EOG 4Q13 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.

Growth of oil production likely slowed in 2013

“we are still waiting for the final 2013 EIA U.S. oil production data, but it looks like the rate of growth in 2013 slowed compared to 2012 and we expect this trend to continue in subsequent years. The October and November EIA monthly data indicates the rate of annualized production growth was approximately 760,000 barrels per day compared to 1.04 million barrels per day for the same period in 2012. We are still bullish regarding U.S. oil process because of slowing domestic oil growth and we are not particularly concerned about a surplus of U.S. light sweet oil.”

Natural gas 4.50 in 2014 and 2015

“Regarding North American natural gas prices, our long-term view hasn’t changed. We have obviously seen some relief this year due to the multiple shifts in the polar vortex this winter. We think natural gas prices will stay around the $4.50 level in 2014 and ’15. On the plus side, we have taken advantage of some the recent prospects to layer in hedges.”

Well spacing in the Eagleford

“Some places, you know, we can drill wells as close to maybe 30 acres to 35 acres per well and in some places it’s more like 50 to 60 and 65 acres per well, so it is quite highly variable.”

450 MBOE per 7200 wells in Eagleford

“the frac technology has definitely enhanced the productivity of the wells and it has enhanced the EUR per well. So we have quite a bit of confidence that the average EUR for the 7,200 wells we have is 450 MBOE per well.”

Crude by rail system gives flexibility to get to highest priced markets

“our crude by rail system gives us a lot of flexibility to get our oil to the highest priced markets.”

Eagleford wells are consistent, not front-loading good wells

“whether we drill in the West or we drill in the East, our well results we believe will be very consistent going forward and that is certainly not front-end loaded with the best wells in the East and then later on we won’t drill wells down the road. So I think you can look at the 12 year inventory we have is very strong and very consistent and we will have good results every year because of that.”

If your wells are too close together, you can start destroying value

“As you push them too close together, you could start destroying the value, so these pilot programs that we put in and tested have given us a pretty solid understanding of the interference between wells and the spacing between wells in terms distance between wells, so we feel pretty solid at this point that on an average 40 acres is probably the optimal spacing pattern.”

Justification for increasing EUR estimate in the Eagleford

“The EUR per well increase was certainly up a lot of strong historical data. We have over 1,200 producing wells in the play right now. And then, we have done extensive pilot testing on each one of these downspacing patterns and through our completion technology, we have seen dramatic increases in initial rates per well and then the shape of the decline curve really has not changed. It’s relatively the same shape. It’s just that the well’s initial rates have improved over time with better their completions.”

Never going to stop trying new things

“we are hopeful that we will be able to continue to improve the well productivity but we certainly have not proven that yet, but we are going to obviously continue to work the technology. We are never going to give up and we are never going quit trying new ideas or new things. So we are in that process right now. ”

A play has to have minimum 50% rate of return to make it into the portfolio

“our portfolio is such a high return for portfolio that for a new play that work itself into our system, we are targeting only plays that we think that could generate after-tax rates of return greater than 50%”