EOG Resources, Inc. (EOG) Earnings Call Transcript & Summary

Good morning. This is Bob Brackett from Bernstein E&Ps. Welcome to the 36th Annual Strategic Decisions Conference from Alliance Bernstein. Due to the COVID-19 related restrictions, we are taking this conference virtually. And so you're now watching me on a Zoom Meeting hosted by Open Exchange. What we're going to do in just a minute is introduce the CEO of EOG Resources, Bill Thomas. He is going to talk for perhaps 10 to 15 minutes with some slides that we'll present, and then we'll move into a Q&A session. There's a couple of technologies that we're going to try to use during this session. The first technology you'll see on the left-hand side of your screen and that's Pigeonhole. Click the Pigeonhole link, that will take you to a website where you can type questions. You can vote on existing questions. I encourage you to do that. In the background, my colleague in Amir Farahani will be organizing those questions into logical buckets and then kicking them up to me where I can ask them to Bill. So again, we encourage you to use Pigeonhole as a way instead of those traditional little white cards that you might have used in past years. There's another technology that I'd like to talk about, which is Procensus. Now Procensus is also on the left-hand side of your screen, and that's something to use after the Q&A session. And Procensus is trying to replicate those side conversations you have as you wander from one session to another, you run into an investor colleague of yours and you could sort of interact. So it's a very investor-only platform, where you can sort of do a quick pulse on what you thought from the presentation. Did it change your mind, and what were some of the insights you took away. So I encourage you to use both in order to connect with the investor community. With that, I will kick it off to Bill Thomas. He is also on the Zoom, and I will also move over to project some slides, one second. There we go.

All right. Well, thank you very much, Bob. The first slide there, we appreciate Bernstein, and Bob, particularly you, great analytical work over the years. And we certainly appreciate everybody that's tuned in to listen to our story today. We appreciate your interest in the energy and particularly to EOG. The title of our slide deck is Sustainable Success. And if you followed the company over the years, the company has got an incredible record being a return focused, disciplined company that continues to evaluate the market conditions, the industry conditions and continues to pivot into the change and adapt and have a very sustainable organic-driven business model. And the company is in a incredible shape. [ I would like to go ] over some numbers here in a minute to emerge from this downturn. And so let's start with the next slide. Bob, just skip the second one and go to #3. As we all know, we're hitting an unprecedented commodity price environment. The whole world is in a very unprecedented time with the COVID-19 situation across the world. There's a demands destruction for petroleum products, driven by incredible amount of people, 4 billion people in a lockdown mode has driven down demand for oil and gas and other products worldwide by a huge amount. It's been the probably most significant, quickest, shortest, demand destruction really in the history of the business. And so you're looking at a couple of curves there. EIA is the blue curve and OPEC is the red one and then the black curve is the price of WTI oil. So the 2 curves EIA and OPEC are demand, and you see the dramatic -- demand destruction. And so the other part of the business is what's happened to supply has also been is equally dramatic. The OPEC+ Group has agreed to an unprecedented cut, nearly 10 million barrels of oil per day. And then there's been dramatic cuts in -- on OPEC supply through shut-ins and tremendous amount of capital reduction, activity reduction worldwide. And so the market is in a rebalancing mode. This WTI oil price, there is a couple of weeks ago, it's firmed up a little bit. But you can see really -- oil price is really trailing what we think and other people think that demand recovery will happen and the balancing of supply has been more dramatic. The more supply has been taking offline than people first expected it. And the other thing on demand, demand has not been quite as severe as people expected it. So the markets recognize that and oil prices are beginning to recovery, but we still think the recovery is going to outpace the current strip price of oil. So specifically about EOG, the next slide, Bob. We entered this year with quite a different outlook than we have right now. So as the downturn hit, we refocused the company on very some strategic points that I'm going to talk about here to manage through this downturn. The first one is, there's a -- every dollar, and this has always been the case with the EOG. Every dollar we spend at EOG, it must have generated a really good return. So as we look -- we do have some capital expenditures remainder of the year. We reshuffled, relooked at our drilling inventory. It's had a new milestone cutoff, and we're not going to drill or complete any wells that won't generate a 30% rate of return at $30 flat oil prices. So that's been the hallmark of EOG. Our first and primary focus in the company has always been on returns. And so we are totally committed to not spending money unless we generate a return. The second part was -- second point is we have tremendous operational flexibility. And so we cut costs very quickly, all across the company. We reduced our CapEx from (sic) [ by ] more than 45%, and we're working on operational costs. Our operational LOE cost, in particular, are down more than 20%. So we're readjusting to stay within cash flow and to protect our dividend. Then #3 is accelerate technical innovation across the company. As we began to work from remote sites due to the very extensive, very sophisticated information technology system inside the company and our decentralized structure of the company and the culture of the company, as you all know, is built on contributions from everybody in the company. It's not a top-down driven company. So everybody in the company is highly engaged, has a lot of data, is very interactive with each other. And with the -- what's happening in the field, and we continue to see substantial step-change efficiencies and technology gains all across the company and a lot of great geo-technical advancements that are going on inside the company same time. We're relooking at seismic interpretations. We're reprocessing some of that data and looking at targets and looking at the frac technology. And we still are trying different things on the wells that we're continue to complete going forward. So the technical advances are not stopped. They've actually accelerated a bit because we had a slowdown on activity and have more time to work on some of those things. Number four, we've really reshaped the production curve of the company to match the -- what we believe will be the oil price curve of the company. So our lowest production is now in the second quarter, in every quarter going forward, as prices recover, our production increases. So we did that through deferring some, all of our wells that we're completing and shutting in a substantial amount of production in wells to store that oil at no costs and produce that oil when we might get twice as much for the oil in coming months. And #5, we protected the financial strength of the company. So when we readjusted our capital spend, it now matches discretionary cash flow and covers a dividend with all in the 30s going forward. As you all know, we entered this downturn with a very, very strong balance sheet, and we aim to keep it that way going forward. Number six, we've continued to strategically invest in the long-term value of the business. So we have a number of the most robust exploration effort we've ever had in the company. We have cut back in some of those, but we have retained and continued to test on some of the prospects that we think will have near-term impact to the company and continued to lease at very, very low costs. And we believe those have the potential to significantly increase the capital efficiency of the company in the cost that it takes to produce oil going forward. And then #7 and the very most important thing, we've deliberately protected and enhanced EOG's unique culture. It's our #1 competitive advantage. We've had no layoffs. We've had no office closures, et cetera. And our culture, I can tell you, is working at a high pitch, very effective pace right now. They're supercharged. Every time we get in a downturn like this, it supercharges our culture and the advancements and the improvements in the company accelerate due to the unique culture and ability of EOG to create value from the bottom side. So our goal is every goal. I've been with the company over 40 years, like I'm losing track of the downturns, but this is the most unique one. But every time we have a downturn, the company merges much stronger. And so I believe EOG, even with the strong results we've had in the last several years, we're going to be a much, much better company coming out of this. Next slide. So this is just a quick look back over the last 3 years. During the last downturn, we switched to premium, and it made a dramatic difference on the results of the company going forward. So 2017 to 2019, we just highlighted that. So we have -- we produced -- we believe that industry-leading return on capital employed of 14% over the last 3 years, all this was based on an average oil price of $58, which was what we had. In addition, we increased our dividend to 124%. We had $4.6 billion of free cash flow. We reduced our debt -- net debt to $4 billion. We grew production by an average of 14% per year, and we increased our proved reserves by 55%. [ So it was a ] fantastic financial performance of EOG and, again, that was based on $55 oil and who we were then. So now as we emerge out of this downturn, we believe are going to be a substantially lower cost, more capital-efficient company going forward. And so if we have a price recovery, that's anywhere close to $58 oil, which we think is possible, the company has got a fantastic future ahead. Last slide? And just to look and compare EOG versus the large-cap peers in the business, there's been a lot of criticize on the shale business about outspending cash flow, ruining their balance sheets, increasing debt and not generating very good returns. Well, I'm here to say, by looking back at that last slide with those numbers and looking at this slide, this is the amount of CapEx to discretionary cash flow that EOG spent versus the rest of the industry, you can see that EOG is one of the most disciplined companies in the group. We spent an average of about 80% of our discretionary cash flow, CapEx. The rest, we built a best industry-leading balance sheet. We generated a super strong return on capital employed. And we grew the company substantially in reserve potential and production potential during those 3 years. And we did it with only spending about 80% of our discretionary cash flow. So we've been a very disciplined company for a long time, and we've been focused on returns. And again, when you think about EOG going forward, you need to think about our results in the past and where we're headed in the future. And I'm more excited about EOG's futures than I've ever really been in the history of the business. And one of the reasons I'm excited about it is, was because there's been a disciplined process going on in the industry for the last several years, driven by investors, driven by capital availability to the industry. And I believe the industry is marching towards EOG. I don't think they have the capital efficiency that EOG has. But I think the discipline is marching that way. And I think this downturn has accelerated the process. So when we emerge out of the downturn, I think you're going to see a hyper disciplined industry versus the past. And that's going to be good for all of us. That will take the pressure off of OPEC. They won't be worried about the U.S. taking market share anymore. They'll be more in control of future oil prices. I think we may have a more stable oil price, a more positive outlook for oil prices going forward in a much more disciplined industry. And so as we emerge in this downturn, I think that certainly, EOG is going to be in a much better position to perform even better than we've been in the past because we're getting better very fast. But I think the price environment might be in better shape going forward, too. So now thank you very much for listening, and I'll turn it back over to you, Bob, for the Q&A part.

Great. Thank you so much for that. I will stop sharing that screen. And then again, to remind everybody the way we're going to execute this is using the Pigeonhole. And I can see we start to get a few questions in there. And we get -- you don't even have to ask a question. You can also simply use Pigeonhole to vote on questions. And what I'd like to do is, as the questions come in, I'm going to try to structure the Q&A in the shape of a pyramid. We're going to start at the very high level and kind of work our way down. And so what I'd like to do, you mentioned that this was the most unique price cycle that you've seen, Bill, what do you mean by -- how does it stack up with other price cycles? How is it the same? And kind of how is it different?

Yes. Yes, I think we can all agree. This is a kind of a life experiences in so many different ways. But in our business, there were so -- such a rapid dramatic shutdown all over the world that affected demand. So you had to -- just almost instantaneous demand drop. And in the same time, we were all forced to work in a socially disciplined environment, mainly from our homes and all that. So I don't -- there's never been a combination of those 2 things that I've ever seen. On the other side of it, I think, as we've talked about with the -- in the opening slide, I've never seen the industry react so quickly as it did. So the industry did, I think, has done a fantastic job of reducing spending all across the industry and quick bringing on new production, either shutting it in or don't bring on new wells, et cetera. So -- and cuts all across the world from non-OPEC and OPEC have been fantastic. And so fortunately, I think that's going to have -- there's going to be less oil in storage. I don't think storage is going to show up like everybody thought. And I think demand, the data shows that demand recovery is really happening in most places in the world fairly rapidly. So maybe this downturn will be one of the most dramatic, but hopefully, it will be one of the most shortest ones we've ever had.

And then feeding off a comment you made. If we think about shale and that the pressure is put on OPEC in the past years, shale started the year around 8 million barrels a day, it’s probably going to shrink towards 6-something million barrels a day to start next year. If you add up all of the pipes that have built in the Permian, into the Bakken, Eagle Ford, et cetera, there's north of 10 million barrels a day of takeaway that's ready to move shale oil. You mentioned that that shale might not be taking market share. Do you -- where do you think shale goes from here? Does it stay down near the 6? Does it go back toward the 10? Does it get back to where it was to start the year?

Well, I think you're going to see several years of year-over-year declines. This -- because of the structural things that we talked about that's going on in the industry. Industry was moving towards more discipline, but it was moving slowly. So this is going to accelerate all of that. And people are going to live within cash flow. They're going to have to live within cash -- they can't get the money. Investors are going to demand it. So you're going to see a lot more really hyper discipline, I think, in the industry. And that's going to slow down growth. We were already, if you think about where we were in the U.S., really, over the last 5 to 6 months, we were pretty well pegged out before the downturn at about 12.8 million barrels a day. And that was in a $55-plus oil environment. And now -- so we're really kind of already peaking on growth. So now you take a lot less capital away from the industry coming out of this downturn, a lot more discipline, I think you're going to see several years of year-over-year declines in the U.S. And so that will really take the pressure off OPEC. They won't feel like the U.S. is taking market share. And when they get in the control oil, you should have a more stable price. And it should be a better price.

All right. And I'll feed off that to mention. EOG used to be a shale gas company. Very early on, and it saw the oversupply of gas and that sort of drove your strategy towards liquids. With the last several years, associated gas coming from wells drilled to chase oil has flooded the market. And now we've sort of taken that away. Has your view on either gas or natural gas liquids changed in this down cycle?

Well, yes, there's certainly been, over the last several years that a pressure -- a downward pressure on gas, and it's mainly been driven by the associated gas and their oil plays. So that's been the biggest factor. So now as you think about year-over-year production -- oil production declining, you'll see year-over-year associated gas declining at the same time. And there's more discipline, I think, in the operators in Marcellus, in the Haynesville, et cetera, on the dry gas side of it, too. So you're not going to see the dramatic production supply growth in the U.S. of gas that we've seen over the last few years. And as demand catches up with that, that should firm up natural gas process. So I think natural gas has got a much more positive outlook in the next few years than it had in the last few years.

And for the audience, talk about how you allocate capital to oil versus gas and what that process looks like?

Yes. The -- because historically, in the last few years, oil has been at a stronger price of gas. So we get -- we generate returns -- higher returns on oil. And as we talked about, the company is totally focused on returns. And so oil has been our main focus. If that changes, and I expect it could a little bit if gas firms up, and we can drill gas wells that generate equal or higher returns than oil well, we certainly don't mind drilling gas wells. So we have a lot of gas potential in the company. And so that's another strong option for us.

And talk about the outlook for EOG in the case of a prolonged period, let's say, 2 years of oil price at these levels?

Yes. It's simple. Returns in the balance sheet. So we're going to focus on those 2 things. That's what's -- that's the hallmarks of the company. We're going to make sure that every dollar we spend, and we've got ample inventory that we can execute on to generate really strong returns at $30 oil, we've already talked about. And we're going to protect our balance sheet. We're going to live within cash flow. And growth has always been an expression of reinvesting at high returns. And so our primary focus in EOG is capital allocation and continuing to reinvest in high returns and keep the company financially healthy.

And you can talk about debt. You've got debt coming due next year, talking about protecting the balance sheet, sources of liquidity?

Yes. We have plenty of liquidity. We had $2.9 billion at the end of the first quarter in cash. We have -- we just issued a new $1.5 million worth of bonds to add to our liquidity. And we do have -- so we're in a fantastic shape. Our balance sheet, it's just one of the best in the business. And so as we go forward into 2021, we'll decide at that time, but we have a $750 million bond that comes due. And of course, our goal would be to pay that off and continue to reduce debt going forward. But we'll see what the situation is at the time, but the company is in a fantastic shape. And I think one of the hallmark things of EOG is we've always focused on having a strong balance sheet, and that's shown to be very advantageous as we enter this downturn.

And if we get back to sort of a normal mid-cycle price, how do you balance reinvestment against returning cash to shareholders, especially when you have an inventory of high-return projects that, in theory, could absorb 100% of cash flow?

Yes. We'll continue to run the business just like we have in the past. We talked and I'll show these numbers. The results of the last 3 years have been absolutely fantastic. And so every year, when we look at what our CapEx is going to be, we take a very strong view. We have a very sophisticated model on our -- on the macro. So we decide what's kind of a reasonable conservative oil price scenario. And then we look at -- we want to continue to reduce debt. We want to continue to return cash to shareholders through a sustainable and growing dividend. And we want to -- so we want to generate a significant amount of free cash flow every year. So if you look at the past 3 years where we've reinvested about 80% of our discretionary cash flow, I want to give a hard rule, that's exactly what we'll do going forward. But that's a really good model for EOG and that's worked really well. We've been able to give cash back, create a fantastic balance sheet, but also grow the company at substantial rates and generate very high returns in the same process. So I don't expect EOG to be a lot different than in the past. We've always been disciplined, and we're going to remain disciplined in it going forward.

So that 80% might move down over time?

We'll just have to see. When you think about the macro, you don't want to be growing volumes in an oversupplied market. That's not advantageous for anybody. And so we look at the whole -- when I say our view of the macro, it's really how stable is the macro. What's the -- what are some of the things that could pick up the price environment that we're in. So we take those into the factor also. But basically, the fundamentals of the company are reinvesting at really high rates of return and maintaining a super strong balance sheet. Those are the 2 fundamental companies that drive it and drive us going forward, and we'll always manage a company based on those 2 things.

And you mentioned the industry is sort of moving towards an EOG in terms of that capital discipline. So you see -- do you see the industry moving to a world of spending 80% of cash flow? And do you see the industry chasing the next up cycle?

I think as we talked, I think the industry is going to be significantly more disciplined going forward. The industry, there's -- as everybody knows, there's too many people. There's too many players in the business right now, and there's super need of consolidation. And one of the biggest hindrances of the consolidation is the tremendous amount of debt that some of the companies have. So they have got to get their balance sheet in better shape if they want to be able to merge their companies together. And so capital availability is going to be super tight. And so to reduce their debt, they're going to have to work on their balance sheet and get them in a lot better shape. And at the same time, they're going to have to give money back to the shareholders. So there's going to be a lot of demand on capital, an increase that's going to continue to enforce discipline on the industry. And I think that's positive for everybody, including oil prices.

So you mentioned industry consolidation. If we go back to sort of the late '90s, we saw the era of the mega mergers, the BPM Amocos and the Conocos and the Phillips, and the Chevrons, and the Texacos, and the Exxons and the Mobils and the list goes on and on and on. And the industry sort of a -- certainly in the U.S. consolidated almost from the top down. How does the industry consolidate this time? And then I'm going to follow-up and ask about EOG consolidating.

Yes. That's -- I think it's a very unique time in the business. I think there's not as many acquirers are there or there as there is people that want to be acquired. So you've got really a very, very short list of people that really are in could be in a position to buy somebody in a very, very long list of people who want to be bought. So that's making it difficult along with the balance sheets on the consolidation in the industry. So I think there will be some, but people are going to have to get their business in shape if they expect to be bought.

And then that list of potential acquirers would be companies with liquidity, strong balance sheets, ability to evaluate reservoirs. Where does EOG fit into the role of consolidate or consolidate T?

Yes. I know everybody has heard me say this a million times, but we are not interested in corporate -- large corporate M&A -- expensive corporate M&A. And so there's nothing changed there. We run our business, as I said before, on returns. And so for us to do an acquisition, whether it's a small or a big one, it has to compete on a return basis to our organic process of generating new inventory through exploration. And right now, we continue to have, I see the most robust exploration inventory projects going on that we've ever had in the company. So -- and we're acquiring that. And we have very, very low cost. And we think it's -- we just don't need more inventory. We just need better inventory, and that's really the focus of the company. So for us to buy somebody, they have to have something that would be incrementally better inventory or equal or better inventory than we currently have. You'd have to have a lot of cost synergies and other things built into that, and you can't absorb a lot of debt in the process. So we look at all companies, and we run numbers on things all the time. And we're not opposed to doing something. It just has to be a high rate of return deal like organic as to compete with what we're doing organically. And it just makes it very, very difficult for any acquisition to pass that hurdle. We do continue to do and look at bolt-on acquisitions where we buy pieces of property or pieces of companies that supplement our exploration efforts. If we can get those at low costs, we don't mind doing those kind of things. But a large corporate deal is very unlikely with EOG.

Yes. Part of the reality seems that if you were a mid- or -- small- or mid-cap E&P with fantastic inventory, almost by definition, you would have been successful over the last 5 years unless you just had really terrible cost structures or really terrible management. So there don't seem to be a ton of opportunities of world-class inventory being mismanaged in the market today. It's somewhat efficient.

No. I think that's correct. That's exactly right.

Talk about -- and especially given, we've sort of felt this year. We started the year with a lot of interest in ESG from the investor base. There's a lot of longer-term forces that are moving toward a world of ESG. The oil and gas sector is clearly in the crosshairs of a world of ESG and an energy transition. Yes. So talk a little bit about ESG sort of before COVID-19 and then sort of talk about, has it changed? And how is it evolving?

Well, I don't think there's going to be any emphasis at all taking off the importance of ESG. It's a very important for all of us to be good stewards of the environment and the world we live in. And I truly believe that our industry can be part of the solution and not part of the problem. And as EOG is -- I think, merge is one of the more proactive ESG companies in the business, we're really focused on coming out with innovative ideas, creative ideas and cost-effective return-focused ideas that can continue to reduce -- substantially reduce our ambitions going forward. So our culture has embraced EOG just like it has in other parts of our business. So really, we have a ton of new ideas, a lot of technical efficiency things that we're working on. We're getting very close to completing our first solar natural gas power station to generate electricity for compression in Mexico. We'll be through with that within the next really a month or so. And we'd be putting that online. And we have a lot of other innovative ideas. And so we look forward to being part of the solution to the energy transition going forward and leading in that effort. And it's, I think, certainly, our culture and our folks are really excited about it and excited about our potential to do that.

In what inning are we in, in related to innovation in shale?

It's gone through, as you know, a number of things. I think, as always, it's a bit company specific. If you're a company, which a lot of companies are, they tend to think they're in a manufacturing mode. And it's a process of just fine tuning the cost, fine tuning little things that just make you a little bit more efficient and everything. That's not the mode that EOG is in. And so we never run out of things to improve on. Every time we improve one thing, we turn around and look and there's a thousand other things that we can continue to work on. And so it's an unending technology advancements. It's not any one major item. It's just 1,000 of smaller items. So on cost reduction, that's never going to stop. We look back on, we have charts in our IR deck on the Eagle Ford. We've been drilling the Eagle Ford for 12 years now, but we're still -- every year, we make a record well. And the record well is 20% lower than the previous group. So it's like it's never ending in any of the place on cost reduction. Same thing on asset well cost. Same thing on the operating cost. It continues to go down going forward. And then on the technology side, on the productivity side, the real key to the horizontal play is better rock and connecting more of that better rock to the well. It's really those two things. And so we continue to advance the completion technology, especially in rocks that are not shale, there relief limestones and some carbonates that have better productivity. And if you can increase the connectivity through horizontal, you can make better and better wells going forward. So that's really the focus of our exploration efforts. And we're excited about lowering our decline rate, lowering our finding costs and improving the profitability of the company going forward through a better rock and better technology at the same time as well as reducing cost across the board. So it's just never ending. And that only happens if your bottom -- it's coming from the bottom-up, coming from every person in the company with a lot of data, a lot of analytics, a lot of freedom to trial to try things. We don't penalize folks for -- if it doesn't work, it's okay. Just don't do it 3 times in a row, continue to experiment, and continue to think out of the box. And if you have that kind of attitude and that kind of culture, it never, never ends.

Well, you mentioned in your prepared remarks that there was a 20% drop in lease operating expense this year. Talk about that. Was that cyclical, structural innovation? What really drove that?

Yes. Most of that is driven by in-house things. We continue to just work on lowering the operational cost across the board. So on the LOE side, we just get more sophisticated in the way that we do workovers and clean outs. We're -- we -- that's one of the biggest expenses on LOE is fracking in offset wells and removing sand. And so we've learned how to not to frac in the offset wells doing diverter and other processes like that. So we're cutting down on that, saltwater disposal, et cetera. We're reusing a lot more water every year in all of our plays, expanding that to the new plays like the Powder River Basin, et cetera, and that's lowering our LOE cost. And there's just a lot of things, control centers and a lot of other things, gas lift. We're turning everything to gas lift instead of broad pumps. So all that is making a significant difference.

We've got probably about 6 more minutes, and I think I see 3 or 4 more questions. One is related to, I think, potentially the election cycle coming up. And how would you mitigate risk for federal land exposure if that risk reemerges?

Yes. Well, we do a number of things. First off is that we've got really a couple of years already permitted on our federal acreage. So in case that came up, they really couldn't slow us down too much in the near term. And then we have tremendous inventory that's not federal. And we're adding to that with our new exploration efforts. A part of our exploration effort is to get prospects. It's not non-federal. So I tell people -- as people ask me this all the time in all different scenarios, inventory, that's the last thing in the world, almost I'm worried about in EOG is because we have so -- we have such a prolific culture. And I can have a very good vision of where we're headed. I just don't see, even if the most draconian things would happen federally, I don't think that, that would affect EOG in the long term.

And then you mentioned exploration. And I heard carbonates and I heard nonfederal land, but the question we have is, you mentioned retaining high-impact exploration. Can you provide more details, locations, quality of discovery so far, et cetera?

Well, no. I can't really supply the details because we're still collecting acreage at very, very low cost and some of the plays could be quite extensive. So I don't want to -- I won't almost say too much. And we don't really want to talk about them until we get meaningful results. So when we get enough wells and not just a 1 well wonder when we get multiple wells drilled, and we kind of understand the extent of the play, then we can talk about them a little bit more.

What is the best returning asset you have in a low oil environment?

Well, I think the most amount of potential we have right now is in the Permian. So that's the highest return now, and it would certainly would be at any price. It would be the highest return. But the Eagle Ford, because we have a little bit higher netback prices there, it's a little bit more oily. It's a very, very high return. We've got a substantial inventory left there. We're just a little bit over half drilled up there. So we got plenty of running room there. And then there are some new slides in the IR deck this quarter on the Powder River Basin. And I encourage people to look at that. We've made a very significant improvements through completion technology and targeting and the well productivity is really going up very strongly. And we're also reducing costs there very substantially. And we've got plans to continue to reduce that with EOG sand and water and infrastructure, we've got going on there. So we've got a lot of really through -- those are the 3 biggest plays, and they all have substantial running room.

You mentioned retaining high impact -- sorry, well, what production growth rate would reflect the hyper disciplined U.S. shale view that you expressed, both for EOG and U.S. shale in general?

Well, for the whole industry, in general, I think we're not going to see year-over-year production growth for at least several years and maybe longer than that. So I think there'll be some companies growing, but there'll be a lot of companies still declining and really kind of be in a maintenance mode as an industry. For EOG, specifically, as I said, the fundamentals have not changed. We're going to reinvest at a high rate of return, reinvesting at high rates returns are the fundamentals of the company and growth is just a natural expression of that. So if we reinvest something around 80% of our discretionary cash flow, that's the best way to create the highest return on capital deployed, discretionary cash flow per share growth, earnings per share growth, free cash flow potential. All those metrics are better as we reinvest as high rates of return. And we keep about the same balance that we've had in the past. So the fundamentals of EOG have not changed.

That's fantastic. We're hitting the 45-minute mark. I want to thank you, Bill, and certainly thank the audience for joining us. I want to remind the audience to go click on your Procensus link so that you can give real-time and receive and see what other investors are saying in real-time as we transition from this presentation to other presentations over the coming days. Thank you, all. And again, thank you, Bill.

Well, thank you, Bob. Appreciate it. Thank you, all, for listening.