EOG Resources, Inc.

Welcome to the EOG Resources fourth quarter and full year 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Tim Driggers, Chief Financial Officer. Please go ahead, sir.

Good morning, and thanks for joining us. We hope everyone has seen the press release announcing fourth quarter and full year 2020 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 or in the accompanying investor presentation slides 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, Ezra Jacob, President, Ken Bedecker, EVP, Exploration and Production, Lance Turveen, Senior VP, Marketing, and David Streit, VP, Investor and Public Relations. Here's Bill Thomas.

Thanks, Tim, and good morning, everyone. Last year was historic, and we were tested like never before. In a challenging environment, I am proud to say our EOG employees are who personify our unique culture, responded exceptionally without a beat. I'd like to thank our employees for delivering such outstanding performance. We generated $1.6 billion of free cash flow, earned adjusted net income of $850 million, and ended the year with $3.3 billion of cash on the balance sheet. We increased our sustainable dividend rate by 30% and shored up what was already an industry-leading balance sheet to a low 11% net debt-to-cap ratio. We lowered our finding and development costs, improved our capital efficiency, and earned a direct after-tax rate of return of more than 50%, with an all-in after-tax rate of return of 25% based on our premium price deck of $40 oil and $2.50 natural gas. Such extraordinary results in a $39 oil price environment were made possible by our shift five years ago to our premium strategy, which established an investment hurdle rate of 30% direct after-tax rate of return using flat $40 oil and $2.50 natural gas prices. Using such a stringent hurdle rate shields the company from cyclic oil and gas prices. 2020 was a true test of that shield, and it is a testament to the power of our premium strategy. Beyond delivering stellar financial results last year, we continue to invest in long-term value of the company. Through our low-cost organic efforts, we added 1,500 net premium locations to our inventory, including 1,250 from the newest addition to our portfolio, Dorado, a South Texas natural gas play with 21 TCF of net resource potential and a break-even price of less than $1.25 per MCF. We believe Dorado is one of the lowest-cost and lowest-emissions natural gas fields in the U.S. and expands EOG's portfolio of assets that we believe will play a significant role in the long-term global energy solution. We also completed two pilots of infield technology to reduce emissions, a hybrid solar and natural gas-powered compressor station that reduces combustion emissions and a closed-loop gas capture system to reduce forced flaring as a result of downstream market interruptions. Reducing flaring is an industry-wide priority, and we plan to publish our closed-loop gas capture technology for others to replicate. We enter the next phase of the cycle of much improved company. With the countless creative and innovative ideas we implemented in 2020, we're in the process of making significant improvements to EOG's future performance. Looking forward, the following six steps summarize the foundation for our 2021 plan and outlook for the next three years. Number one, maintain fourth quarter 2020 production. There's no reason to consider growth until the market rebalances. Signs of an earlier recovery will not change our $3.9 billion 2021 capital plan. Number two, shift to a double premium drilling program. Our focus on increasing returns never wavers, and this year is no exception. We're raising the investment standard again. Double premium wells earn 60% direct after-tax rate of return at $40 oil and $250 natural gas. and make up the top half of our 23-year drilling inventory. Shifting to double premium will make another step change in our future performance by delivering higher returns, lower decline rates, and more free cash flow potential. We have more than 10 years of double premium inventory and are optimistic we will replace double premium locations faster than we drill them. Number three, accelerate new exploration projects. Last year, our exploration program focused on technical evaluations across numerous new prospects. We're excited to resume a more robust leasing and testing effort this year. We're evaluating a large number of double premium oil plays in the U.S. and internationally with the potential to deliver low finding costs and development costs and low production decline rates. The focus of our exploration program is to continue to improve the quality of our inventory and EOG's total shareholder value. Number four, raise the bar again on our ESG performance and ambitions. After achieving significant improvements in safety, emissions, and water performance in 2020, we have announced our ambition to reach net zero Scope 1 and Scope 2 GHG emissions by 2040. As one of the steps along the way, we expect to eliminate routine flaring by 2025. We believe this is possible using creative applications of current and future technology. We're currently implementing internally developed technology with a goal of measuring granular, real-time emissions data for all facilities in the company. This will encourage innovation and development of unique solutions to achieve our net zero ambition. Number five. resume moderate production growth only when the market is balanced. Assuming a balanced market by year end, we're positioned to grow oil eight to 10% in 2022 and 2023. We forecast that our shifting well mix towards double premium will lower our base decline rate to less than 25% within five years from 34% last year. This optimal growth rate delivers the most long-term total value by delivering higher returns lower decline rates, and more free cash flow over the long term. Number six, generate significant free cash flow. All cash allocation decisions are focused on enhancing total long-term shareholder value. Our top priorities for free cash flow are to sustainably grow the dividend and reduce debt. Beyond these priorities, when excess cash materializes, we will evaluate other options opportunistically. such as supplemental dividends, share repurchases, and low-cost property additions. With our deep inventory of double premium locations, moderating decline rates, and sustainable cost reductions, EOG's free cash flow potential is improving significantly. Before I turn it over to Billy, I want to address our thoughts on federal acreage. From statements made by the current administration, we believe that our current existing federal leases and corresponding federal drilling inventory can be fully developed. EOG is well prepared to manage through any regulatory changes that can impact the pace of development on federal acreage. The combination of our large number of federal permits in hand, our flexibility to pivot within our deep inventory of double premium locations, and our ability to add new inventory through organic exploration gives us the confidence that the future performance of the company will not be affected. Here's Billy.