EOG at Sanford Bernstein Conference

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

First movers in shale by 3-4 years

“I think what has really driven the company in the last four to five years is that we were first movers in shifting from gas to oil. And we were the first movers by literally three or four years ahead of the industry.”

Focused on growing by exploration, not acquisition

“We decided to do that years’ ago instead of growing the company, the typical way by acquisitions and mergers, we have historically chosen to go through exploration. And we have grown the company organically. We internally generated all of our own prospects and go out and just capture the acreage at very little dollars, very nominal dollars on the front end side and we captured not only acreage of low cost but we actually are able to capture the sweet spot of these plays by being there first.”

Also pioneer their own completion technology

“The other thing the company is known for is being first movers or leaders in horizontal completion technology. And the company has very unique model in that. It’s not directly tied to the service industry. We supply our own materials for our fracs. We do all of our own internal frac designs technically. And that has given us an enormous lead on cost and well improvements”

Lots of reserves in the Eagle Ford, only drilled 17% of defined locations

“We did in our February call, we increased our Eagle Ford reserve potential by 45% and so its now gone from 2.2 billion barrels equivalent recoverable to 3.2 billion barrels that’s the third increase we have had in that field. And we now have 7200 defined locations. We drilled 1200 of those. And so we have 6000 remaining locations in those locations had a cut-off of 60% A tax rate of return or better. ”

Permian is nice, but not enough to maintain dramatic growth in oil production

“Permian is a great place to drill wells, it’s a lateral – tremendous amount of reverse potential. But it’s not the play quality, the rock quality and the technical aspects of the play are not nearly as strong as Eagle Ford or the Bakken. And it will not be able to maintain this dramatic growth rate that we have had historically in the country. And it will not be able to replace an Eagle Ford or a Bakken.”

A decentralized approach

“We have a very decentralized company. So we have nine operating divisions in North America and each one of those divisions has a very strong exploration group. So we are literally working every basin and every rock in North America at the same time.”

Have to be careful to move at the right speed

“Each one of these plays has a certain speed that is optimum speed in the time, the life of each of the fields…If you speed that up, you have – you could easily lose efficiencies and instead of reducing the well cost, you increase the well cost. And also, while you are completing all these wells, you are learning a whole lot, you are learning the rock, you are learning about the play, you are learning about the proper completion that you want to put on each one of these wells and that’s an ongoing process all the time and we are making significant advance until the time.”

“from the people side of it, you want to make sure you have top quality people and you have a very dedicated group of people and a very focused group of people to manage and to have discipline to do all this correctly.”

Probably not another Bakken or Eagleford out there

” think our thoughts are and we know all – we know the U.S. very, very intently. We did not see another Bakken or an Eagle Ford out there. That would be both the size of the field and the quality of the field together. That’s probably not one of those out there. And but we would love to find one, but we do have a very nice list of ongoing prospects and projects in different phases across the company that we are working on and we are optimistic that there are additional things that we will be able to bring forward”

Refinery system is adding capacity to refine US oil

“the refinery system, like this little bit lower cost, U.S. production and they are absorbing it very readily. They are adding additional capacity to refine this oil. And they continue to displace not only the light crudes but they are beginning to displace many of the medium grade crudes that are imported.”

You have to know something someone else doesn’t know to get a good price on acreage

“we have been able to continue to capture acreage at very low cost compared to what they end up being later down the road. And so you have to be upfront, you have to know something that somebody else doesn’t know. You have to just kind of do it in a stealthy manner.”

Drilling costs have come down so much that it doesn’t make sense to go back to old wells with new technology

“the way the industry has gone, the drilling cost on the well – to just get the well initially drilled has become a very small part of the total cost of the well. And its because the efficiency of the drilling has advanced so far that in total cost of the well, the drilling side is so small that really instead of trying to recomplete the well, its really I think more prudent to go in and just drill a new well and complete it correctly. And then you are assured of getting it technically done right and it’s kind of taking a fresh start, and just trying to fix something that weren’t done correctly.”

Really hard to make good returns in acquisitions, better to grow organically

“I think it’s very difficult to make money in an acquisition market. You have to place so much on the upfront. And it just makes the overall project very, very low return. And the company is fortunate I think that we will be able to continue to organically generate.”

Meaningful reduction in drilling below $90

“I think you would start seeing a meaningful reduction in oil drilling anything below $90 a barrel.”

Not focused on international because plenty of opportunity to grow in the US

“I think anything internationally whether the Mexico or some other place that EOG is really not actively pursuing any plays internationally and it’s because that we see an abundance of opportunity in particularly the U.S. And we are very focused on the U.S. and we think there is ample room there for us to continue to grow the company.”

Oversupply natural gas until 2017-2018 at least

“there is going to be more demand for gas down the road, it’s just a matter of timing on that hopefully by 2017, 2018 we will see some substantial demand increases.”