EOG Resources, Inc.

Good day, everyone, and welcome to the EOG Resources Second Quarter 2024 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 Investor Relations Vice President of EOG Resources, Mr. Pierce Hammond. Please go ahead, sir.

Thank you, Danielle, and good morning. And thank you for joining us for the EOG Resources second quarter 2024 earnings conference call. An updated investor presentation has been posted to the investor relations section of our website, and we will reference certain slides during today's discussion. A replay of this call will be available on our website beginning later today. As a reminder, 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 and EOG's SEC filings. This conference call may also contain certain historical and forward-looking non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures and related discussion can be found on the Investor Relations section of EOG's website. In addition, some of the reserve estimates on this conference call may include estimated potential reserves as well as 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, Jeff Leitzel, Chief Operating Officer, Ann Jansen, Chief Financial Officer, Keith Trasko, Senior Vice President, Exploration and Production, and Lance Treveen, Senior Vice President, Marketing. Here's Ezra.

Thanks, Paris. Good morning, everyone, and thank you for joining us. We delivered exceptional second quarter results, reflecting outstanding execution by our employees throughout our multi-basin portfolio. We earned $1.8 billion of adjusted net income and generated $1.4 billion of free cash flow. Every metric, production volumes, capex, and per unit operating costs beat targets, driving another quarter of excellent financial performance. Our outstanding results year to date allow EOG to update our full year forecast for liquids production, cash operating costs, and free cash flow. As seen on slide five of our investor presentation, we increased our target for full year 2024 total liquids production by 11,800 barrels per day. Increased production coupled with a modest increase to forecasted operational efficiencies reduces per-unit cash operating costs by 15 cents, driving a $100 million increase to our forecasted free cash flow to $5.7 billion for the full year at the same strip prices of $80 oil and $2.50 natural gas. Illustrating the benefits of EOG's unique culture and decentralized structure, there wasn't one single operation or play that drove our second quarter outperformance. Our decentralized operating teams utilize technology and apply innovation across our portfolio of assets to improve unit costs, well costs, and well productivity. We made gains in both drilling and completions, and every asset contributed. Our foundational Delaware Basin and Eagleford plays, as well as our emerging Wyoming Powder River Basin, South Texas-Toronto, and Ohio Utica shale plays. The strength and depth of our multi-basin portfolio of premium assets is a tremendous advantage, and our focus on premium drilling means each of these assets competes against our premium price deck, measuring direct well investments against a $40 oil and $2.50 natural gas price for the life of the assets. That capital discipline provides EOG the flexibility to invest thoughtfully across all of our assets to support the pace of operations that is optimal for each individual asset to continue to improve. We can adjust to dynamic market conditions, such as the broader macro environment and basin-specific economic factors. As a result, we don't rely on any one basin, any one product, or any one marketing outlet to drive our company's success. Capital discipline is core to EOG's value proposition, evidenced by our ability to generate free cash flow for eight years in a row and is what drives our ability to deliver the consistent performance that our shareholders have come to expect and to create long-term shareholder value through the cycle. EOG's outstanding and consistent operational and financial performance positions us to deliver on our cash return commitments in 2024. Our cash return strategy continues to be grounded in our regular dividend, which has never been suspended or reduced in 26 years, and supplemented with special dividends and opportunistic share repurchases. Our disciplined and balanced investment in foundational plays, emerging assets, and strategic infrastructure, all supported with a pristine balance sheet, is laying the path to increase near and long-term free cash flow. The overall macro environment remains constructive. Global oil demand continues to increase after a seasonally soft first quarter and is in line with our forecasts. As anticipated, domestic oil supply growth has moderated since last year as a result of consolidation in the industry and reduced drilling and completions activity stemming from industry capital discipline. Activity levels, as reflected in rig count, indicate continued lower oil production growth through at least mid-2025. We expect lower 48 U.S. supply to exit 2024 at roughly the same level as year-end 2023, with only modest gains to total U.S. oil supply as offshore production increases. Regarding North American natural gas, during the second quarter, inventory levels moved closer to the five-year average, and we expect this trend to continue, due in part to supply curtailments and increasing year-over-year demand. We remain optimistic on the long-term outlook for gas demand beginning in 2025 as a result of additional LNG capacity coming online and continuing increases in demand from electricity generation. We will continue to prudently manage our Dorado activity as the current environment continues to highlight the importance of being a low-cost supplier of natural gas with access to multiple diverse markets. This quarter, we have further expanded our marketing outlets, capturing additional interstate pipeline capacity to deliver natural gas to demand centers in the southeastern U.S. In a moment, Lance will provide details on this exciting opportunity, as well as updates on our ongoing infrastructure projects. EOG's performance this quarter can be summed up as exceptional operational execution drives exceptional financial performance. resulting in more volumes and lower per unit operating costs for the same capex yielding higher free cash flow for the year. Ann is up next to provide an update on financials and cash return to shareholders. Here's Ann.

Thanks, Ezra. EOG continues to create long-term shareholder value. During the second quarter, we earned $1.8 billion of adjusted net income and generated $1.4 billion of free cash flow on $1.7 billion of capital expenditures. Second quarter capital expenditures finished lower than expected due to the timing of certain indirects and international projects along with contributions from efficiency gains above what we forecasted at the start of the year. Jeff will discuss these operating efficiencies in a moment. We also paid a $0.91 per share dividend and repurchased 690 million of shares during the quarter. In the first half of 2024, we generated $2.6 billion of free cash flow helping fund cash return to shareholders of $2.5 billion. We have paid over $1 billion in regular dividends and repurchased more than $1.4 billion in stock through the second quarter while maintaining a pristine balance sheet. Taking into account our top-tier full-year regular dividend, we have already committed to return $3.5 billion to shareholders in 2024. We are on track to exceed not only our minimum cash return commitment of 70% of annual free cash flow, but also last year's cash return of 85%. EOG's commitment to high return investments is delivering high return to our shareholders. A growing sustainable regular dividend remains the foundation of our cash return commitment and is the best indicator of a company's confidence in its future performance. Special dividends and share repurchases are employed opportunistically to supplement our top tier regular dividend. Since putting the $5 billion share repurchase authorization in place over two years ago, the fundamental strength of our business has improved, as demonstrated most recently by our exceptional second quarter and year-to-date performance. We continue to get better through consistent execution of EOG's value proposition. As a result, over the last several quarters, we have favored buybacks, and we will continue to monitor the market for opportunities to step in and repurchase shares throughout the year. Since the authorization has been put in place, we have repurchased nearly 21 million shares, which is more than 3% of shares outstanding, at an average price of about $118 per share, totaling about $2.4 billion worth of shares repurchased. Now here's Jeff to review our operating results.

Thanks Ann. I'd like to first thank our employees for their outstanding execution this quarter. Your dedication to and focus on operational excellence extends our momentum from the first quarter and puts EOG in great position to finish the year strong and deliver exceptional value to our shareholders. In the second quarter, we beat targets across the board including production volumes, per unit operating costs, and CapEx. Oil volumes came in above target due to a couple of drivers. Production in our foundational Delaware basin in Eagleford Place is outpacing our forecast due to better well performance on a collection of packages. Also, our base production performance continues to improve due to the application of proprietary EOG technology. Over the last several years, we have developed in-house artificial lift optimizers for several functions including gas lift, plunger lift, and rod pump operations. These state-of-the-art optimizers use algorithms to automate the set points of artificial lift and cost factors that allow for real-time adjustments to maximize production and reduce interruptions of third-party downtime. These cross-functional efforts by our production, marketing, and information systems teams continue to improve and pay dividends. The final driver of our second quarter volume beat was timing. We were able to bring online a package of wells a full month earlier than anticipated. As a result of volume performance beats to date and updates to our full year forecast for Delaware Basin and Eagleford production, we are increasing our annual volume guidance by 1,800 barrels of oil per day and 10,000 barrels per day of natural gas liquids. The volume uplift helps lower our per unit cash operating cost guidance for the full year as well as generates additional free cash flow. Total well costs are trending in line with our expectations and resulting in a low single-digit year-over-year decrease. Driven by both moderate market deflation and drilling efficiency gains, we are seeing these cost improvements across our entire multi-basin portfolio. Regarding service costs, depletion is playing out as we had forecasted at the start of the Spot prices for certain services have trended lower while high spec rigs and prac equipment remain relatively stable. We have secured 50 to 60% of our service costs with contracts in 2024, primarily for high spec, high demand services to ensure consistent performance throughout our program. By securing these resources, we're able to focus on sustainable efficiency improvements to progress each one of our plays at a measured pace. In our foundational Delaware Basin and Eagleford plays, operational efficiencies are driven primarily by longer laterals improving drilled feet per day. Longer laterals allow for more time being spent drilling down hole and less time moving equipment on the surface. In addition, the more we extend laterals, the more benefit we derive from our in-house drilling motor program. EOG motors drill faster and are more reliable, which becomes more impactful on our drilling performance as lateral length increases. In the Eagleford, we are on target to extend laterals by 20% on average, and the year-to-date results has been a 7% increase in drilled feet per day. In the Delaware basin, More than 50 wells or nearly 15% of our 2024 drilling program will use three-mile laterals compared to four three-mile laterals last year. Year-to-date, the efficiency impact from our three-mile program in the Delaware Basin is a 10% increase in drilled feet per day. In the Utica Shale, we continue to collect data from our new packages and evaluate production history from existing wells as we test spacing patterns and completion designs across our 140-mile acreage position. Two new well packages, the Northern Shadow Wells and the Southern Whitewiner Wells, as seen on slide 12 of our investor presentation, have delivered strong initial results and continue to demonstrate the premium quality of this play. In addition to strong well results, since last quarter, we have added another 10,000 net acres to our Utica shale position, bringing our total to 445,000. While we continue to make delineation progress, our focus in the near future for Utica development will be on the 225,000 net acres in the volatile oil window where we have a more comprehensive geologic data set. Our large, contiguous acreage position in the Utica lends itself to developing a long-life, repeatable, low-cost play competitive with the premier unconventional plays across North America. For 2024, we are on target to complete 20 net wells in the Utica across our northern, central, and southern acreage, which supports a full-rig program and enables significant well cost reductions. In Dorado, we continue to leverage the operational flexibility provided by our multi-basin portfolio to moderate and manage activity through the summer. Earlier this year, we decided to defer completions while retaining a full rig program to maintain operational momentum. As a result, the drilling team has achieved a 13% increase in drilled feet per day year-to-date. Maintaining a steady drilling program allows us to capture corresponding efficiencies and advance and improve the play while we continue to monitor the natural gas market. Gas prices are improving into the second half of the year and we remain flexible to respond to the market. As the year unfolds, we will continue to maintain capital discipline and leverage the flexibility of our multi-basin portfolio to ensure consistent execution across all operating areas. We also remain highly focused on sustainable cost reductions through innovation, operational performance, and efficiency improvements to further drive down our cost structure and expand EOG's capacity to generate free cash flow. Here's Lance for a marketing update. Thanks, Jeff.

I'll be updating on our strategic infrastructure investments in the Delaware Basin and Dorado, as well as the exciting progress we've made expanding access to premium natural gas markets. First, in the Delaware Basin, our Janus gas processing plant is on schedule to start up in the first half of 2025. This 300 million cubic feet per day plant will be instrumental in lowering our cash operating costs and improving netbacks. The Janus plant will have connectivity to the new Matterhorn Express pipeline, estimated to be in service in the fourth quarter of this year. EOG has firm capacity on Matterhorn, which will allow us to move additional residue gas out of Waha to the KD Houston Market Center. Most importantly, we expect our Waha gas exposure on a total company gas production basis to be only 5% in 2025. Furthermore, our new Matterhorn capacity already has in place term sales along with additional downstream connectivity. Next, in our emerging South Texas Dorado natural gas play, Phase 1 of our 36-inch Verde pipeline is in service with safe, consistent operations, and we are on schedule to bring online Phase 2 in the second half of 2024. We're excited that Phase 2 of the Verde pipeline's terminus is the Agua Dulce market hub. While our current cash costs in Dorado are approximately $1 per MCF, we expect a combination of Verde Phase 2 and the premium markets accessed at Agua Dulce will further expand our margins, positioning Dorado as one of the most competitive, lowest cost, and highest return natural gas plays in North America. At Agua Dulce, we have executed agreements for three interconnects directly from our Verde pipeline, including Whitewater's new ADCC pipeline supplying Chenier's Corpus Christi LNG terminal, Enbridge's Valley Crossing pipeline with access to industrial LNG and Mexico markets, and Williams Transco Pipeline Expansion, the Texas to Louisiana Energy Pathway Project, or TLIP, reaching the entire Gulf Coast corridor, which is illustrated on slide 10 in our investor presentation. TLIP received FERC approval at the end of June and is currently under construction and expected to be in service in the first quarter of 2025. EOG is contracted for the entire 364,400 MMBTU per day of firm capacity. Through TLIP, we expand our access to a valuable liquid market center that serves robust southeastern power generation and additional future demand. Our capacity on TLEP is in path for supply from multiple EOG assets, including Dorado from our Verde pipeline and the Permian Basin from our capacity on the Matterhorn pipeline. Securing capacity on TLEP is consistent with our broader marketing strategy to diversify our in-market options, We continue to expand our access to multiple premium markets, serving customers from LNG to industrials to utilities and more, while optimizing our valuable transportation position. Now here's Ezra to wrap up.

Thanks Lance. I'd like to note the following important takeaways. EOG has delivered another outstanding quarter. Strong employee-driven operational performance produced strong financial performance. Our multi-base and asset teams continue to drive innovation and increase capital efficiency, not only on new wells, but by applying technology to our base production. We are delivering more volumes and lower per unit costs for the same capex, resulting in higher free cash flow for the year. Capital allocation across our foundational plays emerging assets and strategic infrastructure is delivering strong near-term free cash flow, while also laying a path to future free cash flow generation. EOG continues to expand an already diverse marketing strategy, Following our announcement of a new Brent-linked gas sales agreement earlier this year, this quarter we have announced additional natural gas pipeline connections, further reducing our exposure to in-basin differentials and exposing us to multiple demand centers. And lastly, EOG continues to deliver on its cash return commitment. While our regular dividend is the foundation of our cash return strategy, we are well positioned to continue delivering additional cash return through share repurchases and special dividends. supported with the strength of our balance sheet and low-cost operations. Including our annual regular dividend and share repurchases in the first half of the year, we have already committed to $3.5 billion in cash return and are well positioned to exceed our minimum cash return commitment. Thanks for listening. We'll now go to Q&A.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone phone. If you are 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, please press star 1 on your touch-tone phone to ask a question. If you find that your question has been answered, you may remove yourself by pressing star two. We'll pause for just a moment to give everyone an opportunity to signal for questions. The first question comes from Arun Jayaram from JP Morgan. Please go ahead.

Yeah, good morning. Ezra, I wanted to start in the Utica Shale. I was wondering if you could give us a sense of some of the key learnings thus far, including your initial test in the south, and perhaps discuss maybe the glide path towards shifting into development mode. What are some of the key risks from here that you need to get comfortable with before shifting into development?

Yes, Arun, good morning. This is Ezra. Let me start with the last part of your question there, and then I'll hand it off to Keith Trasko for a few more of the details on the Utica play. You know, what I'd say in the Utica overall is that we're very happy with the results that we've seen to date. You know, the southern whales, the white rhinos that we've talked about are right in line with the expectations. The northern whales are consistently strong results and very repeatable. So ramping up the Utica, I mean, it's going to be like any other play that we have in our portfolio. We want to invest in it at the right pace so that we can continue to learn and embed those learnings into the next whale and Keith will mention some of those learnings here in a minute. Ultimately, as we do continue to delineate and invest more capital out there, it's going to be at a level of reinvestment that really reflects the maturity of that asset. And when we do that across our multi-basin portfolio, that's when we really start to drive down the cost of all the plays and expand the margins at the corporate level.

Yeah, this is Keith. On the well results so far, the recent ones, you know, we're very pleased overall. I feel like we're making great delineation progress. Some of the key learnings so far, you know, the White Rhino, that is our first package down the south. The performance we're seeing, the dates meeting expectations, you know, it has a little bit lower BOE IP30. That was something we were expecting because of a little bit thinner reservoir down there. But it really benefits from the strategic mineral ownership, which really enhances the returns by avoiding the royalties down there. That has a really big financial impact. The shadow package that we just recently brought on, that's an offset to the Timberwolves. We're seeing consistently strong results at tighter spacing there. We did a 700-foot spacing test there versus 1,000. Spacing overall, I'd say so far so good. We're excited about the consistency so far there. We're going to keep incorporating data as far as future development decisions go there, but we're still early in the play. We need a little bit longer production history. We look at a lot of different things as far as the two and three stream production, the pressure. We're taking a lot of real-time measurements, choke schedules, those sorts of things. And we expect the spacing will probably change across the play based on geology. It's just a really large acreage position. But I'd say with our learnings, we're constantly bringing those into our decisions. We really pride ourselves on not getting into a manufacturing mode and instead kind of developing the acreage package by package, integrating the latest data and learnings, trying to maximize the returns and the value capture.

Okay. My follow-up is wondering maybe, Jeff, if you could elaborate on some of the technology on the artificial lift side that you've been incorporating. What are some of the potential financial implications? Does this have a positive impact on your decline rate, sustaining capital requirements? But give us a sense of the big picture in terms of the artificial lift technology.

Yeah, thanks, Arun. Well, as we talked about, you know, we've been developing this technology over the last few years. And it's one of the big reasons, you know, obviously we had the increase to guidance this quarter. And it really had to do with better base production kind of across the full portfolio. And it has to do with these artificial lift technologies. technologies that we're implementing. So for instance, and we've talked about it a little bit, we have a program that optimizes our gas lift. So it'll basically monitor and through algorithms iterate how much gas we are injecting down hole to maximize production on the full bank of wells that it's supplying gas to. And then if we ever have any kind of downstream interruptions, it can divert gas and it can move it to the higher producing wells to make sure we're maximizing the production potential through that downtime event. And then it can switch back to optimal normal operations. So we've done that exact same thing with a plunger lift optimization and then also on rod pump to run exactly how fast The rod pump is working and to optimize the lift of the oil on all of our wells out there. So, yeah, it's been absolutely a big mover and we've implemented it pretty much around our multi-basin portfolio. And I think you're seeing the benefits of it right now in the base production. And we expect to obviously be moving forward to have less downtime and be able to maintain a better base production as we move into the future.

The next question comes from Neil Mehta from Goldman Sachs. Please go ahead.

Yeah, thank you, Ezra and team. Ezra, I always value your perspective on the oil macro, particularly around the lower 48. What's your view of how exit to exit is tracking? It does seem from this earning season, whether it's you or the super majors, the execution from a production standpoint has been very good and How do you think this plays out in 25, especially given the fact that OPEC has that spare capacity and is indicating the return of supply into the market? So macro thoughts on the shale trajectory would be terrific.

Yeah, thanks, Neil. I appreciate the question, the opportunity to talk a little bit about the macro. You know, if we start at a little bit more of the broad level, I think, you know, what we're seeing is global demand is increasing rapidly. year over year, essentially in line with our expectations, which is quite a bit less than 23 over 22. Even China, I'd say that has a lot of questions. China demands even, you know, kind of in line, demand is in line with our expectations of the year. For us on U.S. supply, I think we've talked about on previous earnings calls for crude, you know, we're looking, we feel somewhere between 300 and 400,000 barrels a day. annually would be the increase, and total liquids may be closer to 500,000 barrels a day. When you look at what's happening in the lower 48 specifically, as I said in the opening remarks, we think from December to December it'll be relatively flat. We've had relatively flat duck counts for the past months. And even though, as you're highlighting, everybody seems to be reporting on the margins some increased operational efficiency, It's really rig count that's remained flat and then completion spreads that have remained flat as well. And so when we roll all that up, we continue to see not only the effects of consolidation in the industry, but just overall industry discipline really being the drivers of that more moderate U.S. growth. And we think that will continue not only into 2025, but really for the next few years moving forward. Immediately, as I discussed with the current rig counts, where they have been for the last eight, nine months, and where they look to be finishing the rest of this year at, that should drive moderate, potentially even less growth year over year than what we're seeing this year. And the last thing I think I'd point out is just the amount of decline. You know, the U.S. has grown so much in the last decade on the oil side, and many of those barrels have been switched out from conventional resources into obviously more unconventional resources that come with a bit of a steeper decline. And so after years and years of growing, the U.S. is finally looking at a spot where we have a very steep decline year over year as a country that needs to be filled in before new barrels can actually add to the growth. Those are the kind of key metrics that we continue to look at. But ultimately, it starts in the field at the asset level, looking at the activity and the capital efficiency of the place.

Thank you, Ezra. That's a really helpful perspective. And staying on the macro and then tying into your business, on natural gas, we've seen a lot of volatility, good price to start the year, obviously very weak prices now. This morning, we had the six-month push out of Golden Pass. So just as you think about the 25 plan, is it fair to say you're going to try to keep it a little bit more oil-weighted versus gas? And how does that affect how you want to deploy capital in gasier areas?

Neil, that's another good question. You know, we, you know, at this point, you know, inventory levels are clearly above the five-year average and commensurately, you know, commensurate with that, the natural gas price is below the five-year average. I will point out, you know, as we saw at the beginning of 2024, inventory levels can react very quickly on weather, specifically winter weather. But at this point, we do foresee that the inventory overhang will continue into 2025. I don't think we're alone with that idea. But we do forecast that we should bring down inventory levels to the five-year average throughout 2025, assuming kind of a normal winter. And that's not only due to the increase in demand throughout the year from LNG and increased electricity demand. You know, recently, it certainly didn't help, but this summer we did experience some offline demand in LNG. But even with that, overall, we're still seeing an increase in year-over-year domestic demand. I think electricity is trending on about a 4.5% increase year-over-year. And so all those things continue to be positive in the longer term. So specific to what we're talking about in 2025, you know, we're not prepared today to talk about 2025. I'm sure I'm heading off a question that probably comes up later on the call with that. But what I'd say is we are actively managing our Dorado program. We've done that last year, and we did that this year. Longer term, as I said, we do expect we're very bullish on pricing through there, and so we are managing the Dorado program to align with demand. We prefer to manage Dorado on the upfront kind of investment side. I think Jeff mentioned in the opening remarks the benefits we've seen of running a consistent rig program there, increased drilled feet per day by 13% year over year. I think if you look at the past two years, it's closer to 30% over the past two years. But then once we get the gas molecules online, As Lance mentioned, we do have a low cash operating cost of $1 per MCF. That's a dynamic number as we sit here today. And so that gives us a lot of confidence and flexibility on how to invest and how to think about Dorado going forward.

The next question comes from Steve Richardson from Evercore ISI. Please go ahead.

Thank you. Good morning. really impressive realizations in the quarter, particularly relative to what we're seeing from the broader industry and can't help but think it's largely to do with how unique your marketing organization is. Ezra, I guess the, would wonder if you could expand a little bit on the nature of the organization, right? You don't seem shy about deploying capital either in field or, you know, as we just heard with, you know, longer haul pipes and everything else. But if you just take from the, from the basis that you're trying to get the highest realization for your products and getting to the best sales point, how do you, how do you organize, how do you, how do you, incentivize that organization on returns, and how do you think about capital deployed in that business and performance of that business and how it adds value to EOG?

Steve, this is Ezra. I appreciate the remarks there and the question. Our marketing team is something we're extremely proud of and what we think is a real competitive advantage, especially in a multi-basin portfolio, a company such as ours. So just maybe a few remarks by me, and then I'll hand it off to Lance to give some more details on it. Our overall marketing strategy, the first thing we always think about is really the net back pricing. And so taking on additional transportation is not a negative thing if it's getting you into premium markets, either for oil or gas. We like to have flexibility, as we've talked about, diversification with access to multiple markets. We love to have control where we get firm capacity from the wellhead to sales points. And then the duration, you know, we've had times, you know, in the past where we've committed to long-term commitments and we realize that's not what we want to do. We want to minimize those long-term kind of high-cost commitments and really invest in with good partners that understand that we're trying to align our commitments with how we think about our growth of the individual assets. And we're consistently challenging the marketing team. to think about being a low-cost operator. And that's also how we invest in some of these strategic infrastructure projects is what will they do for us over the long term with margin expansion.

Yeah, no, right, Ezra. And, Steve, this is Lance. I think where I might add a little bit additional color, too, when you think about how we're differentiated, it goes back to the culture, too. I think, like, our marketing teams, like, we're integrated in with our division operations. I mean, our division operations, our marketing team, that's all integrated with our fundamentals. So when we look at, you know, we can look at the global markets as we think about LNG or exporting of our products, but then also when you get to, like, in-basin fundamentals, we have a strong grasp of that and what we see. And so then that way we can set up and have multiple markets, and we can get to new markets like we announced with TLEP. You know, that gets to a new premium market, you know, for the company to just further strengthen our netbacks long-term. So... I'll say all what Ezra put together with his comments, and then just the integration that we have internally, too, I think is a real differentiator.

Appreciate all that additional info. So if I could just follow up really quickly on service costs. Appreciate the comments that you're 50% to 60% contracted for 24. Would be curious to hear what you're seeing on the leading edge across the supply chain and thoughts on, you know, what the back half of the year could look like, at least on parts of the bill of materials that isn't contracted at this point?

Yes, Steve. This is Jeff. Thanks for the question. You know, when we look at service costs, what we do is we really break them down into a couple categories. So we have, like, our standard services, and then we have what we refer to as, like, our high-spec services, which is the majority of what we utilize as a company. On the standard kind of rig and frack pricing out there, what we saw is it started to weaken the second half of last year, and it really varied kind of base into base and based on activity levels. And the Permian, I would say, definitely had the most resilient pricing for service costs since it had like over half of the rig activity. So in general, I would say since the middle of last year, standard rig and frack prices are down probably 15% to 20%. When you look at some of the support services over that same period, I'd say coal tubing and wireline costs are probably down 15%, and then work over rigs have reduced about 10%. And then just an additional thing that I'd point out is that through the first half of the year, you know, we've really seen those reductions have kind of slowed, as Ezra had talked about with the rig count and the frack fleet count kind of stabilizing. The big point out there, I'd say, is with the high-spec services that we utilize, we currently see relatively stable pricing, and we probably will mostly through the rest of the year. But we have started to see a few areas of moderation and a little bit of spot availability, and it's primarily around the gas plays and outside the Permian. And then as you talked about, we're just locking up the 50% to 60% of our services. The way we do that, our contracting strategy is very strategic to where we stagger out our contracts. So we aren't rolling contracts off all at once. So we're constantly renegotiating new contracts and also renegotiating the spot market to make sure we're taking the best advantage we can of the pricing that's out there.

The next question comes from Leo Mariani from Ross Capital. Please go ahead.

Hey, I just wanted to follow up a little bit on your comments around how you're going to be kind of prudently managing your Dorado activity. I just wanted to get a sense, are you pretty much committed to kind of the one rig? You know, this year it sounds like you want to get the wells drilled, but is there potential to, you know, maybe defer, you know, some of those turn in lines or maybe choke back some of those volumes to later this year, just based on the week current pricing. Obviously I know you got the second phase of your Verde pipeline coming on, which is going to improve netbacks, but I was just hoping to get a little bit more color on how you kind of prudently manage that activity and how you're thinking about it.

Yeah, Leo, this is Jeff. And as Ezra talked about earlier, you know, there's really no change moving forward from what we had talked about last quarter. You know, we're obviously managing the investment timing, and it's primarily on the completion side where we just pushed, you know, a handful of wells into the second half of the year because we had some flexibility there. And as he said, you know, we'll just be able to monitor those prices through kind of summer and fall and see what happens as we move into the back end of the year. With that, though, yeah, we're going to go ahead and maintain that one-rig program really with no changes through the rest of the year. I mean, the team has just done an exceptional job on building on their existing operational efficiencies. And as Ezra stated, I mean, they're already halfway through the year. They've seen a 13% improvement in their overall footage per day. The big thing is, if you look at the program, I mean, it's only a 20, 25 well program right now. We really want to build on that and continue to push, you know, the great technical and operational progress that we've made so far. And so we'll continue to do that through the year and stay on course with our current plan and just continue to make the best economic decision for the play as we move forward.

Okay. I appreciate that. And then just with respect to the Utica, you made some comments that, you know, wells are sort of performing in line with expectations, but you also mentioned the fact that you've continued to kind of experiment with spacing and completion design. So don't exactly know, you know, what the internal expectations are, but Are you seeing the well performance trend better? You know, are the last two pads, you know, showing, you know, maybe just better EURs per foot versus where they were, you know, in 2023? Just trying to get a sense of trends on these wells and whether or not they're getting better, and maybe that was what your internal expectation was.

Yeah, this is Keith. I'd say they've met our internal expectation. We're expecting performance to vary over the 445 – net acre position with the 140 mile span of it. You know, we've been focusing our activity on the 225,000 net acres that we have in the volatile oil window. And we see changes in geology along there. We see, you know, we're going to have different spacing in different areas, different type curves in different areas. But We're constructive on the play overall everywhere that we've tested, and we think the variation that we're seeing is within the norm.

The next question comes from Scott Hanold from RBC Capital Markets. Please go ahead.

Yeah, thanks. Good morning. Maybe sticking with the Utica and how you think about marketing gas and some of your NGLs, can you talk about the strategy as you look to eventually get to more scale development in the Utica, how do you think about marketing those guests and NGLs?

Hey, Scott. Hey, good morning. This is Lance. Yeah, when we look at the Utica, one of the things I like is, I mean, it's very consistent. You know, as we think about the early evaluation of the play, one of the things that's unique, again, I know we've commented on this in the past, but you think about it i mean you don't really need a lot of major infrastructure build out i mean so what we've really been focused on from a marketing midstream and within our division up there is really just getting the local gathering systems in place and those are both commissioned and online and we're getting to the markets i know we've talked a lot about there's just a lot of ample redundant processing capacity again going back to my earlier comment about you don't need to make a lot of real long-term commitments it's a place where we have measured pace, right? A lot of the acreage is all HPP. We can have a measured pace of production up there. But then from a commitment standpoint with being, you know, existing capacity and also very near to, you know, a pretty sizable, you know, local demand market on the crude oil side too. So I think as you think about our strategy from a marketing standpoint, it will be very consistent with our other plays that we've had that have been very early in their development. So we'll be very measured. All the crude oil will probably start with lease sales, and then we'll kind of look at wheel gathering. We're setting up and selling a lot of our crude into the local refineries today that's in that area. So I would say it aligns very much with what we've done and many of our other plays. Scott?

Yeah, and I guess delving into a little bit more specific on that, do you expect to try to get the gas that you produce out of the base to get better pricing with the NGLs? You know, there, you know, would you try to, you know, try to find a way to, you know, maybe get to the export market in that, you know, that area where you'll get much stronger pricing? So just more so on the NGLs and the gas, like, do you expect to get those out of basin or, you know, what's sort of the short and longer term plan there?

No, that's a great question. I think, again, I mean, not to kind of go back to my earlier comments, it's going to be a function of just the pace of the development there. And so commitments, we're going to be very disciplined there. But as you think about the gas markets there, especially at the tailgate from a residue standpoint going into the markets, there's a significant amount of just demand that's there. Kind of going through the Midwest, you have a lot of interstate connectivity. It's an extremely liquid market. So I think we're going to be, you know, pretty disciplined there. I know I've been using that word quite a bit, but it's just not a need to really reach too further downstream. You know, and then as you think about the NGO markets, There's a lot of, it's a little bit different than other plays in that you have a lot of the local fractionation is kind of there within the state, right? And so a lot of the purity is being exported. So we're kind of already kind of participating in some of those aspects as well, just because that's some of the natural markets avenues for the products there on NGLs. Scott.

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

Yes, good morning. As you said, to you and the whole EOG team there, I'd like to go back to the Utica and the shadow pad. So it looks like a really attractive IP30 you showed us there relative to the wider space wells. But I'm curious if you could maybe offer a little bit more detail or insight on how the spot rates are evolving from that pad and if you have any sense of – how long it will be before you're able to say that that spacing pilot is a success.

Yeah, good morning. This is Keith. So as far as how the rates are evolving question and talk a little bit about the product mix. So our IP30s are kind of heavily oil-weighted, heavily liquids-weighted. We just do that in a lot of combo plays. We expect that early on, and we've seen that across all the well packages we have in the north and the south. So we still estimate like a 60% to 70% liquids mix for the EUR product. And so I'll tie back to a well that has a little more production history, which is the Timberwolf. So Timberwolf and also the Xavier package, that IP30 was around 55% oil cut. Those have been on for about a little over six months now, and we see closer to a 50% oil cut right now. So you see it moderate, but it's not a large drop overall. As far as how long to determine if the spacing is a success, it's going to vary in different places, but we just want to see more production data on the I'd say at least six months, nine months or so, and compare that to the data set that we have on some of our older packages, Timberwolf, Xavier, et cetera, and just kind of see how they hang in there, see how the pressures look, et cetera.

Got it. That's helpful. So maybe mid-year next year. And then to follow up on the TLAP project, I wonder if you could, sticking on the theme of the midship, I wonder if you could give us a narrative on how that project came together for you guys, particularly that I know a lot of people, a lot of marketers have been trying to get east from the ship channel to market east of there, and how this came together and how it came to be that you're 100% of the capacity there.

Hey, Charles. Hey, good morning. Thanks for the question. This is Lance. We could probably spend 30 minutes on that question, but I think Ezra's going to kick me over here if I spend too much time. But I'd say, you know, I talked earlier one of the questions kind of related to just, you know, the marketing strategy and kind of the integration that we have and we think about, like, the markets. And that was something that we looked at as you asked kind of the genesis of that. I mean, that started all the way back in kind of 2022, right? And so I we saw kind of that Station 65, when you look kind of into that market, was likely going to be very much a premium market long term. And so, you know, we worked alongside Williams there, went out for their open season, and we were able to kind of capture all the capacity there through our precedent agreement. So, you know, that took a lot of time, right? I mean, I think you really have to have that foresight and then looking forward, like, into the markets. And then I think the other thing I really want to capture is just that it's all in PATH. Right, Charles? So, I mean, when you think about, like, South Texas all the way through our Eagleford asset, all the way up, you know, into the Gulf Coast market, I mean, we can kind of capture everything. The Delaware Basin with our existing transport, our new transport that we're going to have on Matterhorn, all that kind of gets in the path that can kind of get into that market. So that's a little bit of kind of that all came together because, yes, you have a lot of these pipes that are coming in to the Gulf Coast. And so, as you've seen on some of our slides that we have there, especially related to our gas sales agreements, you have to have end markets on the other side. So we've been very forthinking there. You can kind of see the ramp up that we have in terms of other term sales that we have. So you need to have the transport position, Charles, but then you also need to be thinking about having strategic sales on the other side. And I think that's another thing that really differentiates us, that we've got that in place now and then also looking forward.

The next question comes from Paul Chang from Scotiabank. Please go ahead.

Hi, thank you. Good morning, Tim. Maybe this is for Jeff or maybe Ursula. I want to go back into artificial leaks. I want to see that, I mean, the technology you use and how is that different than what is commonly available in the market today by some of the oil services? So, in other words, do you think your adoption that what gives you the edge compared to your competitors? and whether that you can quantify, you talk about the base operation become better, how that improve your base decline rate? That's the first question.

Thanks, Paul. This is Jeff. Yeah, that's a great question. And with any of our technology, you know, that we develop, the beautiful thing about it is it's integrated with an EOG with all of our different systems. So it communicates with all the data. It's getting all of our production data, all the pressures, you know, all the flow rates, all the temperatures, everything real time. And so all that's flowing into the system, and it can see that, which with a lot of other third-party systems, that's not possible. On top of that, it also ties directly into our centralized control rooms, which is in each one of our basins. It watches our production real-time, 24-7. And as these systems are optimizing it, the control room can watch it, monitor, and make sure that the iterated set points are correct, and then notify any people in the field real-time to be able to go out and check on a well. or make any additional changes that need to be done. So really it has to do with the integration within our systems. It really kind of sets us apart from that aspect. And then, you know, on the decline rate side, or I should say at least from a base production and what our forecast is, you always have a certain amount of downtime, you know, that goes along with normal operations of wells. And what these optimizers really do is they help minimize that downtime. So instead of having, you know, a handful of percentage, you're able to actually knock off a percentage or two of downtime to be able to keep these wells flowing and maximize the production across our multi-basin portfolio.

That's great. The second question that I think, Ursula, that you talked about, you guys can do quickly that with Dorado, if you want to increase the activity level, what will be the precondition? I mean, what you look for in order for you to determine when is the right time for you to accelerate the rig activity or that even how many wells that you bring on the market?

Yeah, Paul, this is Ezra. I think you broke up there just for a second, so I'm not sure if you're asking about the Bach Andrado or Utica.

I'm talking about Dorado. Yeah, Andrado. What will be the precondition for you to decide, okay, this is the right time for us to increase the activities and bring more gas to the market? Is that just simply... the price or that you're looking for anything else? And if it's simply the price, is there a price level that will be the important trick point?

Yeah, thank you, Paul. So, yeah, with Dorado, you know, I think the biggest thing to continue to think about with any gas play, and for us the dominant one is Dorado, and you can see right now in the current environment how volatile gas prices are. is you've got to be committed to being the low-cost supplier. You've got to be a low-cost operator on the gas side because, as we all know, the margins are pretty skinny. You can make up with it with low operating costs. Gas is easier to operate than liquids. But then you need to make up for it with volumes. And then the second piece of it is you've got to be exposed to diverse markets because the volatility of gas means that you will have arbitrages come and go very quickly. And if you've got the gas there exposed to the market, you can capture those. If you try to chase those arbitrages, much like we saw in 2022 and 2023, by the time you can try to get your gas in position to capture an arbitrage, it might be gone. And so those are the two things that we really focus on. In general, when you start talking about capital allocation to it, those comments you should read into is why we've continued to stick with a rig activity down there, kind of a minimal level of activity. so that we can continue, as Jeff highlighted, to learn, embed those learnings in the very next well, and continue to be confident that when we see the emerging demand hit, which is coming in the next few years with a lot of the LNG coming online, we'll be in a position to be able to bring to market low-cost reserves, low-cost gas reserves. Now, that's on the drilling side. On the completion side, we do have a lot of flexibility there. a great way to kind of overspend is if you're bringing in a frack spread and sending it out of the basin and bringing it back, picking up water lines, you know, laying them back down and things like that. So that's why we try to keep a drilling rig going. As I've talked about in the past, that's kind of the first hurdle to capturing economies of scale. Then the second one is trying to get your packages lined up so when you bring a completion spread in, you can actually keep it for a significant number of wells and bring that on. What we look for in general to when we could take that next step, it's not only internal learnings, it's not only the returns that we're generating, but it is also with respect to the macro market. As I said on a previous question, you know, the price essentially follows inventory levels or it's very lined out with that. We're below the five-year average right now on pricing and above the five-year average on inventory levels. So inventory levels are a big driver of what we're looking for. But then we're also cognizant of the supply and demand fundamentals for really North America or really just the U.S. And again, what we see is a lot of increased demand coming in the next few years. You have 10 to 12 BCF a day arguably under construction right now that should be on really beginning throughout 2025. And then in addition to that, as you look at the back half of the decade, I think on the last earnings call we highlighted the our forecast for potentially another 10 to 12 BCF a day of demand increasing from things like electricity generation, coal power plant retirements, just an increase in Mexico exports, and then finally just overall industrial demand growth. So we really look at internally our ability to generate higher returns and embed our learning so that we're investing at the right pace, and externally we look at supply, demand, and ultimately the inventory levels, Paul.

The next question comes from Doug Legate from Wolf Research. Please go ahead.

Ezra, how are you? Thanks for having me on. Can you hear me okay?

Yes, sir, Doug. It's good to hear from you again.

Good. I wasn't sure if I'd gone into the ether, but I wonder if I could pull you back to the Eureka just for a second. I mean, delineation is kind of a glacial phenomenon. event for a lot of companies. You guys have moved very quickly, not only to walk down the acreage, but to demonstrably show that, at least on our numbers, this is starting to look competitive relative to your Permian position. I'm just wondering how you would frame the extent to which you've de-risked the play at this point and when you would anticipate a more meaningful development plan as you move forward. Is it infrastructure constrained or is it another reason that that you're waiting, because it looks like geologically at least you're figuring this thing out.

Yes, Doug, I appreciate that. I think everything you're saying is correct. It's how we feel about it, too. Geologically, we're doing a great job figuring it out. I will point out the only caveat I'd maybe make is we have, as Jeff pointed out, concentrated right now on the volatile oil window, so roughly 225 out of the 445,000 acres. But you can see our confidence in the fact that we continue to put We continue to put together some leased acreage as we increase the footprint about 10,000 acres. And, you know, it's not overly complicated, Doug. You know, we've got multiple packages now in the north, and we're seeing consistently strong results. So I would say we're feeling very confident there in the north. Certainly, as Keith and Charles were speaking about, we're not 100%, you know, satisfied with a spacing number if you wanted to get down that path. But in any North American shale play, you know as well as I do, the spacing is going to be between 600-foot and 1,000-foot spacing, probably on average, depending on the play. And then in the south, we only have one package, really, with any amount of data on there. So we're a little bit further behind on delineation down there, even though that package did come online with our expectations. So, you know, it's too early to talk about 2025. But just to call back, we have basically, we're planning on this year doubling the amount of wells to sales over what we did in 23. And I think you're spot on, Doug, that we are seeing to date with the early time wells that we have, we're seeing that it's competitive with parts of the Permian Basin.

Yeah, that's what we're seeing as well. And I think, to be honest, I think some of us were a little skeptical to begin with, and you're proving us wrong. So congratulations on that. My follow-up, there's been a lot of questions this morning on gas and the extraordinary realizations you guys have had, I think was pointed out earlier. But my question is on the proportion of gas that you're prepared to commit to international pricing. I think Right now, I want to say, if I look out to the back end of the decade, at your current volume, you're about halfway locked in, whether it be ventilated or the other things you pointed out. But in terms of your preparedness to step up your international exposure, what are you thinking as we see incremental LNG plants start to come out of the woodwork, like the woodside deal with Lurien, for example? Where would you be comfortable in terms of international exposure? I'm losing my voice, but in terms of... international exposure as it relates to your total proportion of your volumes.

Yeah, Doug, I appreciate that. We have, as you've seen, we've got slide 11 in our deck that kind of highlights what we've done with our gas sales agreements to, you know, expose us to pricing diversification, including the international. You know, I'd point out that Doug, the biggest thing is when we entered into these agreements, as you'll recall, we started negotiations and really entered into most of these in kind of a counter-cyclic time period. And so the first thing to keep in mind is when we look at these opportunities, we want to make sure that we're being a low-cost, we're entering into a lower-cost contract or gas sales agreement that's going to provide us with upside exposure. And then in the sales agreements that we've done to date, we feel like it limits our exposure to risk as well. You know, one reason that we're able to enter into some of these agreements is just because of, to be perfectly honest, the size and scale of what we've captured, mainly at Dorado, but also across other basins, as Lance has talked about. So right now, as you pointed out, we're only really selling about 140 MMBTU per day. that gets exposed to, you know, the uplink, the uplift of JKM pricing. But from 2020 to 2023, as we highlighted on slide 11, you know, that's added about just over $1 billion worth of revenue uplift, which is outstanding. So even on small volumes, it can be a major impact on the revenue side. We're happy that that's going to step up here in 25 and 26, as Corpus Christi brings on their stage three, and that'll increase approximately to 720 MMBTU under a couple of different gas sales agreements that are outlined on that slide. And then as we've talked about, last quarter we made yet another, and I would call this counter-cyclic agreement because an agreement like this hasn't been done in North America for quite some time, but we actually have a Brent-linked now gas sales agreement. When we think about a percentage of our portfolio that we would necessarily like to have exposed to international investors, I'm not sure if we have a set percentage that we'd publicize right now because it really is dependent on the types of agreements and the marketing structures that we see available at the time. But ultimately, our strategy is to get more of our gas exposed to diverse markets and to get our gas kind of offshore and exposed to the international markets.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Jacob for closing remarks.

We appreciate everyone's time today. Thank you to our shareholders for your support, and especially thanks to our employees for delivering another exceptional quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now