EOG Resources Inc. is increasing its 2018 exploration and development expenditure forecast and raising its target for full-year crude oil production growth after posting record volumes during the third quarter, management said.

The Houston-based producer exceeded the high end of its target range for oil volumes in 3Q2018 by producing 415,000 b/d, an increase of 27% year/year. Given the record growth, management indicated it was raising its target for full-year 2018 production growth to 19%.

Meanwhile, as industry activity continues to slow toward year end, EOG has taken advantage of the period of softness in the oilfield services (OFS) sector by securing some of its existing fracture crews through the fourth quarter to use next year, EOG COO Lloyd Helms said last Friday on a call to discuss quarterly earnings.

By retaining the completion crews, EOG expects to complete 20 additional net wells in 2018 (for a total of 720) compared to its prior forecast, with the increased activity targeted for the Eagle Ford Shale. Meanwhile, 65% of its anticipated 2019 OFS needs already have been secured, which is higher at this point in the calendar year than in past years.

“By doing so, we expect to reduce total well cost again in 2019,” Helms said. He noted that the negotiated structure for OFS provides the company with “a great deal of flexibility to adjust our activity level in 2019.”

As a result of the extended contracts, exploration and development capital expenditures have been increased to $5.8-6.0 billion, excluding acquisitions and noncash transactions. Investors initially reacted negatively toward the increased spending, sending EOG’s stock price down more than 4% day/day to $102.46 as of Friday’s close. By midday Monday, however, the stock had bounced back by more than 3% to $105.77.

Management also indicated the company is on track to reduce total well costs by 5% in 2018, and plans to target further well-cost reductions in 2019.

“We are positioning EOG to carry the operating efficiencies gained this year into 2019,” CEO Bill Thomas said. We secured a significant proportion of our service costs, which along with disciplined execution will help further reduce well costs and improve returns.”

In addition to the record oil volume growth, natural gas liquids (NGL) production increased 46% during the quarter, while natural gas volumes grew 13%, contributing to total production growth of 25%.

EOG’s South Texas Eagle Ford remained the most active area in the third quarter, and the additional 20 wells now expected to be completed this year will bring the total to 290. It also continued to delineate the Austin Chalk formation in South Texas, completing 14 wells in the quarter.

In the Permian Basin’s Delaware sub-basin, EOG made “significant progress on well cost reductions and optimizing targeting and development patterns,” increasing the number of wells developed in a single package and drilling longer laterals. Packages of four wells or more accounted for 87% of the wells brought on line in the third quarter, management said.

“Well results across all of our Delaware Basin targets are consistently outperforming their respective type curves, and early production observations and data have been incorporated into our ongoing development to further improve future well productivity,” EOG’s Ezra Yacob, vice president of exploration and production, said.

“The geology in this basin is variable and complex, so there will not be a single answer on spacing or package size; however, the ultimate goal is to maximize capital efficiency” by optimizing the numerous drivers of finding cost, returns and net present value (NPV), he said.

EOG also continued to work toward its cost-reduction goals as drilling speeds and the pace of completion operations “increased markedly” during the quarter. In addition, the company now supplies nearly all of its Delaware sand from local sources and has further increased its use of low-cost recycled water.

With the continued success on the efficiencies and costs front, “there’s plenty of momentum to continue to get better in 2019,” Thomas said. “Our culture of innovation drives continues improvements in each play we develop, maximizing the value of our leasehold by optimizing NPV, returns and finding and development costs.”

Elsewhere, the producer also continued development of its premium play in the Anadarko Basin, which is the Woodford oil window in the eastern part of the play, where it completed 11 wells in the third quarter and continues testing spacing patterns and various targets. It is also making significant progress reducing well costs in the play, with recent wells brought to production at costs at or below the company’s $7.8 million target, Thomas said.

In the Rockies, EOG brought 20 wells online in the Powder River Basin during the third quarter 2018, including 13 wells from the Turner formation. In the Mowry, it drilled two wells that it is completing, and it expects to spud a Niobrara well in the fourth quarter.

“From a technical standpoint, we continue to fine-tune target identification and execution in both plays, as well as dialing in the right completion practices,” EOG’s David Trice, vice president of exploration and production, said. “In the early life of any new play, this tends to be an iterative process as we collect data and rapidly integrate the new information on a go-forward basis.”

In the Denver-Julesburg Basin of Wyoming, the company began production from 25 wells in the third quarter. EOG also completed 19 wells in the Williston Basin as part of its seasonal development program.

“Our focus on organic exploration makes EOG a prospect-generating machine, and we continue to generate significant new ideas,” Thomas said. “And to be clear about it, we are only interested in adding new plays that will increase the quality of our premium inventory, and we’re encouraged with the new prospects we are currently evaluating.”

As EOG plans for 2019, the company is in active discussions with third-party OFS providers to ensure it has capacity to transport and process production next year and beyond, Trice said. In addition, it plans to begin adding EOG-owned infrastructure “at a pace that is commensurate with development. This pay-as-you-go strategy will ensure that we can maintain our capital efficiency, even as we increase activity in the basin,” he said.

Thomas echoed those sentiments, saying that EOG would develop its assets and spend capital “at a pace that will optimize our learning curve and allow sustainable improvement to our well productivity and cost structure. Any production growth is strictly the result of disciplined capital allocation to high return assets.”

Meanwhile, the producer expects to divest its UK assets by the end of the year.

EOG reported third quarter net income of $1.2 billion ($2.05/share), up from $101 million in 3Q2017 (17 cents). The company generated discretionary cash flow of $2.3 billion and invested $1.7 billion in exploration and development expenditures. Free cash flow was $503 million for the quarter.