EOG Resources, Inc. (EOG) is one of the largest independent (non-integrated) crude oil and natural gas companies in the United States, with a focus on maximizing the rate of return on investment of capital. The company's strategy centers around drilling internally generated prospects to find and develop low-cost reserves, maintaining a low operating cost structure, and implementing efficient and safe operations with robust environmental stewardship.
Financials
In 2023, EOG generated annual net income of $7,594 million, annual revenue of $23,182 million, annual operating cash flow of $11,340 million, and annual free cash flow of $5,155 million. The company's strong financial performance has been driven by its diversified asset base, operational excellence, and disciplined capital allocation.
During the first quarter of 2024, EOG continued to deliver exceptional results, earning $1.6 billion in adjusted net income and generating $1.2 billion in free cash flow. The company's production and total per unit cash operating costs beat targets, driving strong financial performance. EOG paid out more than 100% of its first quarter free cash flow through its regular dividend and $750 million in share repurchases, demonstrating its confidence in the outlook and value of the business.
EOG's operational execution has translated into strong returns and cash flow generation. The company's robust cash return to shareholders underscores its commitment to capital discipline and shareholder value creation. EOG's track record of successful exploration, strong operational execution, and applied technology has positioned the company to create shareholder value through industry cycles.
Outlook
The oil and gas market environment remains dynamic, but EOG expects it to be overall constructive in 2024. Global demand is anticipated to increase throughout the year, led by a strong U.S. economy, while U.S. production growth is expected to be more moderate due to factors such as flat rig counts and a drawdown in drilled but uncompleted (DUC) inventory. Globally, spare capacity is expected to return to the market, aligning with growing demand.
In the natural gas market, EOG expects prices to remain soft through the end of the second quarter, similar to 2023, but then strengthen through the second half of the year. Longer-term, the company sees significant demand growth potential from LNG exports, electrification, exports to Mexico, coal power plant retirements, and other industrial demand, which bodes well for its Dorado dry gas play.
Business Overview
EOG's diversified asset base and multi-basin portfolio provide the company with significant flexibility and optionality. The company's recent exploration success in the Utica play, which is demonstrating competitive economics with some of the best areas in the Permian Basin, is a testament to EOG's differentiated approach to organic exploration and innovation.
In the United States, EOG continues to focus on improving well performance and operating efficiencies, evaluating exploration and development prospects, and seeking opportunities to add drilling inventory. The company's major producing areas are in New Mexico and Texas, with a significant portion of its production coming from the Delaware Basin and Eagle Ford plays.
In Trinidad, EOG continues to deliver natural gas under existing supply contracts and is progressing development and exploration activities in various blocks. The company's marketing strategy, which emphasizes duration, flexibility, and diversity of markets, has allowed it to optimize its natural gas sales and realize attractive price realizations.
Liquidity
EOG's capital structure remains strong, with a debt-to-total capitalization ratio of 12% at both March 31, 2024, and December 31, 2023. The company maintains a significant cash position of $5.3 billion and $1.9 billion of availability under its senior unsecured revolving credit facility, providing ample financial flexibility.
Recent Developments
Looking ahead, EOG's 2024 capital expenditure budget is estimated to range from $6.0 billion to $6.4 billion, excluding acquisitions, non-cash transactions, and exploration costs. The company expects full-year 2024 total crude oil, NGLs, and natural gas production to increase modestly versus 2023. EOG also plans to continue spending a portion of its capital on leasing acreage, evaluating new prospects, transportation infrastructure, and environmental projects.
Conclusion
EOG's commitment to capital discipline, operational excellence, and leading sustainability efforts, underpinned by its unique culture, has positioned the company as a premier energy producer. The company's diversified asset base, strong financial position, and focus on value creation through the cycles make it a compelling investment opportunity in the oil and gas industry.