EOG 1Q14 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Four new plays

“we announced we’re adding 735 high rate of return net drilling locations in the sweet spots at four plays, with estimated reserve potential of 770 million barrels of oil equivalent gross or 400 million barrels of oil equivalent net to EOG. We’ve identified approximately 10 solid years of drilling inventories in these four plays. Two of these plays are in the DG basin, primarily in Laramie County Wyoming and extending into Weld County Colorado.”

Downspacing wells adding longer tail of opportunity

“Hoping to repeat what EOG achieved in the Eagle Ford, we will continually test downspacing until we’ve maximized the net present value in the overall play. We are early in the life of these tests and we will monitor production history to determine optimal spacing for development. If tighter spacing proves successful, a number of years would be added to our Bakken drilling inventory. The majority of our 2014 development program is in the Core area, where we already have pad drilling and completion infrastructure.”

Oil is in continued tight supply

“With regards to oil, we believe we are in a continued tight supply demand situation globally. Last year, the U.S. was the largest oil growth area in the world. However, the rate of oil growth in the U.S. is beginning to slow and 2014 non-OPEC supplies have been revised downward while global demand for oil from non-OECD countries continues to increase. Therefore, we expect to see strong oil processed for the remainder of this year barring a global recession”

The EOG process

“very disciplined approach to adding new plays. First, we identify the potential. Second, we capture the acreage. Third, we apply technology to the play until results meet our rate of return criteria.”

Wouldnt be talking about the new plays unless they felt like they had secured the sweet spots

“Yeah, on the new plays, I don’t think — we wouldn’t talk about them unless we had felt like that we captured the sweet spots. We did a very thorough geological evaluation and we have a lot of data, and we have really narrowed down the acreage to the, what we believe are the highest return areas of the play.”

Don’t see a pending crisis of oil overloading the refinery system

“we remain bullish on light oil prices. Certainly as we talked about from the macro view, we continue to see a tight supply worldwide and we do not see any pending crisis on overloading the system, the U.S. system, the refinery system to be able to process all that oil. So our focus is going to be to reinvest back into the highest return plays and the highest return plays, we fully believe in the next few years will be our oil plays.”

Advancements in completion apply to more conventional rocks too

“as we’ve learned on all these horizontal plays and shale plays, the completion technology continues to advance. We’re now seeing even in the conventional – more conventional rocks like sandstones that the improvements that we’ve seen in the shale plays also apply to those two.”

The new plays are good, but not Eagleford

“These plays in particular the Codell, the Turner, and the Parkman are sandstone plays. They’re not really shale plays. So they are more defined geologically and really the acreage positions that we’ve outlined in each one of those is really the sweet spot and probably the best extents of those plays.”

Focus on returns on capital not just growth

“The Company is not so much focused on production growth. We’re really focused on capital return, and that is what drives EOG. We’re not interested in drilling low return wells to grow production.”