STAGES Analysis: EOG Update
In May 2021 I selected EOG for the first STAGES analysis. The information contained in the article summarized information from their recent Q1 investor presentation and conference call. Six months later we have two more investor presentations and calls to assess the opportunity associated with EOG.
Completions
The number of rigs, crews, and expected completions has remained the same across all the presentations during 2021.
2021
With Q1-Q3 complete we can use the yearly guidance to determine the expected number of STAGES EOG will perform for the rest of the year.
The estimated wells across all their properties appear to be leveled out across the four quarters, however upon closer inspection the number of wells in the Permian & Powder River Basin will be more than expected, while the number of wells in their Other properties will most likely be less than estimated.
Well Costs
In Q1, EOG saved 15% on well costs compared to 2019 and expected to achieve “at least” 5% additional reductions in 2021. In the Q3 conference call the COO stated they will achieve a 7% reduction in costs. In the current inflationary environment this was likely achieved through supply chain optimization as well as new technologies, not from service company price reductions.
These innovations resulted in an 11% reduction in drill days and a 15% increase in the number of laterals drilled in a single day by 15%. They also highlighted internally developed technology used to optimize their gas lift operations to produce the same volumes with less gas injection.
Super Zipper
EOG has continued to focus on implementing their “Super Zipper” procedure, known in the industry as a Simul-Frac. This procedure involves using 2 frac crews to continuously frac 4 wells as efficiently as possible. They stated that 10% of wells in 2020 were completed using “Super Zipper” while currently it is 1/3 of wells, and this is expected to increase more next year.
Future Costs
With inflation and availability of products/services on everyones mind, EOG has worked to lock in pricing and activity for next year. They expect to have at least 50% of their 2022 well costs locked in by the end of 2021. This includes 90% of their drilling rigs and 50% of their frac crews at favorable rates. All of these efforts are designed to reduce the risk associated with further inflation in 2022.
Capital Disipline
As with all E&P and service companies, EOG has been focused on capital discipline and made moves to prove to the market they’re poised to operate off their own cash flows while returning some of it to investors. During Q3 they announced an 83% increase in the dividend to $3/year along with a $2 special dividend and an increase in their share buyback program.
The hurdle requirement for EOG to move forward with a well is a 60% IRR at $40 oil and $2.50 gas pricing. With current commodity pricing and expected pricing next year, EOG will continue to be a major player in the US and a huge opportunity to service companies whose revenues are based on STAGES.