EOG Resources Inc.’s recent performance and long-term prospects for natural gas growth are inspiring more exposure to high commodity prices and an ongoing emphasis on low costs and high returns, management said. 

EOG

CEO Ezra Yacob told investors during a second quarter conference call the firm’s performance during the first half of the year “proves that we have emerged” from a pandemic-fueled downturn “better than ever.” He pointed to across-the-board increases in natural gas and oil production and simultaneous progress on the firm’s cost and emission reduction goals during 2Q2022.

“Our long-term vision is to be among the lowest cost, highest return and lowest emissions producers, playing a significant role in the long-term future of energy,” Yacob said.

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The Permian Basin’s Delaware sub-basin remained Houston-based EOG’s “largest area of activity” during the quarter, Yacob said, followed by steady operations in the Eagle Ford Shale.

It also reported progress in the development of its dry gas producing acreage in the South Texas Dorado Shale. EOG is relying on the long-term returns from its recent investments in the Dorado to meet growing domestic and foreigh demand for U.S. natural gas.

“On the natural gas side, we’re excited about the results of our South Texas Dorado play and its ability to play an increasing role in supplying the growing demand” of petrochemical and LNG markets along the Gulf Coast,” COO Billy Helms said.

Combined average production totaled 920,700 boe/d in 2Q2022, versus 828,000 boe/d in the year-ago period. Natural gas volumes averaged 1.5 Bcf/d during the quarter, compared with 1.2 Bcf/d year/year. Natural gas liquids (NGL) production averaged 201,900 b/d in 2Q2022, up from 138,500 in 1Q2021. Crude oil and condensate output in 2Q2022 averaged 464,100 b/d, up year/year from 448,600 b/d.

EOG reported oil production for the quarter came in above the high end of its guidance, while natural gas and NGL production came in above midpoint estimates. Helms said “inflationary headwinds” and economic volatility tempered expectations for oil growth to around 4% for the year. Management had previously predicted oil growth of 8-10%.

Yacob said the producer had “offset a significant portion of inflation this year,” with a large part of savings by selling “legacy gas assets in the Rocky Mountain area” and improving Delaware efficiencies. Per-unit lease operating expenses dropped 13 cents during 2Q2022 to $3.87/boe, compared with $3.58 in the year-prior. It was about 7 cents higher than the midpoint guidance.

Yacob said “the current operating environment is challenging given the volatility of commodity prices and inflation headwinds,” but EOG plans to reduce hedges going forward. EOG has typically placed hedges on 20-30% of its gas and oil volumes in any given year. Yacob said the firm expects to initiate an early termination on some current hedges and “hedge significantly less” in the future.

The company fetched an average Henry Hub natural gas price of $7.17/Mcf in 2Q2022, versus $2.83 in the year-ago period. Its average realized West Texas Intermediate crude oil price for 2Q2022 was $108.42/bbl, compared with $66.06 in the year-ago period.

Capital spending for 2Q2022 was $1 billion, compared with $937 million for 2Q2021. Midpoint guidance for 2Q2022 expenditures was $1.2 billion.

EOG also reported that it achieved 60% coverage of Delaware operations with methane detection technology in the second quarter. By the end of the year, it plans to cover 90% of Delaware operations and begin “broad deployment” across all assets by early next year. 

Net income was $2.2 billion ($3.81/share) in 2Q2022, compared with year-ago profits of $907 million ($1.55).