EOG Resources, Inc.

Good day, everyone, and welcome to EOG Resources Third Quarter 2021 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 Chief Financial Officer of EOG Resources, Mr. Tim Triggers. Please go ahead, sir.

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 have been outlined in the earnings release in EOG's SEC filings. This conference call also contains certain non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures can be found on EOG's website. Participating on the call this morning are Ezra Jacob, Chief Executive Officer, Billy Helms, President and Chief Operating Officer, Ken Baedeker, EVP Exploration and Production, Jeff Leitzel, EVP Exploration and Production, Lance Turveen, Senior VP Marketing, and David Streit, VP Investor and Public Relations. Here's Ezra Jacob.

Thank you, Tim. Good morning, everyone. EOG is delivering on our free cash flow priorities. Yesterday, we announced an 82% increase to our regular dividend to an annual rate of $3 per share, a $2 per share special dividend, and an update to our share buyback authorization to $5 billion. These cash return announcements reflect EOG's consistent, outstanding performance and are the direct result of our disciplined approach to high return investment. During the third quarter, we set new quarterly earnings and cash flow records, adjusted net income of $1.3 billion, or $2.16 per share, and free cash flow of $1.4 billion. The strength of our current and future earnings and cash flow that supports both dividend announcements can be traced back to 2016. Amid a potentially prolonged low commodity price environment, we made a permanent upgrade to our investment criteria. Our premium hurdle rate was established not only to protect the company's profitability in 2016, but all future commodity cycles. The discipline to only invest in new wells that earn a minimum 30% direct after-tax rate of return, assuming a $40 oil price for the life of the well, continues to improve our capital efficiency, profitability, and cash flow. Our employees immediately embraced the challenge of this new investment hurdle, and by the second half of 2016, EOG was reinvesting capital and paying the dividend within cash flow. We have generated free cash flow every year since. From 2017 to 2019, we generated enough free cash flow to significantly reduce net debt by $2.2 billion, while also increasing the dividend rate 72%. We also expanded our inventory of premium wells by more than three times. While adding inventory that meets the minimum premium threshold increases quantity, our goal through technical innovation and organic exploration is to add higher quality inventory. Our employees, empowered by EOG's unique culture, applied innovation and efficiencies to raise the return of much of the existing inventory, while adding higher rate of return wells through exploration. The premium standard established in 2016 and the momentum that followed provided a step change in operational and, by extension, financial performance, which set the stage for the second upgrade to our reinvestment hurdle rate, double premium. Double premium, which is a minimum return hurdle of 60% direct after-tax rate of return at $40 oil, was initiated during the depth of last year's unprecedented down cycle. That capital discipline enabled EOG to deliver extraordinary results in a $39 oil price environment last year. Using such stringent hurdle rates prepared the company not only for 2020, but for our stellar results this year. There is no clearer indication of the impact premium and now double premium has had on our confidence in EOG's future profitability than the 82% increase to our regular dividend announced yesterday. Combined with the 10% increase made in February of this year, we have doubled our annual dividend rate from $1.50 per share to $3 per share. After weathering two downturns during which we did not cut nor suspend the dividend, the new annual rate of $3 per share reflects the significant improvement in EOG's capital efficiency since the transition to premium drilling. Going forward, we are confident that Double Premium will continue to improve the financial performance just like Premium did five years ago. We are also confident in our ability to continue adding to our Double Premium inventory without any need for expensive M&A by improving our existing assets and adding new plays from our deep pipeline of organic exploration prospects. Developing high-return, low-cost reserves that meet our stringent Double Premium hurdle rate expands our future free cash flow potential and supports EOG's commitment to sustainably growing our regular dividend. EOG's focus on returns, discipline growth, strong free cash flow generation, and sustainability remain constant. Just as our free cash flow priorities are consistent, so remains our broader strategy and culture. EOG's competitive advantage is our people, and today's announcements are a reflection of our culture of innovation and execution. Looking towards 2022, Oil market supply and demand fundamentals are improving, but remain dynamic. While it's unlikely the market will be fully balanced by the end of 2021, we will continue to monitor macro fundamentals as we plan for next year. We are committed to maintaining production until the oil market needs additional barrels. Under any scenario, we remain focused on driving sustainable efficiency improvements. We are well positioned to offset inflationary price pressures to help keep our well costs flat next year. To summarize this quarter's earning release in three points, first, our fundamental strategy of investing in high return projects consistently executed year after year is delivering outstanding financial results. Second, we are still getting better. As we continue to expand our opportunity set to add double premium inventory through sustainable well cost reductions and organic exploration, EOG is set up to improve performance even further. And third, we are well positioned to execute our high return reinvestment program in 2022 to deliver another year of outstanding returns. Here's Tim to review our capital allocation strategy and our free cash flow priorities. Thanks, Ezra.