EOG Resources Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 3, 2023

Key Takeaways

  • 70% Free Cash Flow Return Commitment: Raised the minimum cash return to shareholders to 70% of annual free cash flow starting in 2024, alongside a 10% regular dividend increase to $3.64 per share.
  • Third quarter oil production grew 4% year-over-year (total production +9%), while per-unit cash operating costs declined 5%, enabling raised full-year oil guidance and reduced cost guidance.
  • Utica Combo Play Breakout: Expanded Utica leasehold to 430,000 net acres with 3-mile laterals achieving 2,150 BOE/day initial rates (85% liquids) and minimal new midstream investment needed.
  • Generated $1.5 billion free cash flow in Q3, declared a $1.50 special dividend, and repurchased $61 million of stock; on track to return ~$4.1 billion (≈75% of free cash flow) in 2023.
  • For 2024, EOG plans to maintain current activity levels across core plays and add select wells in Utica and Dorado, while contracting ~50% of services to manage costs through the cycle.
AI Generated. May Contain Errors.
Earnings Conference Call
EOG Resources Q3 2023
00:00 / 00:00

There are 17 speakers on the call.

Operator

Good day, everyone, and welcome to EOG Resources Third Quarter 2023 Earnings Results Conference Call. As a reminder, this call is being recorded. At this time, for opening remarks and introductions, I would like I'll turn the call over to the Chief Financial Officer of EOG's Resources, Mr. Tim Driggers. Please go ahead, sir.

Speaker 1

Good morning and thanks for joining us. This conference call includes forward looking statements. Factors that could cause our actual results to differ materially from those in our forward looking statements Definitions and reconciliations for these non GAAP measures can be found on EOG's website. In addition, some of the reserve estimates on this conference call may include estimated Potential reserves and estimated resource potential not necessarily calculated in accordance with the SEC's reserve reporting guidelines. Participating on the call this morning are Ezra Yacob, Chairman and CEO Billy Helms, President and Chief Operating Officer Jeff Leitzel, EVP, Exploration and Production Lance Terveen, Senior VP, Marketing and Pierce Hammond, VP, Investor Relations.

Speaker 1

Here's Ezra.

Speaker 2

Thanks, Tim. Good morning, everyone. Over the past 5 years, EOG has increased production 33%, Decreased per unit operating cost 17 percent generated over $20,000,000,000 of free cash flow and over $20,000,000,000 in net income. We've increased our regular dividend rate nearly 3 50 percent and including both regular and special dividends paid and committed to Have returned about $13,000,000,000 directly to shareholders, all while reducing total debt by more than 40%. At the core of our historical and future success are EOG's employees who embrace and embody the EOG culture.

Speaker 2

And our Q3 results continue to reflect our employees' outstanding execution. Strong performance in our foundational Delaware Basin and Eagle Ford assets, as well as continued progress across our emerging plays, have delivered production volumes, Capital expenditures and per unit operating costs better than expectations and enabled us to raise our full year oil production guidance and reduced our full year cash operating cost guidance. In addition to announcing 3rd quarter results yesterday, we demonstrated our confidence in the outlook for our business Beginning in 2024 to a minimum of 70% of annual free cash flow. Our annualized regular dividend Now, $3.64 per share, which represents the highest regular dividend yield amongst our peers and is competitive with the broader market. This dividend increase reflects 2 things.

Speaker 2

1st, the progress we continue to make on our cost structure by leveraging technology and innovation will drive additional improvements to EOG's cost structure and returns and reduce the breakeven oil price to fund the dividend in the years ahead. Commitment at an oil price as low as $45 WTI. 2nd, this dividend increase reflects our confidence in EOG's This quarter, we've highlighted recent well performance results in the newest addition to our premium portfolio of assets, the Utica combo play. Over the last several Our success in organic exploration continues to add low cost reserves and consistently drive down our DD and A rate, enabling EOG to create value through industry cycles. Beyond our regular dividend, which we've never cut or Suspended, we raised our cash return commitment to shareholders to a minimum of 70% of annual free cash flow beginning in 2024.

Speaker 2

Alongside our portfolio of premium assets and our cash flow margins, EOG's balance sheet continues to strengthen, allowing us to In addition to the $1.50 per share special dividend declared yesterday, we executed additional opportunistic share repurchases for the 3rd consecutive quarter. For 2023, we estimate our committed cash return will be about 75% of free cash flow. EOG continues to consistently execute, lower our cost structure through innovation and efficiencies and organically grow the quality of our portfolio to a sustainable growing regular dividend and backstopped by an impeccable balance sheet. EOG is in a better position than ever to deliver value for our shareholders through industry cycles and play a leading role in the long term future of energy. Here's Tim to review our financial position.

Speaker 1

Thanks, Ezra. EOG delivered superb operating and financial performance in the 3rd quarter. Oil production increased 4% year over year, While total production was up 9% year over year, per unit cash operating costs declined by 5% from the prior year period. The DD and A rate fell by 9% year over year driven by the addition of reserves at lower finding costs compared to our production base. Capital expenditures came in at $1,520,000,000 $140,000,000 below our target, mostly due to the timing of non well related expenditures such as infrastructure projects.

Speaker 1

Year to date, CapEx of $4,500,000,000 is 75% of the full year guidance. We earned adjusted net income of $3.44 per share in the 3rd quarter and generated free cash flow of $1,500,000,000 We announced a $1.50 per share special dividend and during the Q3 we spent $61,000,000 on share repurchases, Bringing total 2023 share repurchases through the Q3 to $671,000,000 at an average price of $108 per share. In total, we are on track to return $4,100,000,000 of cash to shareholders this year in the form of regular dividends, special dividends and repurchases. This equates to about 75% of our estimated 2023 free cash flow, Higher than our 2023 minimum commitment of 60% of annual free cash flow returned to shareholders. Overall, it was a strong quarter, driven by solid operational execution and improving capital efficiency.

Speaker 1

Here's Billy to review operations.

Speaker 3

Thanks, Tim. EOG's operational performance continues to improve and this quarter is another example. We exceeded our 3rd quarter forecast Largely due to accelerated timing of activity within the quarter, driven primarily by improved efficiencies, as well as some benefits from better well productivity. Efficiencies in our completion efforts have reduced the time To bring wells to sales, for example, in our Eagle Ford play, the completed lateral fleet per day has increased 19% year over year. The team has also reduced non productive time by 31%, which is the added benefit of lowering total well cost.

Speaker 3

In addition, our new completion design continues to drive performance improvements in the Delaware Basin, with targeted laterals realizing a 20% increase Well productivity improvements is the primary reason we were able to increase the full year oil guidance by 1500 barrels of oil per day. Last quarter, we reduced our full year guidance for total unit cash operating cost, mostly due to lower lease operating expense and reduced transportation costs. Our 3rd quarter performance continued that trend. Our production teams are optimizing both production and cost through our many technology applications that allow for real time decisions to maximize production and reduce interruptions of third party downtime. These cross functional efforts Our production, marketing and information systems teams continue to pay dividends.

Speaker 3

Once again, we are lowering our guidance For full year cash operating cost by approximately 2% this quarter, bringing our total reduction since the start of the year to 3% or nearly $0.30 per BOE. Capital expenditures in the 3rd quarter were lower than expected due to timing of infrastructure projects as well as variances in activity across our multi basin portfolio. We expect to maintain our current levels of activity for the remainder of the year And our full year capital guidance is unchanged. For 2024, we are currently evaluating this year's results As we develop our plans for each of our plays, as a reminder, we invest to generate returns And growth is a byproduct of the investments in our highly or economic multi basin portfolio. We are very pleased that the levels of activity across our portfolio are at a pace that allows for continuous learning and improvements and thus would expect to maintain similar levels of activity through 2024.

Speaker 3

With the strong results we're achieving in our emerging plays, We anticipate a few additional wells in both the Utica and Dorado. As we typically do each year, We will remain focused on managing costs through the cycle by contracting for about 50% of services and leveraging our scale and consistent activity levels to build and maintain strong partnerships with service providers. As a result, we're able to take a longer term view To sustainably lower well cost over time. This year is shaping up to be another solid year of performance for EOG, And I remain excited about the opportunities we see through the remainder of the year and into 2024. Now here's Jeff to talk about the updates on the Utica play.

Speaker 4

Thanks, Billy. In addition to sharing new well results, I'd like to review a few unique characteristics of our Utica asset And downstream infrastructure status. This year, we added 25,000 net acres and have now accumulated 430,000 net acres Predominantly in the volatile oil window across the 140 mile trend running north to south. Our leasehold cost of entry remains less than 600 per net acre. We've also acquired 100 percent of the mineral rights across 135,000 acres of our leasehold.

Speaker 4

Mineral rights significantly enhanced the value of this play by adding 25% to our production and reserve streams For no additional well costs or operating expense. Furthermore, over 90% of the Utica acreage is held by production and requires Only a handful of wells to be drilled every year to maintain. The result is more control over our development to allow us to invest in an appropriate pace to Capture and incorporate technical learnings and continually improve the play. Another unique advantage of the Utica is its geologic operating environment. Due to the play's favorable geologic properties, the opportunity to drive down costs through efficiencies is significant.

Speaker 4

The target zone is both shallow and consistent, which lends itself easy to drilling 3 mile laterals, and we anticipate testing even longer laterals As we continue to delineate and collect more data, consistent geology also allows for precise targeting of the very best most productive rock. We're able to regularly drill 99 plus percent in zone within a narrow 10 foot window. As a result, this On Slide 11 of this quarter's investor presentation, we highlighted our strong and consistent well results to span our acreage position from the north into the south. Our initial four well Timber Wolf package was drilled at a 1,000 foot spacing and has been performing well above type curve. These 3 mile laterals each deliver an initial 30 day production averaging 2,150 barrels of oil equivalent And an 85% liquid cut.

Speaker 4

With a large amount of liquids in the product mix, all of the wells we have drilled to date support double premium potential across our acreage position. The Utica also has the advantage of abundant midstream infrastructure. The existing processing, fractionation And residue build out eliminates the need for significant new build commitments, which was a well recognized advantage when we evaluated the play. Established reliable third party building out a new pipeline that is expected to be in service late this year. With these trunk lines in place, Investment will be limited to infield gathering as we prepare for a modest increase in activity next year.

Speaker 4

Our current plans for 2024 are to run approximately one full drilling rig that will continue to test optimal well spacing and improve operational efficiencies. Our Utica asset is another textbook example of our differentiated approach to build a diverse portfolio of premium assets predominantly through low cost organic which adds reserves that lower finding and development costs and lowers the overall cost basis of the company. The end result is continuous improvement to EOG's company wide capital efficiency. Our track record of successful exploration and strong operational

Speaker 5

In our South Texas Dorado play, we recently completed 2 projects to service future gas flows from this premium dry natural gas play, a natural gas treating facility and the first phase of a 36 inches pipeline. The facility was recently placed into service to treat gas from the Dorado play prior to transportation Through our 36 inches natural gas pipeline to sales near Freer, Texas. Both projects were delivered on time and under budget, a testament Construction in early 2024 and is expected to be complete late next year. Phase 2 of the pipeline will terminate in the Agua Dulce, Texas, which provides access to 3 other pipelines with connectivity to the growing demand along the Gulf Coast and Mexico and potential premium pricing Welcome to Henry Hub. Our pipeline will be instrumental in expanding our gas sales options for the 'twenty one TCF of net resource potential we've captured in Dorado, Perhaps more importantly, save $0.20 to $0.30 per Mcf and transportation costs over the life of the asset versus third party alternatives.

Speaker 5

Now here's Ezra to wrap up.

Speaker 2

Thanks, Lance. EOG continues to deliver on our value proposition and our approach remains differentiated for several reasons. First, our premium return standard. Investments are governed by 1 of the highest hurdle rates in the industry, 30% direct after tax rate of return using $40 oil and $2.50 natural gas pricing. 2nd is organic exploration.

Speaker 2

By prioritizing organic exploration, we add inventory and reserves at lower finding and development costs. 3rd, Our assets are unique. By remaining focused on the first two, returns and organic exploration, we have built one of the largest, highest return, lowest cost And have amassed resources of 10,000,000,000 barrels of equivalents with an average funding and development cost of just $5 per barrel. At our current production level, that's equivalent to about 30 years of low cost, high margin inventory, and our assets continue to grow. 4th is technology.

Speaker 2

We have never considered this a manufacturing process. We leverage both in field technology and information technology to improve well productivity and efficiencies. Our goal is to lower costs and expand our margins to

Operator

Thank you. The question and answer session will be conducted electronically. And our first question comes from Scott Hanold of RBC Capital Markets. Please go ahead.

Speaker 6

Thanks. Good morning. Congrats on the strong quarter. Ezra, I think it was pretty notable the way you all took a step up in your fixed dividend payment. I mean, you've got a history Doing that, but it was a good step up this quarter, in addition to boosting the shareholder return program to 70%.

Speaker 6

So Can you talk about some of the more significant factors like why make those pretty pronounced moves now? Is there something in the business model you guys Get more confidence in at this point to make those moves?

Speaker 2

Yes, Scott. Thanks for the question. The decision to raise minimum cash return to 70%, overall it just demonstrates our commitment to our shareholders. It reflects our Continual improvement since the initial commitment was made nearly 2 years ago. And really to your question on the business model change, It's really just our ability to deliver that shareholder value.

Speaker 2

It's grounded in the fact that our strong cash return generation capacity continues to improve. The strength of our industry leading balance sheet continues to improve and our commitment again to just being disciplined with our reinvestment across the entire portfolio. So we're in a position now where we feel very confident that and proud that we can increase that minimum commitment to 70%, We look forward to being able to deliver that to the shareholders.

Speaker 7

So when you look

Speaker 6

at those breakeven points to do that, is there This base business, is that breakeven point then lowered from, say, where you were a year or 2 ago to where it is now?

Speaker 2

Yes, that's right, Scott. As we continue to invest in these higher return, lower cost reserves and bring them into the base business, we continue to do Some strategic infrastructure spending to lower the overall costs of the company going forward, that continues to expand the free cash flow potential of the company. And that, in addition to strengthening the balance sheet, as everyone knows, we retired a $1,250,000,000 bond earlier this year, and we've Been able to be not only net 0, but actually put a little bit of cash on the balance sheet. All of those things are what gives us confidence in the base business going forward and the fact that We can continue to increase this minimum rate of return minimum cash return to our shareholders from the 60% up to the 70%.

Operator

The next question comes from Leo Mariani of ROTH MKM. Please go ahead.

Speaker 8

Yes. Hey, you guys spoke about sort of similar 'twenty four activity versus I wanted to get a sense there. I mean, do you see this as kind of a give and take proposition where if you do a little bit more in some place you might have kind of A few less wells and in some other plays and just trying to get a sense of how maybe costs are trending overall in well today?

Speaker 3

Yes, Leo, this is Billy. Yes, as far as 2024, certainly it's too early to get into many specifics about the plan. But I would say that our plan will be based on a couple of different factors. One would be the macro environment, kind of what that looks like going into next year. The other one is really governed by what's the optimum level of activity across each of our plays that supports The objective of having continuous improvement.

Speaker 3

And so on that, on our core plays, I'd say our foundational plays, the Eagle Ford and the Delaware Basin, We're very pleased with the activity levels we currently have there and would expect to maintain similar levels of activity in those plays. We see the advantage of that as we are seeing continued improvement in each one of those plays as we've talked about already on this call. And then, for our emerging plays, the Utica and the Dorado, for instance, we're very pleased with the results we're seeing to date. And so as we move into next year, we certainly want to continue that learning and you may see some Few additional wells in those plays on top of what we've done this year. As far as the cost trends, That's one reason we like to maintain these levels of activity, allows us to improve our cost basis, improve operationally of how we're executing these wells And we're seeing the benefits of that play out.

Speaker 3

So I'll maybe leave it at that and see what your follow-up

Speaker 9

is. Okay. Now that's helpful. So maybe just to kind

Speaker 8

of jump over to the Utica, obviously, you brought a new package of wells online here. I know it's sort of early days, but when you look at these wells, do you tell yourself that you've already been able to see some improvement over the last Just trying to get a sense, are these wells a little better than they were, say, a year ago? And then on the cost side in the Utica, Are you starting to see maybe the cost come down a little bit here or maybe it's kind of early? I think you've had a target of sort of sub $5 F and D, just not really sure kind of where you're at

Speaker 4

Yes. Thanks, Leo. No, we're really excited about the latest package that we brought on. That's our Timber Wolf We highlighted in Slide 11. It's in a 1,000 foot space test.

Speaker 4

And a note there, as we've talked about our new completions design down there In the Permian, in the Wolfcamp, we were able to go ahead and implement that on that. And as you can see from the initial results that we talked about, the 30 day IPs on that are 2,150 BOE per day over that 30 day period. So really excited about how that's Turning out from the spacing test, we have an additional package. We actually highlighted in our slide deck, the Xavier's. We're going to tighten the space on that to 800 foot and we should have results coming on here fairly shortly.

Speaker 4

So we're very excited with the results and with that application The new completion design, it's going to be tough to tell if that's really what the big mover is, but we're extremely excited about the results that we're And then from a cost standpoint, we really haven't disclosed specific costs in the Utica. We're still in the early stages as we've talked about in learning in this play. We've got a lot of room for operational efficiency gains. We've got some infrastructure, small infrastructure to develop that we can Install like water gathering, reuse and sand to drive down costs. And then as we said, with the well results we're seeing, we feel really confident in supporting that Sub $5 F and D costs.

Operator

The next question comes from Arun Jayarma of JPMorgan Securities. Please go ahead.

Speaker 9

Yes, good morning. Ezra, I wanted to get your thoughts maybe at a high level on 2024. On the Q3 call of last year, you provided I was wondering if you could maybe give us some thoughts On overall, how you see the year kind of playing out. If I look at consensus forecast, it's for about $6,100,000,000 of CapEx With the $500,000,000 so let me get your thoughts, if you can give us some soft guidance around next year.

Speaker 3

Yes. Arun, this is Billy. Let me try to weigh in on that for you. And I apologize if I missed some of your question. You were breaking up a little bit there.

Speaker 3

As far as 2024, as I said earlier, it's a little bit early to give specifics on the plan. But I would say, Just look at our activity levels we're seeing today and I would expect to see similar levels of activity on our core foundational plays going into next year. Give you some hint as to what activity levels we might have. I would expect a few additional wells next year in our emerging plays such as the Utica and maybe Dorado. And then as far as service costs, let me just weigh in a little bit on that while we're talking about that.

Speaker 3

We certainly understand service costs have moderated in the industry as industry activity has dropped throughout the year. The magnitude of those declines certainly varies between the services and in which basins we're operating in. We remain focused on just continuous improvement and we see in our efficiency gains throughout our operations. So we tend to use the latest technology in the highest performing crews, which includes super spec rigs and Afrac fleets. That equipment continues, as you know, to be in high demand with service pricing proving to be more resilient.

Speaker 3

We have seen drops in tubular and casing costs for next year that will tend to reduce overall well costs, but again the magnitude of that effect On overall well cost is yet to be quantified. So as we go into next year, certainly we expect to see maintain our activity levels That we see in our core plays, a few extra wells, some softening on well cost. Overall, I think that's kind of where we're headed.

Speaker 9

Okay, fair enough. Maybe one for Jeff. Jeff, I wanted to give if you give some more details, you've provided Your Utica type curve on Slide 11, just wanted to get a sense, is that Type curve for the entire play, is it for the volatile oil window only? And would that be representative of both the North and the Southern portions of the play?

Speaker 4

Yes, that would just be the general type curve in mix across the 140 miles kind of from north to south They're in the play. So it's pretty consistent. You can see on the slide that we put our first handful of wells on And that's really what a lot of the type curve was going to be built off. And you can see the Timber Wolf package, the most recent one that we brought on and the outperformance in that one.

Operator

The next question comes from Phillips Johnston of Capital One Securities. Please go ahead.

Speaker 10

Hey guys, thanks. Just a few quick follow ups for Jeff on Utica. First on the 55% oil cut, what sort of API are we talking about on that True or is it more of a quasi condensate type of mix there?

Speaker 3

Hey, Phillips. Hey, this is Lance. Yes, What

Speaker 5

we're seeing is still early, but what we're seeing is kind of APIs in kind of the 40s to 50s.

Speaker 10

Okay, sounds good. And then the wells so far have pretty much all been along the eastern edge of the acreage. And I'm pretty sure you guys have previously said that the black oil window is sort of in the exploratory phase still. But How does the geology change go west and when would you expect to test other parts of your acreage?

Speaker 4

Yes, good question. So to kind of start off, why do we started off on the East? Really the big reason with that is just, we had good quality seismic Over on the east side of it, when we were first starting out. And obviously, that's really important. So you can get a really good look at the detailed subsurface, any kind Drilling hazards to make sure you perform really, really clean tests.

Speaker 4

So where we started, where that seismic is at, obviously, we started the delineation. We've got spacing tests in place. And then as we start to 0 in on that spacing, we'll be able to kind of step out more to the west and be able To apply some of those spacing techniques to start developing out there. But we do know there's going to be variation in productivity. And as you did State, we do expect it to get more oilier as you do move out to the West.

Operator

The next question comes from Neal Dingmann of Truist Securities. Please go ahead.

Speaker 11

Good morning, guys. Thanks for the time. I'll maybe stick with the unicode. Just my first Question simply, would your AMI in the eastern side of the play limit in any way thoughts about incremental activity or Potential additional acquisitions in that Eastern oil window?

Speaker 2

Yes, Neal, this is Ezra. We're pretty Happy with the footprint that we've been able to put together since we entered the play. I think we highlighted on the call that we've added an additional 25,000 acres, Bringing our total up to 425,000 acres at very low cost. And we also let me just highlight again that we Actually own the minerals across 130,000 acres, down mineral acres down in the southern portion of the play. So when we look at it right now, as Jeff said, we're doing some initial spacing packages, some delineation tests where we currently have Seismic.

Speaker 2

We're also this year acquiring Seismic in a couple of different parts of the place, and we can continue to step out and gather results on that and provide a bigger A better estimate of what we've captured here for you guys. As far as being limited on incremental activity, I want to think of it that way. Like I said, we've put together a very large contiguous acreage position. And really our activity right now as far as investment and pace, As Billy said, it's going to be determined on our ability to collect data and integrate the production data that we're seeing Back into the front end of our geologic models, the activity is really always considered to be at a pace where we can continue to learn and incorporate those learnings on the next set of wells.

Speaker 11

Great details, Ezra. And then just a follow-up, I want to make sure I'll stick with the Utica. Just sounds like you have more than ample takeaway, if I hear right, On the Southern Utica, I just want to make sure I was clear for plans on the northern portion. Bill, I think you're one of the guys who's talking about it. Maybe just talk about Infrastructure plans and if that would capture any of the upside if you decided to boost activity in that northern area?

Speaker 5

Yes, Neal, this is Lance. Good morning. I think what makes this play so unique is that it is just positioned to so much existing capacity. I mean, actually, in fact, when there's even some idle processing capacity and fractionation idle processing capacity That's nearby on our acreage. So when we look at that just from an infrastructure standpoint, we've been focused on more just the gathering infrastructure.

Speaker 5

And as Jeff mentioned, We put into service our pipeline in the North and then we're going to have a pipeline in the South as well. So we're going to have plenty of running room, just long term running room as we think about the infrastructure

Operator

The next question comes from Doug Leggate of Bank of America. Please go ahead.

Speaker 7

Thank you. Good morning, everyone. Excuse me, I'm not loving the new dial in system, but thanks for getting me on. Ezra, I wonder if I could hit first two things. I want to hit the cash return change and The evolution of the portfolio as you look forward, so dealing first with the 70% number, That obviously is subject to whatever the level of capital is.

Speaker 7

And I guess The flow on the machine is 60% of free cash flow or 70% of free cash flow. It's still free cash flow, which means It's entirely dependent on what you decide is discretionary spending, which to me doesn't mean a whole lot. So What commitment can you give or at least guidance or framework for what the level of spending looks like In order for us to interpret what the increase in free cash flow commitment actually means?

Speaker 2

Yes, Doug, it's a good question. We've Based our cash return model on free cash flow for a couple of reasons, it's simple, but it's also pretty dynamic and it's close The intentions that we have over a range of different price scenarios, so that way we're not entering into an area where we need to modify the commitment Going forward, it's something that once we come out with that commitment, hopefully our shareholders You can see by our track record that once we come out with something, we're very consistent with it. The 70% Return as a minimum of free cash flow is pretty consistent with our long standing strategy, I would say, to build shareholder value and position And that means that reinvestment at the right pace In our high return inventory, that's the best thing we can do to create shareholder value. Ultimately, the cash return strategy, It begins with our commitment to a growing and sustainable regular dividend, which again we raised that, we increased that just 10%. And that dividend has never been cut nor suspended over the 25 years that we've been paying 1.

Speaker 2

In addition, we've committed now to return Either additional specials or buybacks to reach that 70% minimum commitment. For us, hopefully the Increased commitment, the reason we like the 70% of free cash flow is it's consistent with our free cash flow return in that it Puts the emphasis on our regular dividend, which we think is peer leading and competitive with S and P 500. And again, we can maintain, we feel that we can Maintain current levels of production and cover that base dividend at WTI prices as low as $45

Speaker 7

I appreciate the new breakeven number. That's very helpful. Thank you. My follow-up is on portfolio evolution because I guess We all know that 10 years is not the number, I guess, for EOG, but yet your slide deck continues to refer to 10 years of double premium. So if I assume that's dominated by the Eagle Ford and the Permian, given that you're happy with that level of activity, What is it how does it evolve if the next leg of growth is Dorado, Utica in terms of mix?

Speaker 7

And I guess what I'm really driving at is Our channel checks on midstream suggests you could potentially be drilling north of 300 wells in the Eureka in 2026. Does that sound reasonable to you, in which case, what's the implication for mix?

Speaker 2

Yes, Doug, I'm not going to speculate on 2026. As Billy said, it's a little bit early to be speculating on 2024. What I'd come back to is our disciplined base of investment. We have a lot of flexibility In the Utica, specifically, we've got over 90 or roughly 90% of the acreage there It is held by pre existing production. We only have a minor drilling commitment there.

Speaker 2

So we're in a great spot where we can actually develop that asset And a disciplined ability to increase activity commensurate with the increase of our learnings. Now overall, your question is, recently our exploration efforts have yielded very high return, more combo plays or in Dorado's case, a gas play. And that's true. There is something to be said for that. Our exploration emphasis, I would say, is Dominantly more oil focused because the margins are a bit more forgiving on oil from what we see.

Speaker 2

But ultimately with our premium investment hurdle rate, And that's it, bottom cycle pricing of $40 oil and $2.50 natural gas through the life of the asset. We're somewhat agnostic To the product mix. Now it does require a heavy lift by Lance to discover new market potentials for us and to continue to invest in Different parts of the infrastructure supply chain to lower our costs and lower our breakevens, but ultimately we're investing in high return assets and we continue to build out the inventory In a high return framework, more than the 10 years of double premium drilling, I think I'd steer you towards the 10,000,000,000 barrels of equivalents overall That is at a finding and development cost lower than our current DD and A rate. And as I said in the opening remarks, that contemplates at Maintenance levels at current levels of production, roughly 30 years of production. So we're very confident in the high return inventory that we've put together And believe that it's going to continue to deliver great shareholder value in the future.

Operator

The next question comes from Charles Meade of Johnson Rice. Please go ahead.

Speaker 12

Good morning, Desiree, to you and the whole EOG team there. Billy, I'm going to make one more run at the 2024 outlook. I think you've laid out that the activity levels are going to be pretty similar to 20 If I look at the or if I try to think about the big moving pieces, you're going to have some efficiency gains, some capital efficiency gains, Especially as some costs come down. On the other side, you have a slightly higher base production. So is it a reasonable You use reasonable stake in the ground to think that you guys are going to have similar results to 'twenty three in the sense of Low single digit oil growth and kind of low teens NGL and natural gas growth?

Speaker 3

Hey, thanks Charles. Yes, this is Billy. For 2024, we've kind of said it's a little early to get Specifics about things, but I would point you to the fact that we're running a pretty decent level of activity now. We're going to maintain that same level of Going into next year, now just a reminder, we're spending about $6,000,000,000 on our CapEx program this year and it's proved to be fairly ratable Through the 8th quarter of the year, similar levels of activity. There'll be some upwards movement maybe on efficiency gains.

Speaker 3

Like you We'll have a little bit more efficiency gains to factor in, maybe some cost reductions due to casing costs, Those kind of things, we'll still have some infrastructure spends. We may drill a few more wells in the Utica and Dorado plays. And we're trying to quantify that as we go towards the end of the year. But in the directionally that kind of hopefully points you Towards what next year might look like, we're not going to see a big ramp up in activity in any play as we see today. Small changes in capital efficiency and well cost as we go into next year with some infrastructure spend.

Speaker 12

Got it. Thank you, Billy. And then, I'm not sure who this would be best for, but I'm curious about your 3 mile laterals in the Utica. It seems to me like you're pleased with the results because you mentioned that you're even considering longer laterals But curious if you could adjust that point and then also whether we can expect to see 3 mile laterals in Other key plays for you guys and if yes, where or if no, what's special about the Utica that it works

Speaker 3

Yes, Charles, this is Billy again. Let me give you kind of an overview and then Jeff may add some more color. The 3 mile laterals on the Utica, yes, we're very excited about that play and its ability to do these longer laterals Very efficiently on the operational side. We're drilling these things in record times And making progress with each pattern of wells we drill, and we feel we have line of sight on being able to continue to reduce cost over the longer term period as we apply learnings from other plays into this area. So, that's going to continue.

Speaker 3

Now, We're also drilling longer laterals in some other plays. We've drilled some 3 mile laterals in the Eagle Ford and we're drilling 3 mile laterals in the Delaware Basin. So we expect that trend to continue in each of our plays. Now Jeff might want to add some colors on what we're seeing on performance there too.

Speaker 4

Yes. Just a little bit to add in, in the Delaware, in the Eagle Ford and in Utica, we've had great operational efficiency with our 3 mile laterals. And that's one of the things as you start Stretching out the length of these laterals, you want to make sure that operationally you don't have any issues on the drilling side and you're able to optimally complete that. And We've seen really, really good results with that. The other thing we're also seeing is by drilling these longer laterals, we're able to supplement one Vertical with a 3 mile lateral versus 2 verticals in a mile 2 mile and a half laterals.

Speaker 4

So we're able to see substantial cost savings there anywhere Kind of 15% to 25%. So, we're definitely excited about where we're seeing it. Obviously, it ties in with our Leasehold and we have to see where we can actually drill 3 mile laterals, but we are looking to expand that across our plays moving into next year and beyond.

Operator

The next question comes from Scott Gruber of Citigroup. Please go ahead.

Speaker 13

Yes, good morning. The enhanced completion technique in the Delaware appears to be a success. If I heard correctly, 20% uplift And productivity, but there has been a question regarding applicability as you've talked about in the past. What's your latest thinking on how widely Applicable the technique is across the play and will there be an increase in the number of wells completed with the technique next year?

Speaker 4

Yes, Scott. Just there's no major updates this quarter, especially just in the Permian with the Wolfcamp. We're still seeing Strong results that we talked about earlier, consistently 20% uplift in the 1st year production in EUR. The thing I would say is there in the Permian, we do have a handful of tests up in the shallower targets, and that's really where our focus is shifting out there. We hope to bring those on towards the end of this year and kind of the first half of next year.

Speaker 4

And once we get those results, we'll go ahead and But then around the rest of the plays, we talked about in the Powder River Basin, we do have a test in the ground we're currently evaluating there. And then more so over in the Utica, obviously, we started applying that with all of our new designs there. So seeing good results, But we're still just kind of collecting data and we'll see exactly what formations that we have success with moving forward.

Speaker 13

Got it. And then a follow-up on the South Texas pipeline. Does completion of Phase 2 of the pipeline later next Your influence, how you think about the cadence of activity in Dorado, are you inclined to Add rigs into the play later in 'twenty four to set the stage for stronger growth once the pipeline is complete?

Speaker 3

Yes, Scott, this is Billy. Phase 2, first of all, we're very excited about that project. Getting that pipeline is going to give us access to multiple markets The pace of activity in Dorado is really governed by our learnings and results more so Dan, the pipeline date. Certainly, we're excited about the pipeline because as Lance laid out, it's going to allow us to save $0.20 or $0.30 in Mcf Over the life of those reserves, which is 21 Tcf of reserves, but the pace of activity is really governed by how we see the macro and our learnings as we Rest of play, really independent of the pipeline.

Speaker 5

And then, this is Lance too. Some of the other As you think about Phase 2, once we go on service, just to start, we already have existing capacity with other existing markets that are in place. As Billy mentioned, really excited about getting to what we're going to potentially see as really premium markets because we've got offtake agreements already in place, 2 of those which were very strategic. One of those obviously is with Cheniere and excited to see the development and momentum they're getting with the Phase 3 facility will be a big piece of. And then just 2, the Transco will have a strategic connection there and that's going to give us access up all the way up It's essentially the Gulf Coast corridor getting all the way into the premium market.

Speaker 5

So, again, really excited about that as well just from Off take capability as well.

Operator

The next question comes from Derrick Whitfield of Stifel. Please go ahead.

Speaker 14

Good morning, all. I have two questions related to topics not covered yet. So first question, I want to focus on your CCS pilot With the benefit of a year of experience in the pilot, I want to see if you could speak to some of the learnings to date and applicability of the pilot to your larger operations as a means to achieve net 0?

Speaker 3

Yes, Derek, this is Billy. Yes, the CCS pilot project, we're very excited about that project, what we've learned And how we can move forward with the play. So as far as how we've learned, there's a lot of operational Things we've kind of uncovered as we develop that project, how we think about The CO2 we're sequestering, how we store it, how we move it, the pipeline infrastructure, the equipment we need, those kind of things. But also technically, what we've learned there as well, one thing we bring to the table on all these CCS projects, we have an immense amount of Understanding of geological areas to store the carbon and our ability to map out those zones. And then we're also very good at drilling wells.

Speaker 3

So applying those two things give us some advantage on projects as we can move Those two things give us some advantage on projects as we move forward. But what we've learned in some of the monitoring we've done so far He is very supportive of our initial thoughts on the play and how we can store the CO2 and observe its movement in the ground And be able to have confidence that we can store that for a sustainable period of time. So we're learning a lot. We're very pleased with the results we're seeing. Now we're also looking beyond our pilot project to see where else we can apply that technology and it's early to say yet where we're going to take that.

Speaker 3

But needless to say, we're encouraged with what we're doing and excited about the opportunities moving forward.

Speaker 14

Great. And then second, I wanted to lean in on your shallow water exploration schedule with offshore drilling rig rates approaching historic levels and industry messaging sustained strength. How does that impact your views on the timeline for exploration laws and more importantly development activities assuming exploration success?

Speaker 3

Yes, Derek, this is Billy again. Certainly for offshore, as you mentioned there, the rig utilization is pretty tight Or I'd say it's pretty high. So the market remains pretty tight on offshore rigs. We are very Happy and pleased with the activity we have ongoing in Trinidad. We've been in the Trinidad.

Speaker 3

Just a reminder, we've been in Trinidad for over 30 years And currently, we have line of sight on probably one of our longest running programs we've ever had in the history of that play. So we've secured a rig there for that operation and very pleased with the results we've seen to date. So Now moving forward, as far as our exploration activity, certainly we're interested in pursuing other shallow water Offshore opportunities in the company and mainly because we've built quite a bit of expertise at drilling these offshore wells Very efficiently and cost competitively compared to industry. So we think that gives us a strategic advantage Being able to pursue these kind of opportunities around the world. So we're continuing to look for those opportunities and certainly those opportunities would factor in The cost of doing business today, the current offshore rig environment and they'd have to be competitive with what we're doing in the rest of our portfolio.

Speaker 3

So, looking at it that way, we see opportunities to continue to pursue that and excited about what that looks like going forward.

Operator

The next question comes from Nitin Kumar of Mizuho. Please go ahead.

Speaker 15

Hi, good morning guys and thanks for taking my questions. I want to go back to the Delaware for a minute. As I look at your slides and There were 2 things that you were doing in the Delaware this year. You were also increasing the mix of your Wolfcamp oil in your in the drilling Schedule and then there were the enhancements that you made. Can you break out the improvement that you're seeing between the mix And then the new technologies that you're talking about?

Speaker 4

Yes, this is Jeff. The first thing I'd say is in the Delaware technical teams, they're doing an outstanding job of continuing to build on their Understanding of the subsurface geology, their geologic models and really what they're focused on is increasing the value of each of our development units By maximizing the recovery of and improving the overall NPV. So really we look at it from kind of a total bench When we go into development, now when we're looking at productivity and you talk about that, the wells are looking outstanding and we're kind of seeing a marked We've seen good increase in productivity across the majority of our benches and really the Wolfcamp, as we've talked about a lot, is kind of leading the way due to that new But the one thing that we always want to go ahead and highlight is, we have a large acreage Over 400,000 acres, we've got a high number of unique targets that we co develop based off the very unique geology in each one of these areas. So you're going to see when you look at individual well results or even just the roll up for the play, you're going to see that quarter to quarter variations And we'll continue to see activity in well performance.

Speaker 4

But ultimately, we're really happy with all the results that we see. And it's hitting all the expectations, and we have all this Built into our forecast.

Speaker 15

Great. I guess the reason I'm asking this question is one of your Tiers in the play has talked about improving recovery rates, not just optimizing the well, but actually improving recovery rates With the application technology and they've talked about 20% gains. So I guess given your experience in shale, and of course your track record, I'm curious to see if you have seen technologies or are seeing technologies that can help that recovery Factor increase, not just optimizing the wells, but really a step change in what you're drawing from the rock.

Speaker 3

Yes, Nitin, this is Billy. Let me give you a little more color on that in general. As far as the recovery factor, We're constantly improving or working to improve the long term recovery in all of our plays. And it's something that goes really back to the foundation of the company and it's something historically we've done as you mentioned. We leverage a lot of Technology to help us understand how we're targeting those plays and how we're completing each well.

Speaker 3

And so it involves a lot of things. And let me just talk about that in the sense of how we think about it. On these non commission plays, the completion efficiency It is really important how we evolve over time. And so just thinking about how we've Applied new technology, it goes back several years where we talked about, the frac design itself, how we Change the way we attack the well from the type of sand we pump, the spacing of the perforations, the cluster spacing, The frac rate, how we target the reservoirs or understanding geologically of how we understand the best place Place the target so we can co develop like zones and those kind of things. So that evolution over time has caused us to I see dramatic improvements in production, which is a proxy for recovery factor over time.

Speaker 3

And the most recent example It's what Jeff just talked about, the improvements we've seen in our Wolfcamp play, and you can readily see the 20% uplift we're seeing in completions Production performance is due to the completion approaches. So all those things over time lead to improved recovery factor.

Operator

The next question comes from Josh Silverstein of UBS. Please go ahead.

Speaker 16

Yes, thanks. Good morning, guys. Just on the updated 70% shareholder return level, How are you thinking about excess free cash flow beyond this? Will you look to increase the expiration budget or could you in theory increase the shareholder returns to 90%? Any thoughts would be helpful here just because the cash balance can keep growing substantially next year and there's no maturity until 2025.

Speaker 2

Yes, Josh, this is Ezra. Ultimately, I think the answer to your question is that, that 70% is a minimum hurdle. In the last couple of years since we first came out with the Initial cash return guidance, we had a minimum cash return commitment of 60% and in 2022, we were at 7%. And this year, you see that we're on track to be north of 70%, probably closer to 75%. So I think that's the way you should be thinking about the guidance on there.

Speaker 2

And really, the big thing with our free cash flow commitment, It's a minimum of that 70%. But again, it's really founded in and hopefully it doesn't remove the focus from our regular dividend. The regular dividend we feel is the best indicator of a company's ongoing performance, the improved capital efficiency going forward, And it's a commitment that we give to our shareholders based on our ability to continue to lower the breakevens and expand The sustainable future free cash flow generation of the company, it's backstopped with a pristine balance sheet. And in this quarter, when we raised it to 10%, One of the ways that we raise is by looking at what does it take on a breakeven there. And as we talked about before, We can support this new $2,100,000,000 regular dividend commitment at a range of maintenance CapEx scenarios.

Speaker 2

The higher end of that range would be with a $45 WTI price. And when I say a range of maintenance capital scenarios, Let me be clear when I say that. For a company like ours that has multiple basins, differing amounts year over year of infrastructure spend or exploration, Different product types. We look at maintenance capital through the lens of what does it take to keep production flat for A 5 year period, but also across those different investment scenarios. Are we investing in the health of the company longer term with exploration?

Speaker 2

Or are we really just Narrowing it down to just a focus on maintaining production. And so we end up with basically a range of maintenance CapEx between $4,200,000 and $4,800,000 and so a midpoint of about $4,500,000 And as I said, at the higher end, that's where we can That level was a $45 WTI.

Speaker 16

Got it. And less for me. As you guys are thinking about the portfolio, how are you thinking about any kind of long cycle or conventional opportunities like Trinidad to kind of add in relative to Bringing on some additional unconventional growth opportunities. Thanks.

Speaker 3

Rodney McMullen:] Yes, Josh, this is Billy. Let me give you a little bit of hint Maybe kind of what we're looking at. Certainly, we have a deep portfolio of unconventional plays and the things we're currently drilling today. But our active exploration program is continuously looking for all opportunities and they're geared towards, 1st of all, generating Solid returns and being competitive with what we're investing in today. So they will include things that are commissionable or unconventional, offshore, onshore, So we're looking at all kinds of things that are competitive with what our portfolio is generating today.

Speaker 2

Yes. I'd just like to say that we appreciate everyone's time today. One final takeaway I'd like to leave you with is that EOG's cash return announcements in the Q3 demonstrate our commitment to creating long term value for our shareholders. We've increased our free cash flow payout minimum to 70% company year after year. EOG is in a better position than ever to deliver value for our shareholders through industry cycles and play a leading role in the long term future of energy.

Speaker 2

Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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