EOG Resources, Inc.

Good day, everyone, and welcome to EOG Resources' fourth quarter 2019 earnings results conference call. As a reminder, this call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Chief Financial Officer of EOG Resources, Mr. Tim Driggers. Please go ahead, sir.

Thank you, and good morning. Thanks for joining us. We hope everyone has seen the press release announcing fourth quarter and full year 2019 earnings and operational results. This conference call includes forward-looking statements. The risks associated with forward-looking statements have been outlined in the earnings release and EOG's SEC filings, and we incorporate those by reference for this call. This conference call also contains certain non-GAAP financial measures. Definitions as well as reconciliation schedules for these non-GAAP measures to comparable GAAP measures can be found on our website at www.eogresources.com. 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. We incorporate by reference the cautionary note to U.S. investors that appears at the bottom of our earnings release issued yesterday. Participating on the call this morning are Bill Thomas, Chairman and CEO, Billy Helms, Chief Operating Officer, Ken Bedecker, EVP Exploration and Production, Ezra Jacob, EVP Exploration and Production, Lance Turveen, Senior VP Marketing, and David Streit, VP Investor and Public Relations. For the call this morning, we want to cover three topics. First, Bill Thomas will review the characteristics of EOG that have contributed to our long-term sustainable success. Second, I will discuss our financial strategy. And third, Billy Helms will review the outstanding 2019 operating performance and the 2020 plan. Here's Bill Thomas.

Thanks, Tim, and good morning, everyone. In times of uncertainty, EOG's sustainable business model is well-suited to navigate a volatile environment. In fact, we are more confident in EOG's future today than we've ever been in the history of the company. With our strong balance sheet and flexibility, EOG is better positioned now, both financially and operationally, to weather the storms than it's ever been in the past. Our operational performance last year was the best in the company history, and we believe EOG's performance in 2020 will be even better than 2019. With an industry-leading return on capital employed of 12% in 2019, we beat our plan in every respect. Capital spending was below plan, volumes were overplanned, and per-unit operating expenses declined more than forecasted. we grew oil production at a lower cost per barrel than ever before and delivered on our goal of double-digit returns and double-digit growth in a modest oil price environment. The company also generated nearly $1.9 billion of free cash flow, defined as our discretionary cash flow less our total cash capital expenditures. That cash flow funded the retirement of $900 million of debt and the payment of $588 million in dividends. We accomplished all this with oil prices averaging $57 a barrel. Today, due to our confidence in the future performance of the company, we are increasing the dividend again for the third year in a row by another 30%. With this increase, our dividend has more than doubled since 2017 and represents an annual return of cash to shareholders of more than $800 million in 2020. Our confidence in this company's future is based on two unique characteristics of EOG. The first is our culture, and the second is our premium investment standard. These two qualities drive our company and give EOG a unique and sustainable competitive advantage. EOG's culture is the foundation of our long-term success. First and foremost, We are return-focused, which drives disciplined capital allocation. Our decentralized organization supports an entrepreneurial mindset to drive bottom-up value creation. We embrace technology and innovation to make better wells for lower costs. Counterintuitively, our capital efficiency improves year after year because we don't consider this a manufacturing process. We pride ourselves on being a responsible operator, good to employees, our communities, our partners, and our vendors. We embrace technology and innovation in every aspect of the company, including reducing our environmental footprint. EOG's culture is our number one competitive advantage. It has driven our strong historical success and we are confident it will continue to drive success in the future. The second unique characteristic of EOG is our premium investment standard, which is rooted in our return-focused culture. The premium well strategy dictates that a well isn't a well unless it earns at least 30% return at an oil price of $40. Requiring a hurdle rate of 30% for direct capital ensures that once full cost is applied, we earn a healthy double-digit all-in return. We believe our premium standard is one of the most strict investment hurdle rates in the industry and positions EOG to be one of the lowest cost producers in the global energy market. Our premium inventory is growing faster than we drill it, and the quality of the wells we are adding to the inventory is improving. To illustrate this point, after three years of adding premium inventory, our medium premium well today actually yields a direct a tax rate of return of over 55% at $40 flat oil prices. With a $50 oil price, the median return soars to more than 80%. The combination of our ability to replace and improve our inventory while continuously lowering costs at the same time is why we are so excited and confident about EOG's future. Premium drilling delivers exceptional capital efficiency that has allowed EOG, in a modest oil price environment, to grow oil volumes at strong double-digit rates and generate significant free cash flow at the same time, a financial profile that is competitive with the best companies in the S&P 500. For 2020, our goal is to continue to create significant shareholder value through disciplined investment and high-return premium wells, while ensuring the capital program and dividend payments can be funded at a conservative oil price. In response to lower oil prices, we reduced capital allocation to premium drilling and oil production growth versus 2019. However, we did not slow down investments in projects that we believe will improve the future of the company. These include drilling and testing, a number of new large plays to improve our inventory, building infrastructure to lower operational costs, and investing in projects that will lower future GHG emissions. It's important to note that our 2020 all-in capital efficiency, including infrastructure and exploration, is better than 2019, consistent with our commitment to getting better every year. At an oil price of less than 50, our disciplined capital plan of $6.5 billion supports growth, in crude oil production of 12%, sets the company up for better returns in the future, and comfortably funds the dividend. Finally, we want to review our environmental, social, and governance performance. We made significant progress last year in both our ESG disclosure and, more importantly, our ESG performance. EOG is one of the lowest flaring intensity rates in the industry as recently reported by the Texas Railroad Commission. We're very excited about the level of innovation and degree of focus in the company to drive further environmental improvements. We continue to expand our water reuse technology throughout the company. We've been a leader in the use of electric flak fleets and continue to electrify our operations, replacing diesel generation where feasible. We are piloting the use of alternative energy sources, such as solar, to power compressors and reduce GHG emissions. And last but certainly not least, all these projects are expected to earn a return. We are optimistic that most, if not all, of these efforts and many others will help lower our GHG emissions intensity. To sum up, we hope you can see why we're so confident about EOG's future. Our unique culture and premium investment strategy are competitive advantages that will drive our long-term operational, financial, and environmental performance, and together underpin our long-term sustainable success. Next up is Tim to review our 2019 financial performance and long-term financial outlook.