STAGES Analysis: EOG
Each of the STAGES created and pumped counts updated every week is made of individual companies making those commitments. Some of the publicly traded companies estimate what they expect to drill/frac over the upcoming year. Part of the STAGES analysis will include summaries of these companies. The goal of these reports is to help service companies understand the size of the opportunity associated with the companies that share this information.
EOG
The first company I've analyzed is EOG. EOG has quite a large presence representing ~7% of the Permian and ~10% of the Eagle Ford activity. According to their 2020 year-end report, they plan to execute on the following metrics in 2021:
Using this information and understanding of the market we can estimate the number of STAGES that EOG plans to complete in 2021. Across their entire operation, that number is near 30,000. The total available market for STAGES suppliers is 25,000 of the services they provide.
Q1 2021
In their Q1 2021 earnings presentation, they updated these numbers with the amount of activity completed in the quarter. A summary of this information is below:
Even after the first quarter, EOG will pump an additional 23,000 stages. For a frac plug manufacturer, this could be worth over $14MM is just plugs. For a diversified supplier, the opportunity could be 10x that amount.
Well Costs
In 2020, EOG stated they were able to save 15% on well costs compared to 2019. They attributed 75% (11.25% of costs) of this savings to their innovation and the remaining 25% (3.75% of well costs) on reductions from service companies. They lump drilling, completions, wellsite facilities, and flowback into their “Well costs”. Their goal for 2021 is to achieve an additional 5% of costs. They reiterated that in the Q1 report that they’ll achieve “at least” 5%. Using the same 75/25 as in 2020, they expect an additional savings of 1.25% from service companies. This appears to be a more difficult task as supply chains become constrained and inflation takes over for service company’s suppliers. EOG may have to rely on more innovation in the second half of the year to achieve their 5% goal.
Double Premium Inventory
In the Q1, 2021 earnings call they stated that they had 5,700 of their “double-premium” drill sites in inventory, more than 10 years at the current rate of drilling. They’re also replacing that inventory faster than they can drill it. Their current investment return hurdle for a well is 60% at $40 for oil and $2.50 for natural gas. In the current climate of $60+ oil and $3 gas they’re making a hefty return.
Super Zipper
They describe their completion operations as a “super zipper”. The process involves fracing 4 well pads where two wells are frac’d simultaneously while the other two perform their wireline operations. They’re even looking at how they can employ this procedure on pads where the land area currently prohibits 4 wells together. This procedure is also well suited to utilizing their 5 electric frac fleets.
EOGs continuous innovation will deliver lower-cost wells more efficiently. For service companies, they represent a major opportunity. Understanding the full picture, as opposed to the one engineer or basin you’re calling on, may enable companies to trade more work for better pricing so that both EOG and the service companies can achieve their goals.