EOG Resources, Inc.

Good day everyone and welcome to the EOG Resources fourth quarter and full year 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 Driggers. 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 those non-GAAP measures can be found on the EOG's website. 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 Jacob, Chief Executive Officer, Billy Helms, President and Chief Operating Officer, Ken Baedeker, EVP Exploration and Production, Jeff Leitzel, EVP Exploration and Production, Lance Treveen, Senior VP Marketing, and David Streit, VP Investor and Public Relations. Here's Ezra.

Thanks TIM good morning everyone 2021 was a record setting year for EOG we earned record net income of $4.7 billion generated a record $5.5 billion of free cash flow, which funded record cash return of $2.7 billion to shareholders. We doubled our regular dividend rate and paid two special dividends paying out about 30% of cash from operations. And we are continuing to deliver on our free cash flow priorities this year with an additional special dividend announced yesterday of $1 per share. The last time we set an earnings record was in 2014. We earned $5.32 per share, while oil averaged $93. Last year, we shattered that record, earning $7.99 per share with $68 oil. That's 50% higher earnings with a 27% lower oil price. The catalyst for that improvement was our shift to premium six years ago. Premium is our internal investment hurdle rate that uses low fixed commodity prices to calculate the returns that drive our capital allocation decisions. $40 and $2.50 natural gas for the life of the well. While our premium strategy ensures high well level returns and quick payouts in any given year, the more significant and durable impact is to our full cycle development costs. The benefit of making investment decisions using fixed low commodity prices has the enduring impact of steadily improving corporate level operating and cash margins over time. That impact is now directly observable on the face of our financial statements. And last year we raised the bar again to double premium. Our hurdle rate increased from 30% to a minimum of 60% direct after tax rate of return using the same low fixed prices of $40 oil and $2.50 natural gas. The switch promises to further improve financial performance in the years ahead and is what gives us great confidence in our ability to continue delivering shareholder value through commodity price cycles. We expect to look back on 2021 like we do on 2016 as the year we made a permanent increase to our return hurdle that drove another step change in the financial performance of EOG. We also delivered as we promised operationally in 2021 with production volumes capex and operating costs in line or better than target set at the beginning of the year, we were able to successfully offset emerging inflationary pressures during the year to lower well costs by 7%. 2021 was also a big year for ESG performance, we reduced our methane emissions percentage and injury rates and increased water reuse. We announced our 2040 net zero ambition and added our goal to eliminate routine flaring by 2025 to our existing near-term targets for greenhouse gas and methane emissions rates. We continue to develop creative solutions, leveraging existing technology to make progress on our path towards our net zero ambition. There's a growing recognition that oil and gas will have a role to play in the long-term energy solution. We know that to be part of that solution, we not only have to produce low-cost, high-return barrels, We also have to do it with one of the lowest environmental footprints. As we look into 2022, the global oil market is in a position to rebalance during the year. Our disciplined capital plan aims to increase long-term shareholder value through high return reinvestment that optimizes both near-term and long-term free cash flow. The plan also funds exploration and infrastructure projects to improve the future cost structure of the business. With the improvements we made in the business last year, combined with a higher commodity price environment, EOG is positioned to once again generate significant free cash flow. We continue to follow through on our free cash flow priorities. Our stellar fourth quarter performance allowed us to further strengthen the balance sheet, and we are returning cash to shareholders with the $1 per share special dividend declared yesterday. Combined with our $3 per share regular dividend, we have already committed to return $2.3 billion of cash to shareholders in 2022. We remain firmly committed to our longstanding free cash flow and cash return priorities, and you can expect EOG to continue to deliver on them as the year unfolds. EOG has exited the downturn a much better company than when we entered it. Higher returns with a shift to double premium, a lower cost structure, more free cash flow, a smaller environmental footprint, and a culture strengthened by the challenges we've overcome together. Our culture is the number one value driver of EOG's success. By remaining humble and intellectually honest, we sustain the cycle of constant improvement that drives our technology leadership. Of all the fundamentals that consistently create long-term value, none of them matter without the commitment, resiliency, and execution from our employees. Now here's Tim to review our financial position.

Thanks, Ezra. EOG generated record financial results in the fourth quarter with adjusted earnings of $1.8 billion and free cash flow of $2 billion. Capital expenditures of $1.1 billion were right in line with our forecast while production volumes finished above target. For the full year, adjusted earnings were a record $5 billion or $8.61 per share. This yielded return on capital employed of 23% while oil prices for the year averaged $68 per barrel. Perhaps most important than setting records is what drove our outperformance. 2021 illustrated EOG's success at driving down our cost structure. ROCE would have been 10% or better at oil prices as low as $44. Keep in mind that back in 2016 when the premium investment standard was introduced, the oil price required for 10% ROCE was in excess of $80 per barrel. The dramatic improvements we've made to the profitability of our business reflect the benefits of using the highest investment threshold in the industry. The bottom line financial impact of double premium is just beginning to show up. But like our original switch to premium, it will grow over the coming years. Our goal is to position the company to earn economic returns at the bottom of the cycle, less than $40 oil, and generate returns that are better than the broader market on a full cycle basis. Free cash flow in 2021 was a record $5.5 billion, and we deployed this cash consistent with our longstanding free cash flow priorities. We doubled the regular dividend rate, which now stands at an annual $3 per share and represents a 2.7% yield at the current share price. We are confident in the sustainability of our high-return, low-cost business model to support a dividend that has never been cut or suspended in its more than 20-year history. We solidified our financial position, finishing the year with effectively zero net debt. We were also able to address additional cash return priorities. We paid two special dividends for a combined $3 per share. We also refreshed our buyback authorization, which now stands at $5 billion. We will look to utilize this on an opportunistic basis. In total, EOG returned $2.7 billion of cash to shareholders in 2021. This represents 28% of discretionary cash flow and 49% of free cash flow, putting EOG among E&P industry leaders for cash return in 2021. Looking ahead to 2022, our disciplined capital plan and regular dividend can be funded at $44 oil. At $80 oil, we expect to generate about $11 billion of cash flow from operations before working capital. The $4.5 billion capital plan represents about a 40% reinvestment ratio, resulting in more than $6 billion in free cash flow. This, of course, is on an after-tax basis, as we expect to be a nearly full cash taxpayer in 2022, as we were last year. We are in an excellent position to continue to deliver on our free cash flow priorities in 2022. EOG declared a 75-cent regular dividend yesterday, which is our highest priority for returning cash to shareholders. The size of the regular dividend is evaluated every quarter. As the financial performance and cost structure of EOG continues to improve, we expect that will be reflected in continued growth of the dividend. Turning to our second priority, this period of high oil prices allows us to further bolster the balance sheets. To support our renewed $5 billion buyback authorization and prepare to take advantage of other counter-cyclical opportunities, we plan to build and carry a higher cash balance going forward. We expect there will be opportunities in the future to create significant shareholder value by deploying a strong balance sheet and ample liquidity at the right time. Finally, we also announced an additional cash return to shareholders yesterday with a $1 per share special dividend to be paid in March. Along with the regular dividend, EOG has already committed to return $2.3 billion of cash to shareholders in 2022. We are fully committed to continuing to deliver on all of our free cash flow priorities. Here's Billy. Thanks, Tim.

First, I want to thank all of our employees for their outstanding accomplishments and stellar execution last year. I'm especially proud of their safety performance. In addition to outstanding operations and financial improvements, we achieved a record low entry rate. 2021 was another year of execution. Throughout the year, we consistently exceeded our oil production targets, primarily due to strong well results. Our operations teams continued to innovate and find opportunities to increase efficiencies and lowered the average well cost by 7%, beating the 5% target we set at the start of the year. Our drilling teams are achieving targeted depths faster with lower cost by focusing on reliability of the tools and technical procedures that drive daily performance. For example, in our Delaware Basin Wolf Camp play, our teams have improved days to drill by 42% since 2018. In our Eagleford oil play, after drilling several thousand wells, Our teams continue to refine the drilling operation to drive consistent performance from our rig fleet, resulting in a 21% reduction in the drilling costs since 2018. And with our decentralized organization and collaborative teamwork across operational areas, we continue to generate ideas for improvement through our innovative approach to areas such as improved bit design and drilling motor performance and share them throughout the company. On the completion side, we made great strides to expand the use of our super zipper or simulfrac technique to about one-third of our wells completed last year. Completion cost also benefited from reduced sand and water cost through our integrated self-sourcing efforts and water reuse infrastructure. Utilizing local sand and water pipelines includes the added benefit of removing trucks from the road contributing to a safer oil field with lower emissions. Cash operating costs were in line with forecasts, and while delivering a higher level of total production, they were nearly equivalent to our cash operating costs pre-pandemic in 2019. The savings are a result of a focus on reducing work over expenses and improvements in produced water management. These efforts will expand in 2022 to help offset additional inflationary pressure. We also had another great year improving our ESG performance metrics. Preliminary calculations indicate that we reduced our methane emissions percentage by about 25% and our total recordable incident rate by 10%. We also achieved a 99.8% target for wellhead gas capture and increased water resourced from reuse to 55%. Again, these are preliminary results. as our final metrics will be published in our sustainability report later this year. As we enter 2022, EOG is not immune to the inflation that we're seeing across our industry, but we have line of sight to offset these inflationary pressures through innovation and technical advances, contracting for services, supply chain management, and self-sourcing of materials. Over 90% of our drilling fleet and over 50% of our FRAC fleets needed to execute this year's program are covered under existing term agreements with multiple providers. Our vendor partnerships provide EOG the ability to secure longer term, high performing teams at favorable prices while providing the vendors a predictable and reliable source of activity to run their business. EOG's technical teams take ownership of various aspects of the drilling and completion operations to drive performance improvements and eliminate downtime. As a result, we still see opportunities to sustainably improve our performance. Some of the largest efficiency gains will be in our completion operations this year. For example, we expect to utilize our super zipper technique on about 60% of our wells, increasing the amount of treated lateral per day. We're also enhancing our self-sourced local sand efforts which we expect to not only secure the material needed for the year, but also offset the effects of inflation. We continue to expand our water reuse capabilities that will assist in offsetting inflation in both our capital program and lease operating expense. We remain confident that we'll be able to keep well cost at least flat in 2022. EOG's capital efficiency continues to improve as a result of EOG's culture of continuous improvement. 2022 looks to be a year of challenges and inflationary headwinds, and I'm excited about the opportunity to bring our talented employees to further improve our business through innovation and improved operational execution. Here's Ken to review the year-end reserves and provide an inventory update.

Thanks, Billy. Last year, we replaced more than two times what we produced and reduced our finding and development costs by 17%. Our permanent shift to premium drilling and focus on efficiencies driven by innovation and our unique culture are keys to why our capital efficiency continues to improve and our corporate finding costs and DD&A rate continue to decline. Our 2021 reserve replacement was 208% for a finding and development cost of just $5.81 per barrel of oil equivalent, excluding revisions due to commodity price changes. Since 2014, prior to the last downturn in the implementation of our premium strategy, we have reduced finding and development costs by more than 55%. With our double premium standard and the high grading of our future development schedule, we grew our reserve base in 2021 by over 500 million barrels of oil equivalent, for total booked reserves of over 3.7 billion barrels of oil equivalent. This represents a 16% increase in reserves year over year. In terms of future well locations, we added over 700 net double premium locations across multiple basins to our inventory in 2021, replacing the 410 drilled last year by 170%. Our double premium inventory is growing faster than we drill it and the quality of the locations we are adding to the inventory is improving. Innovation continues to drive sustainable cost improvements and operational efficiencies. And when you combine that with our focus on developing higher quality rock, we further improve the median return of the portfolio. We don't need more inventory. We're focused on improving our inventory quality. With this in mind, our double premium inventory now accounts for 6,000 of the 11,500 total premium locations in our inventory, representing more than 11 years of drilling at the current pace. Now, let me turn the call back to Ezra.

Thanks, Ken. In conclusion, I'd like to note the following important takeaways. First, investment decisions based on a low commodity price puts the emphasis on full cycle cost of development and demands efficient use of capital. While the benefits of such discipline are realized immediately, the larger impact builds over time. The seed to our stellar results in 2021 was the premium strategy established six years ago, and we have set the stage for the next step change in financial performance by instituting double premium last year. Second, we are confident EOG's innovative and technology-driven culture can offset inflationary pressures this year. Our disciplined capital plan is focused on high return reinvestment to continue improving our margins in not only 2022 but in future years as well. Third, we are committed to returning cash to shareholders. We demonstrated this through the return of nearly 50% of free cash flow last year and this quarter's special dividend, our third in less than a year. Doubling our regular dividend rate indicates our confidence in the durability of our future performance. The regular dividend is our preferred method to return cash to shareholders, and as we continue to increase the capital efficiency of EOG through low-cost operations and improved well performance, growth of the regular dividend will remain a priority. We truly believe the best is yet to come. Going forward as a company and an industry with a financial profile more competitive than ever with the broader market and a growing recognition of the value we bring to society, The EOG has never been better positioned to generate significant long-term shareholder value. Thanks for listening.

Now we'll go to Q&A.

Thank you. The question and answer session will be conducted electronically. If you'd like to ask a question, please do so by pressing the star key followed by the digit 1 on your touchtone telephone. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Questions are limited to one question and one follow-up question. We will take as many questions as time permits. Once again, press star one on your touchtone telephone to ask a question. If you find that your question has been answered, you may remove yourself by pressing star followed by the number two. We will pause for just a moment to give everyone the opportunity to signal a question.

Our first question today comes from Paul Cheng from Scotiabank.

Please go ahead. The line is yours.

Hi. Thank you. Good morning, guys. First, we have been asked by many clients that with your CapEx plan and your production profile, if the current commodity price holds by mid-year, will you change the plan or under what circumstances that that plan may get revised. That's the first question. The second question is that in your future capital allocation, is 2022 the way how you allocate will be a reasonable proxy in the future, or we will see the percent in the new domestic drilling, which is about 10% this year, and also that the facility and the gathering and processing those percentage will go up as a total percent of your CAPEX as you're trying to proven up more new resource area. Thank you.

Yes, Paul. This is Ezra. I'll answer the first question and then I'll hand the second question over here to Billy to answer for you. With regards to our plan this year, as we've talked about, You know, the way we're approaching our planning is not based on the oil price that we're seeing. We're really looking to see the broad market fundamentals that are underlying and supporting that oil price and other macroeconomic indicators. So when we look at our 22 plan, you know, we think we've designed a very high return capital program. It balances our free cash flow this year with increased free cash flow in future years. And it really starts with investing in the double premium wells. When we bring those low-cost reserves into the company's financials, it helps drive down the cost basis of the company, and it continues to expand the margins. It's what allows us to continue delivering high corporate-level returns as well as increase the cash flow potential of the company, and that further supports our free cash flow priorities. So the program this year is at a pace that allows us to capture and incorporate technical learnings to continue to improve each of our assets. And that's the most important thing that we look to do every year, not only in 2022, but to go forward into future years as well. And I'll turn it over to Billy to answer the second part of the question.

Yeah, Paul, good morning. On the second part of the question, going forward beyond 2022 and the percent we have allocated to new domestic drilling potential, or really our exploration plays, and infrastructure spend, it's been fairly consistent in the past and I expect it to be fairly consistent going forward. The largest amount of our capex spend will always be dedicated to our more development plays like the Delaware Basin play. And then going forward, we remain excited about the exploration potential we see in many of our new emerging plays. And we'll continue to fund those at a pace where we can continue to learn and get better, just as Ezra mentioned. The infrastructure spend has always been about the same percentage each year, and I expect that will continue to be managed in the same way. We want to make sure that we don't get too far out in front with infrastructure spending, but it's done at a pace commensurate with the development activity in a given area. So I expect that that will continue to be the case.

Thank you.

Thank you.

Our next question today comes from Arun Jayaram from JP Morgan Securities. Please go ahead. Your line is now open.

Yeah, good morning. Global gas is clearly in focus right now. So I wanted to get your thoughts on the revamped agreement with Chenier, which will provide you more linkage to JKM. I think today you're selling about 140,000 mm BTU and that increases to $420 over time. So I was wondering if you could give us a sense of timing and shed some light on the type of realizations you get from marketing this gas to LNG, and how is the economic rent shared amongst you and Chenier?

Arun, hey, good morning. This is Lance. Thanks for your question. How are you today?

Doing well.

Well, hey. Never mind, I was just saying good morning. But, hey, no, we're very excited about, you know, the new amendment that we have with Chenier. And you're exactly right. I mean, we've got the 140,000 MMBTUs a day. That started in 2020. And I think that just really speaks to being, you know, really a first mover, too, because as you can see right now, you can look at the price realizations. You can see, you know, JKM spot prices are near $40 today. You know, having that first mover capability moving quickly there to get that exposure is exactly right. As you mentioned in your question, that's been very impactful in a positive way as we think about our price realizations. You know, we're very excited about the commitment. You're right. It ramps up. So we've got the 140 today that will ramp the 420 as they go into service. That's estimated to be probably with the first train there for stage three in 2026. Um, but if you remember there, we ramp up, we kind of go to the one 40 today. We started into the four 20 as stage three goes in the service and we still will maintain. And we extended the 300,000. MMBTU is a day sale that we have that's linked to Henry hub. So, um, you know, we're excited about it. It's a brownfield facility. Um, you know, they've demonstrated, you know, being early on many of their projects. So, uh, we're excited to see our relationship grow from that standpoint. and expect to see the price realizations materialize as well.

Great. And my follow-up is just on the 2022 program. Ezra, you guided to 570 net wells. We want to get a bit more color on the decision to allocate more capital to the Delaware versus Eagleford. It looks like your Eagleford activity will be down, call it more than 50% year over year, while you're Delaware will be up 30% more, including a little bit more second-bone activity. So I was wondering if you could give us a little bit of color there.

Yeah, Arun, this is Billy Helms. So, yeah, we're allocating a little bit more money to the Delaware Basin, and it's really just a function of the maturity of the Eagleford at this point. The Eagleford has been an active play for more than, I guess, 12 years. and certainly has been a highly economic play for the company and continues to be. I would remind everybody that last year was the single best returns we've ever generated on the Eagleford play since its inception 12 years ago. And so it's still a very valuable play, but it is more mature. The Delaware Basin, on the other hand, is still a lot earlier in its maturity in its life cycle. And still has a lot of opportunity to grow and test new horizons and expand our development capabilities over time. So it's just a lot younger in its maturity phase. So I think it naturally will command a little bit more activity on that side.

All right, great. Thanks a lot.

Thank you. Our next question today comes from Doug Legate from Bank of America. Please go ahead. The line is yours.

Thanks, good morning Ezra and good morning team. Guys, last time I spoke to you, you were talking about the mix of the double premium wells in the production profile and of course the impact on sustaining capital and breakeven oil prices. So I wonder if you could just walk us through how you see that. The 32 breakeven you've given us today obviously comes with, I guess, some element of growth in the capital. How do you see the sustaining capital? How do you see that break even trending? That's my first question.

Yes, Doug, this is Ezra Jacob. Thanks for the question. Yeah, our maintenance capital on the backs of a 7% well cost reduction last year and then additional well improvement combined with increasing the percentage of double premium wells, and what I mean by that is the lower cost of the reserves, bringing those into the company's financials, our maintenance capital continues to decrease, which is fantastic for us. You're right, the $32 breakeven that we provided today is actually with our commensurate with the CapEx program that we have for this year. But the double premium wells, we can't stress enough. Not only does the impact show out on very rapid payout and a high rate of return, really by bringing those lower cost reserves and a lower decline into the base of the company, over time it really does start to show up and impact the full cycle returns and free cash flow generation potential of the company in the future.

So what do you think those two numbers are today, the sustaining capital and the ex-growth breakeven?

Yeah, so we didn't release a maintenance capital this year. this earnings call due to the fact that we've started to allocate some additional capital into the Dorado play. And so it starts to get a little bit messy as you start going from oil into a BOE equivalence, as we are starting to see the phenomenal results there with the Dorado play as we dedicate additional capital to it. Nevertheless, I think what we've outlined is with the 7% well cost reduction and slight improvements on the well mix year over year, we've continued to drive down that break even. And for the full cycle return, we have a slide in our deck that shows the one way that we like to present it is the price required for a 10% return on capital employed. You can see we made a big step change last year as we drove that price down to $44.

Okay, thank you for that. My follow-up is a capital allocation question, and it's really maybe it's for Tim, but the free cash flow you're showing in your slide deck of north of $4 billion this year after the special, could essentially wipe out the majority of your share buyback authorization. I'm just wondering why you still feel no need to offer some kind of capital return framework, because clearly, you know, with the transparency of that breakeven level, with the duration of your inventory and so on, valuation becomes a little bit more transparent. Therefore, buybacks could perhaps be more justifiable. So I'm just curious why You've been reluctant not to go down that route. I'll leave it there. Thanks.

Yeah, Doug, this is Ezra again. You know, just to reiterate our free cash flow priorities, you know, first, the commitment begins with the sustainable dividend growth of our regular dividend. You know, in 21, we doubled that regular dividend. And to us, that regular dividend is really indicative of what we're trying to accomplish. It reflects the continuing increase in the go-forward capital efficiency of the company. And it's also focused on creating through the cycle value and free cash flow. And that's ultimately what we're trying to do. Again, going back to what we were just talking about with the investment in the double premium wells and lowering the cost basis of the company, trying to take at least a small step away from the inevitable commodity price cycles of our industry. The second free cash flow priority for us is a pristine balance sheet, which obviously provides tremendous competitive advantage in a cyclical industry. And then the third, you know, what we're talking about right now is the additional cash return in the form of specials or opportunistic repurchases. And as we talked about last year, you know, we demonstrated the commitment with $2.7 billion in cash return through the form of $3 per share special dividends and our regular. And then we also retired that $750 million bond early in the year. In general, what we've talked about is You know, we're going to use our reserve, our repurchase opportunities to be more opportunistic than programmatic. So in times, you know, one way to think is that in times of rising share or oil price, you can expect us to prefer to do special dividends. And really the way that we think about the share repurchase is we measure it as an investment, the same as we measure any investments across our business. So we want to make sure that it competes on a returns basis. And that's why we still prefer in an environment like this to stick with the special dividend as the priority for additional cash return.

I'll keep pressing on it. Thanks, Ezra.

Thank you, Doug.

Thank you. Our next question today comes from Scott Gruber from Citigroup. Please go ahead. Your line is open.

Thanks. Good morning. Just following on that line of questioning, given that you're net debt negative here to start the year, should we think about the cash bills as largely being over?

This is Tim. No. First of all, we are excited to be in the position where we are to have a cash balance, going for a net cash balance going forward. So we'll continue, as I said in my opening remarks, we'll continue to build cash on the balance sheet during these high oil price scenarios and look for opportunities in the counter-cyclical times to deploy that cash in a meaningful way in the form of more specials or stock buybacks or just opportunistic things that come along in the counter-cyclical environment. The answer, again, is no. We will be, in these high-priced environments, we will be building more cash on the balance sheet.

Gotcha. Gotcha. Appreciate the clarification. And then congrats on the expanded export agreement. Just thinking about the broader backdrop here, there's likely another round of LNG project sanctioning along the Gulf Coast. Seems like... The industry is in an advantage position there. How aggressive will EOG be on entering additional agreements, thinking kind of similar terms? Do you guys foresee an expanded JKM to Henry Hub spread that you'd want to capture? Do you think that's sustainable and you want to capture that spread, or do you kind of look at additional agreements more through a traditional diversification lens?

Yes, Scott. Hey, thanks for your question. This is Lance. I think what I can really point you to is like you think about each of our operating areas and you think about our transportation positions that we have. It really puts us, one, we're in close proximity, but two, we have the capability that we can transact very quickly. So I think first I would point you to that. And then I'd say secondly, yeah, we're always interested in new opportunities. So we'll be continuing to look at that from like a business development standpoint and It's really going to be commensurate, like you heard from Billy, as you think about growth, our volumes, and then as we move forward, we'll be looking at new opportunities, but that'll be definitely commensurate with our plans when we go forward as we look at our plan.

Gotcha. Appreciate the call. Thank you.

Thank you. Our next question today comes from Neil Dingman from Truth Securities. Please go ahead. The line is yours.

Morning, all. Thanks for the details so far. Is there maybe for you or Tim, maybe just ask one more on the shareholder return. I know most popular question. You guys continue now to pay out over 50% of your pre-cash flow. I'm just wondering on a go forward, I know there were some estimates out there thinking you all would even have potentially a higher payout. Is that something that you're targeting? I know you're not going to have exact metrics on how you want to pay out up to a certain amount, but is that something internally you're always continuing to sort of look at paying out over 50% or 60% or something like that and go forward giving your strong free cash flow.

Yeah, thanks for the question. This is Ezra. We continue to evaluate our cash position with respect to dividends on a quarterly basis. And what I would say is that You're correct. We're thrilled to be in the position where we are, where we can offer to the shareholders such a competitive regular-based dividend that, again, I think is our number one priority as a way to create value through the cycles. But on top of that, we are in a great position to offer continued strength of our balance sheet to support that dividend and then continue to offer cash return, additional cash return of excess free cash flow in the form of these specials and buybacks. We don't have a specific target that we do. You know, we've stayed away from providing a formula because we want to be able to have the flexibility to do the right thing at the right time to really maximize the shareholder value in a way that is protected through the cycles. You know, said another way, I think we've demonstrated that over the past year. We've taken the opportunity to both strengthen the balance sheet last year and again last year pay out a significant amount, $2.7 billion in cash returns. And we've doubled down on that basically with this first quarter announcement. with the $1.75 per share cash return this quarter. Essentially, that reflects the evaluation, the positive commodity price environment that we were experiencing in, and the strength of the underlying business and our confidence in it going forward.

Nice bump on the NGL guide. Can you talk about it? I've seen you obviously now have a number of wells up in the sort of liquid, uh, Utica areas that was driving the growth there. You could talk about sort of plans, uh, in the Marcellus type area or in the Appalachian area, I could say.

Uh, yes, you know, we actually divested of our Marcellus position a couple of years ago that was in a dry gas part of the, uh, of the, of the Marcellus acreage there in Pennsylvania, uh, with respect to some of the other opportunities that we haven't really discussed publicly. You know, that's really exploration. As you guys know, first and foremost, we're an exploration company. We're always striving to be a first mover and organically improve the quality of our inventory. So I will provide you a little bit of color on that. You know, domestically, we continue to explore across the U.S. Our exploration program we've talked about for the last year or so has been progressing. We finished last year drilling 12 wells across multiple opportunities. All, you know, dominantly oil-focused. And we'll be slightly increasing that number this year to about 20 as we're encouraged with some of the results that we had last year. In general, though, like I said, we don't discuss the details of the exploration other than just to say that the opportunities are low-cost entry. They're oil-focused. They're reservoirs that we think we can exploit with our horizontal drilling and completions expertise. And this year, you know, we look forward to doing some more delineation. and appraisal drilling. And as we've said in the past, the goal of our exploration program is not just to find oil or find reserves. It's really to add to the quality of our inventory from a lower finding cost and higher returns perspective. And so it takes time to be able to evaluate that we can actually discover these opportunities and bring them into the mix where they're really going to help lower the cost basis of the company and be a significant contributor to our portfolio going forward.

And I guess just to follow up on that, as far as the NGO guide going up, that's simply a function of the fact that we have an opportunity to make an election as to how much we recover or reject going forward on several of our processing contracts. And with the strength of much of the NGO pricing, we're simply assuming we'll be in recovery mode more than rejection mode in several of those contracts this year.

Thank you. Our next question today comes from Scott Hanold from RBC Capital Markets. Please go ahead. The line is yours.

Thanks. And, you know, maybe just since you talked a little bit about the exploration opportunities in the U.S., can you give us a sense of, you know, how you think about international exploration opportunities? I know you all were doing some work in Oman and offshore Australia. Is there any update there? And, you know, how do you think about international versus, you know, onshore or U.S. opportunities?

Yes, Scott. In general, as we've talked about, the international opportunities have a higher hurdle to really be considered additive to the quality of our inventory simply because we need to have access to services there, we need to have access to contracts, and we need to find the subsurface geology that actually makes it not just competitive but really superior to much of what we're drilling here. In Australia, to start with that one, we still have that opportunity. We plan – in the permitting phase currently, and we plan to initiate drilling in that one early next year. And then in Oman, we did announce, as you recall, we had a low cost of entry into Oman. It included a two-well commitment, and during the second half of 21, we drilled those two exploratory wells, one of which was a short horizontal. We completed that horizontal, made a natural gas discovery there, But ultimately, as I was just saying, the prospect we decided is not going to compete with our existing portfolio. So we won't be moving forward with that project. In general, we do feel encouraged with the international opportunities out there because we see really kind of a lack of exploration competition out there. And we see that many times national oil companies or ministries, the owners of those lands have really started to realize that they can't rely on traditional conventional term contracts to be able to get some unconventional type prospects drilled. And so we're seeing a little bit more flexibility on the negotiation side, which gives us some encouragement.

Great. Thanks for that. And I'm going to, you know, hit on the shareholder returns too, because obviously you all are in a very enviable position, but you know, Ezra and Tim, you guys, you know, talk about being opportunistic and counter-cyclical ways with, with your balance sheet. And, you know, during the first fourth quarter, I guess, you know, post, um, Thanksgiving, there was a little bit of a disconnect there. Um, you know, your stock was a lot lower than it is today. Um, you know, why not take that opportunity then to buy back stock? Can you, so just trying to frame for us, like, you know, when you think the right opportunities to buy back stock are.

Yes. In general, Scott, uh, we, we didn't see that, uh, As one of the opportunities that we're looking for there in the fourth quarter when we talk about a significant dislocation we're talking about something. More so than that you know, like I said, we consider share repurchase in the same way that we do any investment decision it's how does it create the most long term shareholder value. And we're in a cyclical industry and that's why we prefer to use it opportunistic Lee with a significant opportunity, the challenge. Of course, as we recognize that being in a position to execute during a market dislocation is a challenging thing to do. However, we feel that with the strength of our balance sheet and the low cash operating costs that we have, we'll be well positioned when we see the opportunity.

Thank you. Our next question today comes from Leo Mariani from KeyBank. Please go ahead. The line is yours.

Hey guys, I wanted to see if there's any update on the PRB. I certainly noticed in the slide deck that activity there is going to be down a little bit in terms of a few less wells in 2022 versus what you did in 2021. So perhaps you could kind of speak to maybe how well costs have trended and kind of where that opportunity is on your list amongst the different plays. Clearly, you described a significant increase in Delaware activity this year. So how does the PRB rank?

Hey, Leo, this is Jeff Leitzel. You know, the PRB, we're really excited about where it's going. In 2021, we had a record year, both from a well performance and an economic standpoint. Last year, our team, they continued to really delineate our core areas. They completed about 50 wells, and half of those exceeded our double premium threshold. So we're really encouraged by that. On top of that, we also brought on multiple record wells in the basin, both in the Niagara and the Maori formations, all doing this while reducing our cost year over year by about 10%. So the one thing that we really look at with the Powder River Basin is it's a little bit more geologically complex compared to our other basins. So it's really important that we operate at the right pace and we don't outrun our learnings. So looking forward to 2022, we plan on maintaining a similar amount of activity. And as our team up there really high grades our acreage, refines our well spacing, and strategically builds out our infrastructure, we really expect the Powder River Basin asset to be able to increase activity in 2023 and beyond.

Okay. Now that's helpful for sure. And then if I can just take another crack at the kind of exploration. So I certainly noticed that you guys are spending about, my numbers are right around $100 million more on some of these U.S. plays here in 2022, and you clearly talked about drilling more wells. I guess a common question I hear from investors out there is it's been a number of years since EOG has kind of announced this strategy, and I guess we have kind of yet to see a new significant U.S. oil play for the company. I know these things are hard to predict, but if I had to just kind of Look at a high-level timeline. I mean, do you think that's likely in 2022 or maybe 2023? I mean, anything you can kind of, you know, say from a high level to give people some assurance that maybe these are progressing?

Yes, Leo. What I'd say is, you know, it's just really hard to predict, and I'd hate to commit to something to lead you down the wrong path. I might point to historically, you know, we did some early drilling in the Powder River Basin. And it was a number of years before we felt comfortable we had gotten that to a point where we wanted to talk about it publicly in a big way. And then the same with Toronto. I know there was a lot of speculation as to our Austin Chalk Exploration Program for a number of years. And as you can see, we waited until we had some long-term production and felt confident as to what we had there before we started really talking about it publicly. The current exploration program was definitely slowed down, even maybe a little bit more than we anticipated during the pandemic. It was just a little more difficult even to get leasing done and things of that nature. As we talked about in 2021, you know, the plays coming out of the pandemic had really started to move at kind of various paces or various rates. Some of the wells last year that we drilled were the initial wells in these plays. In other prospects, some of the wells were really testing a little more delineation repeatability, more appraisal. Because again, like I said, almost more than an exploration program, what we're trying to find is not just oil. That's not necessarily the most difficult thing anymore. It's really, as you guys can appreciate, trying to find low-cost barrels, barrels that are additive to what not only we've already discovered, but what the industry has really discovered. What the world wants is access to to lower-cost barrels, and that's what we're searching for. And so it takes a little bit longer to be able to really get the appraisal on these and make sure that these opportunities are really going to be additive, again, to the quality of our inventory.

Okay, thanks.

Thank you. The next question today comes from Jeannie Wei from Barclays. Please go ahead. Your line is open.

Hi. Good morning, everyone. Thanks for taking our questions. Our first question is maybe just back to the double premium. You added 700 new net double premium locations in 2021. And were these additions spread out across your plays, or were they concentrated in maybe one or two of them? And where do you see the most runway for future conversions?

Yeah, Janine, thanks for the question. This is Ken. We added, you know, double premium locations over a number of our active premium plays, really in line with where we drilled our wells last year, mainly in the Permian and the Eagleford. And this is really just an example of our culture where we're working to get better, you know, continuing to lower well costs while focusing on increasing the recovery is what leads to significant increases in returns. And and really allows us to convert wells to premium and double premium through time. You know, and our goal is to always replace at least as many double premium locations as we drill every year.

Okay, great. Thank you. Maybe our second question, maybe one for Tim or Ezra. In the past, I think if memory serves me correctly, I think you've commented that after you pay off the 2023 notes that you don't really have a desire to pay down any further debt. We just wanted to check in if that was still the thinking, and I think we're just really looking for a little bit more color on how you decided that a dollar per share for the special this time around was the optimal level. Thank you.

Yeah, this is Tim. No, we have not announced any intention of paying off more bonds as they become due. We'll continue to evaluate that as we go forward, but that did not figure into the dollar. The dollar was a way of giving back a meaningful amount amount of cash to the shareholders in this period. And as we said, that's a backward-looking thing, not a forward-looking thing.

Thank you. Our final questions today come from Neil Mehta from Goldman Sachs. Please go ahead. The line is yours.

Thank you very much. I know EOG has developed some more internal macro forecasting capability. I just get curious on your views on U.S. shale production in the United States. How are you guys thinking about it, entry to exit U.S. oil growth? And talk about the moving pieces, ranging from what you're seeing from your competitors in the private market to services constraints such as pressure pumping. Your thoughts on U.S. growth would be valuable.

Yes, Neil. I'll add a bit of an overview, and then maybe I'll hand it off to Billy for some more details for you on the activity side. But In general, when we think about the growth forecasts that are out there and have been publicly discussed, we're probably a bit more on the lower end in general on the crude and condensate side. And the reason for that is I think you're seeing commitment from the North American E&P space to remain disciplined. And then you couple that with some of the inflationary and supply chain pressures. And we think the U.S. is definitely going to face some headwinds in growth on this year. And I think Billy can provide a bit more details on it.

Yeah, Neil, this is Billy. I'm sure you've heard the same comments from many of our peers about the supply chain constraints and the industry is seeing across all the sectors. Certainly on the drilling rig side, there's certainly most of the active super spec rigs are being deployed and active today. There's not a lot of new pieces of equipment that can come into the market. The same is true on the frac side of the business. Most of the good equipment is already under employment today. And then bringing in new fleets, both on the drilling side and on the frac side, is challenged also from the standpoint of attracting labor to the market. So there's a lot of headwinds for the industry to try to ramp up activity and grow production this year. So it'll be a probably viewed as maybe a transition year also in that lot, and hopefully the industry can strengthen and get better on a go-forward basis, but this year is going to be a challenging year from that side.

And the follow-up is around natural gas, both U.S. and global. A lot of moving pieces, obviously, right now from a geopolitical standpoint, but it most of the industry has been of a lower for longer U.S. natural gas view. Do you see that evolving as we have more LNG linkage into the global market? As you think about global gas, especially in light of your announcement with Chenier, do you see a structural change in this market until Qatari supply comes on mid-decade?

Yes, Neil, this is Ezra. In general, what I would say is, you know, the U.S. has discovered a very vast supply of natural gas, and it's important that we get that gas offshore and into the global market for some of the reasons that you talked about now, not only geopolitical but just developing nations, so on and so forth, and that's one of the reasons we're so glad to partner and continue to take out some of our LNG. For us, the way we think about the natural gas globally, is really it's going to be a cost of supply. And, you know, we say that we want to be the low-cost producer, and that might sound like we're talking about oil dominantly, but that goes for gas as well. And it's one reason we're very excited about our Dorado prospect. We think it competes, you know, in North America as basically the lowest cost of supply, especially because of its geographic location close to so many marketing centers, including the Gulf Coast. So we're very excited and very fortunate to have it. uh and and i think the us is going to continue to be you know in the long term a significant player in the global gas supply thank you this concludes today's q a session so i'll now hand the call back to mr jacob yes we want to thank everyone for participating on the call this morning and we want to thank our shareholders for their support As we said, EOG had an outstanding performance in 2021, and we're poised for another great year in 2022. And it really comes down to our employees. Our employees are the keys to our success, and it's why I'm convinced we're only getting started at being one of the lowest cost, highest return, and lowest emissions energy suppliers that can play a significant role in the long-term future of energy. Thank you.

This concludes today's call. You may now disconnect your lines.