EOG 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Eagleford and Bakken both doing well

“EOG’s workhouse assets, the Eagle Ford and Bakken continued to meet or in most cases exceed our high expectations. Although we’ve been in the Bakken since 2006 and the Eagle Ford since 2010 we are steadily improving individual well results in both plays through continuing advances in completion designs.”

Still learning in the Eagleford

“In the Eagle Ford, we’re in the sixth inning of understanding and progress in the play and we’ve not yet reached the peak from a learning curve standpoint. We’re constantly experimenting with the completion designs and are seeing improved production responses from these tweaks. We still have ongoing spacing pilots in certain areas. We highlighted multiple high initial production rate wells in our press release.”

In energy you usually either have growth or returns

“In the energy space, there are sectors known for growth and those known for returns. But rarely does the company or sector combine high production growth with outstanding financial returns. We believe EOG is currently exhibiting among the best financial returns in the entire industry combined with excellent production growth”

Natural gas strength was temporary

“we don’t have any plans to reinvest in dry gas drilling opportunities at current prices, as we expect that the strength we saw in gas prices earlier this year was only a temporary and driven by the coldest winter weather in 14 years.”

Producing more natural gas even though not specifically drilling for it

“But just in general as we stated in the opening remarks we increased our oil in the first quarter and this is kind of a follow up as we have associated gas with all of our crude oil plays, our base decline in our natural gas is slowing due to not much natural – but no natural gas drilling and no property sales and so our associated gas with a crude oil plays is beginning to overcome that decline.”

Don’t think that the oil curve is reflective of what’s going to happen to prices

“I think business wise we would like to have a good hedge position going forward in oil and gas, the difficulty has been that backwardation in the forward curve on both gas and oil we don’t see as reflective of what’s going to happen in the future, so it’s difficult to get a good hedge. But we’re certainly looking for opportunities as we go forward in the second half of the year to add some hedges in oil and gas if they are available”

Lots of high quality opportunities, just taking time to develop them

“certainly I expect this with success we would expect activity to increase in the Permian over time. The luxury we have right now is we have just a large number of really high quality plays in the company where we can allocate capital, so what it does is it gives us the time to go through and make sure we understand the proper completion techniques and the proper spacing before we really start increasing activity in each play. That helps make us a little bit smarter on overall development and still provide long-term growth for the company. So we’re pretty excited about the potential we see there in the Permian and we’re taking our time to really make sure that we understand how to complete and what the proper spacing of each one of those zones will be before we really ramp up activity too quickly.”

Only 50% return potential wells

“we’re not interested in pursuing plays that have a 20% or 30% rate of return potential, we’ve really set the bar high and we’re looking for plays and only would be able to generate say north of 50% rates return going forward and we’re still – we’re very focused on crude oil plays.”

Focused on returns

“I think what you can expect from EOG going forward is discipline — capital discipline is at the top of our list and so we are really focused on operating the company relatively within our cash flow going forward. We’re very focused on keeping the balance sheet solid as we go forward, at net debt to cap at a low level and really discipline — each of these plays, as you focus on rates of return, capital rates of return and maximize the value of the plays, it’s important not to grow or accelerate them too fast. And so we’re really focused on doing that correctly”