, folks in the field can actually utilize that data as it comes in to make better decisions. Those are the things that really drive down the cost. It's basically all about focusing on non-productive time. If you increase your efficiencies and you have less downtime, less non-productive time, eventually that's going to flow through to your cost savings.
Does an asset, it evolves. It's almost a life cycle. Does an asset have to get to scale to survive? Let's think about the PRB where you're not quite to the one frac crew scale. Does it have to get there someday or can it survive somewhere between a single rig and a single frac crew?
Yeah, it's not very optimal, you know, is what I'd say. Even, you know, let's take it on the other side first to our legacy assets. I mean, what happens in, you know, on a legacy asset? We've got an example in the Bakken. You know, the Bakken's gotten to a point where we're running basically one frac, I'm sorry, one drilling rig. We can run it at that pace. You know, we can run that one high-return drilling rig for, you know, years and years, but it doesn't turn into a growth asset anymore. How does it survive? It survives because it's got all the infrastructure already in place from the days when we were running 15 and 16 rigs in there.
It's actually, you know, if you think about the old Boston Consulting Group, you know, chart on there, it's kind of rounded all the way to home, and now it's just in its cash cow status, right? It's spinning off a lot of free cash flow, and every barrel you bring on has the benefit of all the investment from years before. That's essentially where, you know, the Eagle Ford kind of is at. The Permian's not quite there yet. The Permian is still, you know, in its heyday as a massive growth asset and things like that. The challenge for these plays is you've got to get them up to a bit of a scale where you can start to afford to put in the infrastructure and pay that off and then leverage up your barrels on it.
PRB is an interesting one because it has so many stacked pays in it. You know, we originally started in that basin with the Parkman Sandstone. We drilled that for a number of years, and then we transitioned into the Turner Sandstone. Now we're really focusing on the more regional kind of repeatable unconventional shale plays in there, the Mowry and the Niobrara. The Mowry is a little bit deeper than the Niobrara. We've spent a lot of time drilling the deepest target first so we can collect data on the shallower targets. This past year, we've gone back to the Niobrara.
What I would say is, you know, while we haven't had a consistent program there, we haven't ramped it up as much as we wanted to, those multiple targets, and this will be true for the Permian one day, it's kind of allowed you to move up the learning curve and the scale, the economies of scale because you've got multiple targets going on. Now that we're drilling the Niobrara, last year we actually saw a 20% increase in Niobrara performance year over year. Part of the reason is we drilled the Mowry, and we've got an awful lot of data, and so we can get up that learning curve a little bit quicker.
That brings us to international. Maybe perhaps two years ago, I think you all had about 16% of the surface area of Oman under lease. You drilled a couple of wells and hit an off ramp and said it did not have a path. Now in the portfolio, Bahrain, you have the JV with Bapco, and then perhaps a week or two, time flies, you announced a million acre agreement to enter the UAE, overpressured oil, unconventional. Talk to that strategy. What do you need to see? How do you drive down costs? And what do off ramps look like? Where do you hit off ramps?
Yeah, so it's everything I talked about on the domestic portfolio, you know, the domestic exploration approach, kind of times two because it obviously is a lot more difficult to go international. It really has to have the scale. It really has to be compelling returns. It has to be more than just competitive with our existing portfolio. It really needs to be additive. The way we structure our international endeavors is similar to what you saw in Oman. It's a great demonstration of our strategy. We want to have multiple off ramps where we can get out after, you know, we have multiple opportunities to exit with minimal capital commitment. At the same time, we can do it cleanly. We are not stuck there or it is dragging on.
What we have done, maybe a little bit different from Oman this time, is we have actually worked toward aligning the stakeholders a little bit more. We have actually JVed with Bapco in Bahrain, as you said. That one is an unconventional onshore horizontal type gas sand. Bapco has done a great job kind of testing that gas to surface. I think what we see and Bapco sees as well is that we bring a lot to the table on unconventional expertise, obviously. Bapco is more traditionally a conventional operator. It is difficult, right? We have seen that domestically. It is difficult for conventional, you know, companies that are focused on conventionals to actually make that shift into the unconventional world. We have aligned a JV with them. We should be investing some capital there later this year.
We will just see if our, you know, what the horizontal completions and drilling technologies kind of lend to the uplift. If it goes the way that we think it will, it will be exciting. It will be very competitive, and it will be a really compelling opportunity. Bahrain has got a robust infrastructure there and, quite frankly, an economy that is based on gas. We should be able to sell into the market there. We will just see how it goes. Abu Dhabi is a little bit different. It is oil. It is an overpressured basin. It is an area that we have been working, I would say passively, with ADNOC for a number of years now. We are excited to get the concession there. It is pretty similar. We have got stakeholder alignment there on a three-year concession where we will invest beginning later this year to start appraising the reservoir of interest.
We will just see how that one goes. It is a much larger opportunity, as you said, a much larger data set. Ultimately, both of these opportunities are really outgrowths of that experience we had in Oman where we did inter-Oman. We drilled a horizontal unconventional sand target. The original idea is that it would be an oil perspective reservoir. Actually, after we drilled it, it ended up being gas. Where this was located, it was really too tall of a task for us. It needed to be oil so that we could actually truck the oil out and actually start generating revenue. For it to be a gas prospect, it was in an area that would require a significant amount of infrastructure upfront. As you said, Bob, that is why we ultimately decided to go ahead and exit the opportunity.
When you go into these regions, you have, you understand your U.S.-based AFEs, your well budgets extremely well. You know they are much higher internationally. Do you have a line of sight that says, this is how much we have to take out of cost for this fiscal system, and this is the sort of IP we need to see on the well? Is that the go/no-go?
Yeah, that's exactly it. It's not only where we need to get to, but we like to have line of sight on some low-hanging fruit on things that we can do. We want to know, all right, if this works, how long until we achieve some of these scale things that we talked about before? How can we drive down the cost? One of the things we do target internationally are areas with established oil field services for just that reason. In both of these areas, Bahrain, Oman, and the UAE, as you know, they've got robust oil field services. They've got modern equipment, things like that. They're just not necessarily set up for unconventionals. On the reservoir side or production, you know, productivity side, it's kind of the same thing that we do in the U.S.
You know, we have some sophisticated software that we utilize internally, which allows us to take production, you know, once you build your reservoir model, your geologic model, you can take production from a vertical test or a horizontal test. We can modify some of the variables, not only geologically, but also from our operations parameter, landing zones, completions techniques, things like that. We can upscale what we think the producibility will be. It is one of the ways, again, that we evaluate and unlock the Utica liquids reservoir is we had seen some vintage horizontal wells drilled from 2012 and 2013 with those types of antiquated, you know, completions techniques, best practices at the time. They really delivered pretty underwhelming production results. We put in our geologic model.
We adjusted the landing zone, which requires, you know, understanding how the rock's going to break and the geomechanics of it. We modified and modeled the completions technology on there and had some new production curves that we thought would actually work. We fortunately had an operator that was drilling at that time, and we followed their well, and we did kind of a blind test of our model, and it proved out to be pretty accurate. That is the same type of approach we use international or domestic.
If we switch to financial strategy, I'm going to start with the balance sheet. You're sitting at $6.5 billion or so of cash, $1 billion or so of negative net debt. That is fortress, bulletproof. I don't know what the right adjective for that is. What do you do with that?
Yeah, it's a great spot to be in. You know, we covet having a pristine balance sheet. Again, when you go back to what I was talking about before, investing on bottom cycle prices, really focusing on creating shareholder value through the cycle and really trying to move the company into, you know, blue chip territory that's competitive with the broad market. A big piece of that is having a pristine balance sheet. What we came out with in November is a little bit more guidelines on where we're headed to with our balance sheet over the next, say, 12 to 18 months. Essentially, what we want to get to is total debt versus EBITDA less than one times at that bottom cycle pricing.
Again, in a commodity-based business where we do not necessarily get to set our own sales price on a day-to-day basis, trying to manage a total debt to EBITDA at strip prices or mid-cycle prices or something like that is just going to get you into trouble. It is a little bit conservative, but I think it is what gives us great confidence in being able to countercyclically invest in whether it is exploration opportunities, more recently a small bolt-on acquisition in the Eagle Ford, or stepping into some of these international opportunities is having that strong balance sheet. On the cash side, we do not necessarily think about a net debt. We really think of total debt versus EBITDA, and then we think about cash on hand.
The reason I say for that is cash on hand should be something that you're able to use opportunistically to create value for the shareholders. What that means is maybe share repurchases during dislocations. Maybe it means a strategic acquisition like in the Eagle Ford, like I just mentioned, or maybe it means leveraging that cash into a marketing agreement or something like that longer term. That is how we kind of think about both the cash and the debt side of the balance sheet. One thing is for sure, we utilize it to be able to position the company to build long-term shareholder value.
The one thing you left off of the list that went from exploration to small bolt-ons to bigger international opportunities would be large M&A. Historically, other than sort of the opportunistic merger with Yates Petroleum, you've been absent from that market, and you have a philosophy around what M&A needs to look like. Talk to that.
Yeah, ultimately, it just needs to compete with the other options in our portfolio. Again, think about the things I described that we look for on organic exploration: low-cost entry, significant upside, scale to make a difference, competitive rate of return, competitive cost of reserves. Those are the types of things that we really think will make the company better. Those are the types of things that we look for in M&A. A lot of M&A is very difficult to do at the corporate level because it is coming with a significant amount of PDP. You have got a skinny bid-to-ask margin. Quite frankly, it is usually coming with one of two things: either limited upside in the drilling undrilled acreage, or it is coming with undrilled acreage that is dominantly tier two or tier three.
By virtue of that, it's not necessarily going to be competitive with the existing portfolio that we have. It's not, you know, I don't want to frame it up as it's an exploration or M&A. It's not necessarily that. It's actually much more aligned. It's just that we look at, we evaluate both opportunities through the same lens, which is a focus on returns, a focus on through cycle value creation, full cycle value creation, and what's the best way to, you know, optimally generate both near and long-term free cash flow.
In terms of returning cash to shareholders, if we went back four years ago, base dividend is doubled. It is amongst a peer leading, if not a peer leading base dividend. You went back four or five years ago, variable dividends played a bigger role, and share buybacks played no role. Over time, we have now evolved that base is large, and share buybacks have taken share from the variable dividend. Where does that go in the cycle? Is that cyclical, or is that a structural shift?
Yeah, it's a bit of a cyclical, I think you'd say. I think our approach to share buybacks is opportunistic. To your point, let's start at the beginning. The beginning is a focus on the regular dividend. You know, to us, expanding margins, you know, top-line revenue is one way, but also dropping the cost base of the company, that's the one that really counts in our business. Expanding margins, increasing capital efficiency, that really controls your ability to raise that regular dividend in a confident way. We've been paying a dividend now for 27 years. We've never had to cut it nor suspend it.
As you said, with some structural changes in the way that we are running the company, the cost basis of the company, in 2021, we actually increased the regular dividend pretty substantially to a point where now it is more than competitive with S&P 500 and really basically peer leading across our sector. Excess cash is the next piece that you are talking about. In general, what I would say, an easy way to think about it is in times of rising share and oil prices, you probably lean more in on special dividends, not necessarily a variable, but a special dividend model.
In times when you can see opportunities in the market, whether it's driven by a dislocation on oil price, a dislocation of the industry, or a dislocation of our company, those are times when you can step in, buy back stock, and be in a position to really feel good about creating shareholder value. What we're cognizant of is not trying to lean in on pro-cyclical buybacks, which is the danger with a commodity-based business. As you mentioned, during 2021, 2022, we basically relied on 100% special dividends. That kind of peaked out when Russia invaded Ukraine and the oil price peaked out. Since that time, oil price has basically been moderating. We've seen a lot more volatility in our sector, in our stock as well. I think in 2023, we were roughly 50% special dividend, 50% buyback.
I'm talking about excess cash, of course, beyond the regular dividend. Last year, with increased volatility again and the oil price moving off, again, related to a lot of the spare capacity that was offline, we ended up returning 100% of the free cash flow through the share repurchase mechanism. Throughout the first quarter to begin this year, we issued a lot of share repurchases as well. That is why I say one way to think about it, I think in general, is a bit more of a cyclical, but really it is all about finding opportunistic share repurchases done at the right time, at the right pace. It really does have a, it is a compounding value creator for the shareholders. I think to date, over the last couple of years, we have retired about 8% of the outstanding shares.
That plays a bigger role on the per-share valuation for our individual shareholders.
We do have an interesting question around what are the milestones you hope to achieve in the next five years and how do you plan to leverage technology to get there? Yeah, give us a five-year story.
Yeah, I'd like to see our two emerging assets fully move into kind of core competency or our core position. Again, what that means is running multiple rigs and frac spreads in both the Utica and Dorado plays. I'd like to see, again, a continued increase in our use of technology. When I go back to 2018, we had really started with what I call smart technology, where we were using a lot of real-time automation and calculation. We were writing algorithms to help maintain processes in the field, keep production running, eliminate or reduce downtime, I should say, and really monitor for preventative maintenance. Around 2021 or so, we really started to transition that smart technology into more machine learning. Where we would start with the algorithm, but really the data is training itself and it's modifying the algorithm as it goes.
Obviously, the next step without falling into, you know, some pie in the sky discussion about generative AI is to start to utilize AI in your day-to-day business and workflows, not only on things like I just talked about on automated processes, allowing production to continue flowing, reducing downtime, you know, thinking through preventative maintenance, but quite honestly, allowing each of our individual employees to really work more efficiently. You know, as a roughly $60 billion company with 3,000 employees, from my perspective, if in the next five years we can utilize AI to increase the efficiency of each person by about 5%, that is a real value creator for a company of our size. I am not talking about eliminating people.
I'm talking about eliminating the most mundane task that each of our employees has to do on a day-to-day basis and allow them to focus their efforts on the higher-end ideas that really create value for the shareholders.
In the lightning round, what's the value proposition for owning EOG stock?
It starts with what I've been talking about, value creation for the shareholders through the cycle, but it's really founded in four different things, I'd say. The first is capital discipline. You know, it starts with what we've talked about today, investing and being cognizant of bottom cycle pricing. It's investing in each of our assets at the right pace, at the right time to make sure they're getting better year over year. It doesn't matter how you qualify better. As long as the cost of reserves is going down by a penny every year, then that's getting better. That's a very powerful thing. The second thing is a commitment to operational excellence. I mean collecting data, allowing our engineers to do what they do best, which is analyze data in real time and apply that data to the next well that they're drilling.
The third thing is sustainability and safety. We want to be a leader in environmental performance and safe practices. The fourth, which is the most unique thing and kind of brings it all together, is the culture of EOG. You know, we run a decentralized organization. By that, I do not mean we just have satellite offices. I mean we encourage each of those offices to operate like an independent oil and gas company responsible for what they explore, what they produce, what they drill. Ultimately, they have the support of working across different basins. They have data from multiple basins. They have the leverage of a $60 billion company with a pristine balance sheet that allows them to move faster and capture opportunities as they see it. That is really the value proposition for EOG. I think we have got a long way to go.
With that, I thank you, Ezra, and thank you in the audience.
All right, thank you very much, everyone.