EOG earnings call- Joins other large-caps in guiding to flat 2015 production

EOG (formerly Enron Oil and Gas), has the well deserved reputation as the premier operator among on-shore US E&P companies.  There are certainly other companies that fall into the “premium” category, like Range Resources and Cabot in gas, or Pioneer and Noble in oil, but EOG is definitely the first among equals.  They had a bit of an earnings miss.  Here are some take-aways.

• EOG deferring many well completions to wait for higher prices and lower service costs.  200 wells waiting on completion now, and there will be 285 at year end.
• Capex goes from $7.5b in 2014 to $5b in 2015.  Capex more focused on infrastructure than last year.
• Flat production yoy for 2014 to 2015.  If they are getting $65/bbl at year end they will ramp back up but stay within cashflow.  They can get double-digit growth at $65 again next year.
• “Flat to negative US production growth on a month over month basis by the end of this year” industry wide.
• 10-30% cost reductions in services so far.
• Hoping for 10% reduction in total well costs this year.
• Decline rate is slowing over time.  Partly this is due to a maturing production base (older wells comprising a larger part of production than previously).  Completion technology is also starting to flatten out decline rates.  Seeing lower long term decline rates in the higher density fracs.
• They have a lot of their own sand etc, so they might get a bit less on cost reductions than others, since they are starting from lower.
• With today’s technology improvements, they are seeing the same returns at $65 oil as they were seeing with $95 oil in 2012.

Regional info

Cutting back in the Bakken and Eagleford, ramping up from a low base in Permian as results improves.  All other plays will have limited activity.

• Eagleford 345 wells this year vs 534 in 2014 year.  Running 15 rigs.
• Bakken 25 wells this year vs 59 last year with 3 rigs.
• Leonard Shale (Permian)- 23 wells this year vs 18 last year. 
• Bone Springs (Permian- 37 wells this year vs 3 last year.
• Wolfcamp (Permian)- 26 wells this year vs 19 last year.
• Cutting back a lot on any drilling outside of the big three.