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

Well, it's been a very, very exciting morning. Thank you all for being here for this next session. One that we look forward to every year with Ann from EOG Resources, there's just so much to talk about. And I'm joined by my colleague, [ Yulia ] from the commodities research team, who does so much great work on the oil macro. Ann, maybe give you the opening floor to talk about what is top of mind for you as we go into 2026. And then we have a lot of macro questions, a lot of micro questions for you.

Absolutely. First, thank you for having me. I'm excited to be here. It's always great to kick off our year here at the Goldman Conference. So thank you for having me. I mean, as we lean into 2026, 2025 was a pretty transformative year for EOG with all the activity we had in all our new projects. So it's really an exciting time. We have a lot of momentum moving into 2026. And so for us, it's really about digging in and figuring out the best ways we can have value creation.

Yes. Okay. So let's talk about your capital plans and activity plans for the year ahead. And I know we're going to get more color and details on that on the Q4 call, but any early breadcrumbs that you're willing to give as you think about the year? And what is a very dynamic price set, too?

Yes. As we look to 2026, when we released third quarter earnings, we said that the fourth quarter run rate -- the fourth quarter numbers would be kind of the run rate for 2026. And if you looked at that, that yielded about a $6.6 billion capital spend for 2026. What we are seeing is cost efficiency, cost improvements in the Delaware Basin. And we're also seeing the integration of the Encino acquisition going at a much faster clip than we expected. So with those cost savings and the integration going faster, we're now thinking that we're going to land a little bit closer to the $6.5 billion level for 2026. And what that's going to allow us to do, of course, is to continue all our work in our foundational assets. We'll continue to be able to invest in gas. We will be able to -- our new exploratory plays in the UA and Bahrain and then it will also allow us to continue to pay out our regular dividend and as well as cash returns to shareholders.

And against $6.5 billion capital budget, oil growth of low singles?

Yes, low singles. I mean we're looking at the fourth quarter, it would be low to -- from no to low growth for -- so low to no growth '26 versus the fourth quarter 2025.

Perfect. That's a great pivot over the macro, and I'm going to jump in to talk a little bit about some the micro stuff. [ Yulia ]?

Yes. So I guess if we just look at the U.S. shale sector from a kind of a bird view, given your extensive expertise and history of EOGs in U.S. shale, where do you think we are just from the U.S. shale cycle perspective? Like do you start seeing some sort of signs of maturity that people start talking about? And given how the price environment is also changing and has been changing, how do you see your assets and EOG's position kind of like as a competitive edge over your competitors?

Yes, great. We do see some maturation in shale in the U.S., and there are some indicators of that. Of course, we're seeing -- there's been a little bit -- growing through the drill pit slowed down a little bit. We're seeing and returns -- that's allowing people to return value back through the form of shareholder returns. We're also seeing a -- the way we're looking at it, we're seeing that the lost my train of thought, sorry. We're going in. We're seeing that that's slowing down. We're seeing that there's economies of scale. You're seeing a lot of consolidations in the industry. And because of those consolidations, people are doing that to get lower cost structures in place. And then we're also seeing people explore in basins that haven't been looked at in a while. So you see some increased activity in the Western Haynesville, the Uinta. And quite frankly, we're seeing people exploring that haven't really been big explorers, done a lot of exploratory work. So we're seeing that as maturation for the shale. Also from an EOG perspective, we continue to look at innovation and technology as a great way for us to come up with new cost efficiencies, new cost savings and to drive value creation in the basin to get more out of the basin. You look at two of our foundational assets, the Eagle Ford and the Delaware Basin, and we're continuing to see cost improvements there. And you would think that after a while, you kind of exhaust that, but it's quite the opposite. It's not happening by accident, it's by us investing infrastructure, investing learnings and trying to grow those and get better. So for us, we view the shale and still has a lot of opportunity. The U.S. shale has a lot of opportunity. And as far as EOG and where we position ourselves, we think we really bring a unique approach to everything. We have -- we look at our value creation through four key pillars. We have capital discipline. We believe in investing in our assets at the right pace for each of those assets. That's backed up by a pristine balance sheet. And we want to be able to invest at bottom cycle prices so we can continue to offer returns and cash flow back to the shareholders in the long term. So that's our capital discipline pillar. Second to that, you have operational excellence. So EOG is a leading -- is leading in our in-house technical expertise. We have a phenomenal information technology program in place. And then we are also looking at self-sourced materials at EOG, things like sand. So that's bring a real value that EOG brings. And then sustainability, we want to be a prudent operator in the areas in which we work. We want to keep our employees safe and obviously be very conscientious about our environmental footprint. And then finally, all of that is based on culture. And it's one of the hardest things to describe about EOG. I've been here 30 years, and the EOG culture is really what invigorates the company. We're non-bureaucratic. We're decentralized. So what we're doing is putting the value creation down at the asset level. And that allows our employees at ingenuity, that ability to create new things is at the asset level. And we're empowering all of our employees no matter where they're located to come up with new ideas and make them approach the business as being a businessperson first. So we think EOG offers a lot of value. And again, it's about creating high rates of return and being able to generate cash over the medium and long term.

Sticking to the oil macro for a bit. There's obviously, a lot of concerns that the prices can keep going lower and lower and investors are getting more kind of cautious about how much it can affect really spectacular steel growth in the U.S. shale production that we've been seeing this year despite prices decreasing. Is it something that you worried about like looking at how much extra production is also coming from the LatAm, potentially higher Venezuela production, surplus is increasing? Or you kind of like think that's a bump on the road and the prices will rebound going forward and you kind of like keep your mind more in the long run price cycle. How in general, you think of prices when you make your decisions?

Yes. We agree that there's an oversupply. It's driving that price down. And we think that's going to last for several more quarters. So that's going to cycle through. And eventually, that oversupply is going to turn into an undersupply as that demand grows to meet that. As far as how EOG approaches it, though, is since we invest at that low cost at the low end of the cycle, not at the low end of the cycle, but at lower prices, what that allows us to do is really create value even when we hit these proverbial, as you said, bumps in the road, we're able to still, again, create value. So for us, we manage the business consistently looking at that capital discipline, investing in our assets at the right pace for their development. And obviously, we're watching the macroeconomic and being conscientious of it, but it doesn't really impact how we're going to strategically position the business.

And before I pass to Neil, let me also ask about nat gas. right? Because there is kind of like worry that in 2028, 2029, we're going to be all flooded with the U.S. LNG, with the Qatari LNG. Is that something that's kind of like top of your mind? Or are you kind of like thinking about it more from a short cycle perspective? I guess, in general, what's your view on the Henry Hub going forward?

Yes. For EOG, the way we approach it, first, you got to look at winter weather, what's going to happen in the short term. There will be some price volatility based on where the winter weather plays out. But then as far as the the gas supply and demand, we're expecting that demand to grow. There's some kind of key drivers behind that. You talk about the LNG buildout. There's going to be a real demand for the LNG feed gas, so we think that's going to be a huge demand driver. And then second to that, electricity is going to also be a huge demand driver. So we do see that position growing. Again, as we look at EOG, it's all about short and long-term approach stays the same, depending what the gas market is. It's all about reinvesting at the right pace for the asset. As far as LNG, we do think at some point, all that buildup is going to could create kind of a glut. People are concerned what's that going to do to price in the future. And the way we look at it is it's probably going to be a little bit more regionalized as kind of areas settle into what are their supply and demand, what's the transportation options there. And also looking a little further for LNG, how are markets going to treat LNG as part of their energy mix. So that will all play into things as we move forward.

Ann, you started off by sharing your activity plan potentially for next year, which is at 6.5 low to flat oil production. what would it take that to actually shift it lower and move towards decline? It wouldn't -- preserve the barrels for a higher price. I would imagine it would take a real regime shift from where we are right now.

Yes. Again, I keep talking about this, but it's such an important part of how EOG approaches this business, and that's investing in assets at bottom cycle prices. So when we hit those low points, EOG is still able to deliver that value. And that's really kind of the ground rule of how we -- so if you start at that low-level pricing to invest into the business, what we can do then is we can shift within this multi-basin portfolio. We can -- we bought -- we've got gas. We have oil now we have international locations. So we have some flexibility to shift into the different areas, the different assets. But really, it's got to take some pretty incredible event to happen before EOG is going to really change the course of the ship or do anything different in how we approach the business.

Planning, the assumptions are very wide.

Exactly.

Okay. So let's start with Encino because that's a big development since we're on the stage a year ago and talked to us about how the deal came together, early observations, and how would you characterize the Utica in your portfolio?

Yes. The Encino acquisition, that was privately negotiated. Very much a hand in glove acquisition for us because it directly aligned with the assets we already had in the region. I'm very excited about what we've acquired. The oil position. We're very active in the volatile oil window, and we were able to double our acreage position there. Of course, along with that, we did get some gas acreage, and we're excited about taking our learnings and seeing what we can do with the gas acreage. But from an integration standpoint, from day 1, it's been very exciting. It's gone very smoothly. As I mentioned earlier, we're already seeing a lot of cost savings, a lot of synergies. We've announced. We've got about $150 million in synergies related to Encino and we're looking for more. But it's gone really well. We've been able to put all our proprietary apps on it. Already been able to immediately make it be a part of our portfolio. We've integrated the Encino employees we brought over. We brought them into our culture. They're embracing our culture. But again, putting our stamp on it, looking at reducing well costs immediately and really enthusiastic about how our employees have hit kind of the ground running to embrace the additional size of this asset. And then the Encino employees joining us as well. We set up an office in Columbus. As I mentioned earlier, we're decentralized. We want to be running the asset, putting the value creation down at the asset level. So we did set up an office. That's going really well. It's exciting, a lot of hand shot up and wanted to go and be a part of that new Columbus office. So exciting for that. And then how does the Utica fit in our total portfolio? It's a foundational asset. So as such, it's going to be competitive with our other foundational assets. It allows us flexibility. So again, we can shift between those foundational assets. But really, we just think it high-grades our portfolio, again, kind of that hand in glove, and we look for a lot of excitement, a lot of value creation in the Utica going forward.

And as you think about -- there's -- Utica, of course, there's a lot of dry gas there. There's a lot of liquids as well. Where are you thinking about attacking first here?

We continue, like I said, to focus on the volatile oil window. That's our primary reason, quite frankly, for adding Encino to our portfolio. And that's where we are focused on first. That's where we've done -- had the most activity. And we did acquire those gas assets. The Peckens well came online. They had a 30-day IP of around 35 per day. So we're really excited about. And as we get in there and kind of unravel how everything is set up, we're really excited about looking at the gas package as well. But for now, our focus continues to be on the volatile oil window.

All right. Let's move south to Delaware. And that was a big focus of investor conversations I'm sure today and yesterday at the conference, but in general, over the last 6 months of we're shale getting more mature. Where are we in terms of the efficiencies? Where are we in terms of some of the curves and some of the data that was out there showed some softening in the Delaware for you guys, but I know some of that data can be noisy, too. So -- how do you think about the execution in the Delaware as we go into '26? What do you think is probably misunderstood by the market as somehow arguing it's getting to its point of maturity?

Yes. Again, the Delaware Basin is we like to call it the gift that keeps on giving. It's been a high performer in the portfolio for a very long time, and we're really excited. It continues to generate strong returns, great economic results, great financial results, and we expect that going forward. As you look at the well cost, we've seen our well cost in the last couple of years decrease by about 15%. And that lowering of those well costs has allowed us to go in and unlock new target zones and they're yielding great economic results. The way to kind of look at it is, although some of these wells don't have the same level of performance as historical, we are seeing lower cost and be able to drive those efficiencies. So again, as you look at kind of the well economics, they're still producing at the same strong levels. So if you look at the Permian, if you look at the Delaware Basin for EOG, we've been able as a basin to -- we have well payouts that are just at a year for 2025. We've been able to generate 60% -- greater than 60% after-tax rate of returns. If you look at it at a flat $45 WTI, we have greater than 100% rate of returns if you look at it on a strip price, -- we also are seeing some cost efficiencies coming into play as well as our direct and our all-in finding costs are all decreasing. So again, you start coupling all that, all those lower costs on the well economics, the total delivery from that is actually extremely strong and very competitive what we've done in the basin for a long time. And I would never sell anybody short in the Delaware Basin. We continue to look for opportunities to drive that well cost down even further. So yes, maybe we're not drilling the highest quality assets, of course, were drilled first. But the beauty of it is all the learnings we've had in the Delaware Basin over our history there has really allowed us to, again, continue to drive down this cost, unlock those new zones. Continues to create value, and we still see it as an extremely important value creator in our portfolio.

And then one of the challenges that's been talked about in a number of the panels operating in the Delaware is the amount of gas that's coming off these assets, but also as we move westward in the basin, the GORs just generally pick up, and that's natural as assets mature. And so how do you ensure that you keep your oil cut up in that basin?

Yes. Again, it's how we're approaching the basin. I was talking earlier, we talked about it from a capital discipline perspective, but we're also looking at it from how we're looking at the rock and how we're drilling, how we're approaching how we do things. And what that's been able to deliver for us is continued great results. The oil cut is a byproduct of that hard work and the efforts that we put into it and how we're learning the rock and trying to continue to take those learnings from the historical activity and really drive that value forward and continue to focus on that as well.

I'm going to turn it to Yulia here in terms of exploration, but one more just in terms of technology, this is where EOG has always been the leader in terms of application of technology. And we've gone through a lot of different iterations of different shale phases, first, the lateral length and then more recently, changes in completion designs and simul-frac and trimul-frac and quadro-frac. So what's next? What's the next thing? I think there's a lot of talk about whether lightweight proppant works or not, maybe that's in surfactants. What's the next thing we're all going to be talking about?

Yes. Technology, EOG is a technology leader. We tend to be a first-mover advantage in technology improvements. And really, it's about -- going back to my initial comments about that culture, empowering our people to be creative and look at different ways to approach the business and to approach the basin. As we look forward, what I think is exciting about technology in our company is we're talking to each other. Multidisciplines are talking to each other, trying to figure out creative ways to add more value through technology. A couple of things maybe to focus on coming around the corner. We have our HiFi sensors. Those HiFi sensors are go down into subsurface, so subsurface. So as we're drilling those wells, we're able to collect data as we're drilling those. So we're able to look at the geomechanics of the rock. We're able to look at fractures. We're able to monitor what our equipment is doing, how it's performing. We're able to do that in real time. So it's sending that data, if you will, back up to the surface and allowing us to capture that data, understand that data. And then when it comes time to complete that well, we have more knowledge. And then again, further taking all that knowledge and applying it into the next well. So that's an exciting opportunity for EOG. And then, of course, there's obviously discussion around AI and the technology improvements surrounding AI and what we can do there. And that's an exciting time for the company as well. We're a very data-driven company. And so as we make those the information technology improvements that's allowing us to gather more data, understand that data better and reenergize and put it back into the company in the ways we're looking at things. It also allows kind of basic functions that people do every day. We're able to do that more efficiently. So as you have the drillers out there going out to all the different wells. Now they're an app-based phone. They can just talk about the well as they're going out to the well and just put the data in there and it immediately transfers over. So a lot of technology improvements, again, from the cost-cutting efficiencies, all those things we're trying to do, it's really having our IT teams that multidisciplined approach those hallway conversations on how can we drive forward the business. It's been fantastic for the company. We see a lot of value creation and continue to see it.

That's an interesting observation because we've been talking a lot about techniques here. But what you're talking about is digitization at the next kind of wave of productivity improvement.

Yes. Yes. And you asked about surfactants. We've looked at surfactants. We -- for us, it hasn't been a real good cost benefit, but we're continuing to watch what other people are doing. So as we all know, the oil field is pretty small. So we all know what everybody is doing out in the oil field. So you have the technology improvements and how we can improve the cost and the functioning of the different things we're using in basin. And then, of course, you have the information technology side of it.

Any strong views on LWP lightweight proppant?

No, same thing. It's all about how is it going to -- we're looking at the best cost-effective things to be doing to make our wells productive. And again, monitoring what's happening around the industry.

Thank you. [ Yulia ]?

Yes. So you launched initial operations in Bahrain and the UAE, exciting new stage for EOG. How is the progress so far? How are you sort of navigating relationships with the local governments there? And also, if everything goes well, do you have any time frame in mind for when you'll be able to go to the full-scale development there?

Yes. We're really excited about our presence in the Gulf nations. We have the 2 areas we announced last year. We have Bahrain and the UAE and kind of taking them one by one, Bahrain, excellent working relationship with the Bahrain government. It's a joint venture partnership with Bapco, really have alignment of stakeholder ideas there. So we're really excited about that. It's a gas asset We drilled our first well in the third quarter. You did see a little bit of production for the third quarter, that was really from legacy wells we brought over. But it's fixed pricing directly in country into the market. We see a growing demand there. I'm a little bit smaller scale asset. So we're thinking maybe like the next year, 1.5 years, we'll be able to see some real results from that and kind of can strategically look at what that package is going to do going forward. On the UAE side, it's a much larger concession. It's 900,000 acres. Again, great working relationship with the UAE government. We were the first U.S. company to be awarded an unconventional concession in the country. So we're really excited. We were approached as we've been talking with them for a couple of years, and we're really excited about being invited to come in and look at that reservoir with them and use our expertise to help drive that reservoir forward, again, into a growing -- an area with a growing demand. Again, an oil asset, we spud our first well in the fourth quarter. That has a 3-year time line to declare commerciality. So it will take some time to get that one to fully understand. But excited about both of the opportunities. We set up an office there as well. Again, just like with Columbus, a lot of hands went in the air and said, "Wow, I want to go over and work in the Gulf Nations office." So that should show you, again, we're about decentralization, putting our multidisciplined asset teams on the ground locally so that they can really address the basin right there and be involved with it. So it's not that it's located on the other side of the world. We're there and we're active and our teams are on the ground. But great alliance with both of the countries, great alliance of where we're going with the development stages. And for us, any time we look international, anything we do exploratory has got all these hurdles that has to go over. But when we look at international, we want to make sure that, obviously, it's of enough size and scale that we'd be interested in growing there. And again, planning your flag there and growing the asset. We want to make sure we have good relationships, again, with the government and with the parties we'll work with and we want to have good oilfield services on the ground there. We don't want to have to start from scratch. And obviously, we want to go some place that has good geopolitical stability, which, of course, as we saw from this past weekend, is a very important characteristic. So really excited about our entry into the Gulf Nations and excited to have a presence there for a long term.

And going forward, where do you see more opportunities when it comes to exploration, both if we look at across different domestic basins, internationally, kind of what is more like falling under your radar as you start thinking of like what's next for EOG?

Yes. For exploration, that's in our DNA. We have grown through organic exploration. That's part of how EOG operates, how we built out our business. And that's allowed us to match 12 billion barrels of oil equivalent resource potential. And if you look at that, it's got about 25 years of drilling, producing and drilling, completing and producing. So we have a lot of that already in-house. The good thing is we continue to always look at exploration opportunities. It's in -- all our divisions are charged with going out and looking for the next thing and what's going to come around the corner for EOG. We don't comment on any of our real exploration activity that we haven't historically done that. But I can tell you, it's exciting times. We're continuing to always be looking at things. As far as where we are in kind of the macroeconomic cycle related to exploration, we're kind of a stage that kind of that exploratory drilling has slowed down a bit. It's really more now about going out and amassing small blocks of acreage to be ready to drill when we kind of -- the cycle turns back around. So always exciting opportunities at EOG and we're always looking at things.

Could UAE be a foundational asset?

We certainly hope so. We're excited, like I said, being in the country, and we'll have to wait to see how that plays out and how we get more understanding of the base and the reservoir and how they can grow and how we're going to add value and what the returns are going to look like.

Do we have a sense of when we'll know if we're tracking towards that?

Yes. That -- from the history of EOG, we don't like to comment early. We like to go in and truly understand the basin back to that pace of play, investing in the asset, growing the asset at the right pace. So we don't want to get ahead of our learnings. We don't want to go drill a few wells, get really excited and start projecting that out. We really want to take the time and be thoughtful, invest in the next well, and that will allow us to kind of gather enough information that we'll be able to disclose something. Again, we have 3 years to declare commerciality. So I'll give you that as kind of the outlook. 3 years, we'll have to determine what we want to be. But again, we'll continue to look at our learnings. And when we're ready to kind of announce what we've captured there, we'll do so. You'll be the first to know.

All right. We'll do it here at this conference.

There you go.

There you go. One of the things that you've evolved, you and Ezra has evolved and as you stepped into the seat as well, is a willingness to be opportunistic with share repurchases, but also have a more level-loaded repurchase. Sometimes there was frustration with EOG because you only buy back stock if the world was $30 a barrel and $30 a barrel, nobody buys back stock, right? So I think that's been a positive -- it's been positively received by the market. And so as you approach this year, you've been now averaging 100% free cash flow return to shareholders. should we anchor back towards that 70% to 100% range? How should we think that you can continue at the 100 pace post-Encino? Any comments on that?

Yes. The exciting thing is I love sitting in my position, we have a pristine balance sheet that's allowed us to return robust returns back to our shareholders. And we've been running, like you said, kind of a 90% to 100% for the past several years. And that's where I expect us to -- going forward kind of that 90% to 100% range. Keep in mind, as we look at free cash flow and what we want to return, we start obviously with anchoring with that sustainable regular growing dividend it's at $4.08 indicated annual rate now, we haven't cut or suspended it in 27 years and really excited about, and it's offering a 3.9% yield, which is not only competitive against our peer group. That's competitive against the broader S&P. So we start there kind of at that cash return. And then on top of that, we opportunistically look at share repurchases and/or special dividends. We've leaned more into the share repurchases because we think stock price has been attractive for us to go in, buy it back and really create long-term shareholder value.

The -- in all my years of being around EOG, I can really only remember you in the modern era of EOG Yates and now Encino generally been an organic story. Is that a fair assumption on the go forward? Or do you think there'll be more Yapes, more Encinos out there?

Yes. Just like you said, I've been here 30 years, and we've only done 2 corporate M&As. So I wouldn't sit there and think that we have an appetite for a large-scale M&A. The way we approach M&A, nothing has changed in our strategy there. It's a pretty high bar, pretty high hurdle rate for us to do any level of M&A, whether it's a large scale and certainly the smaller scale because it's -- since we're an organic company, a lot of times those come burden with higher costs. So we have -- for us to even look at it, it's got to come with low F&D cost, has a low base decline. It's got to -- again, not some burden with all those costs. So that's kind of the best way to look at it. And so again, we think we're creating more value by doing organic. We've got a higher return on capital employed by going out and doing organic growth. And any M&A we do, we did one in the Eagle Ford in 2025. And what it's got to do is immediately meet all our economic hurdles and then it has to compete with the portfolio. We want to bring it immediately into the portfolio. We're not going to do any M&A that we're going to turn around and sit on a shelf somewhere. So it's got to be kind of a hand in glove for us fit as Encino was as the Eagle Ford opportunity was. And again, we immediately put it into our operations and started actively being there. So nothing's changed on our approach to M&A.

Thank you, [ Yulia ]. Thank you. It's a great conversation, as always. It's a great pleasure to have you.

Thank you so much for having me. Thank you, [ Yulia ].