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EOG Resources Second Quarter 2022 Results

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EOG Resources, Inc. reported second quarter 2022 results.

2Q 2022 Highlights:

• Declared special dividend of $1.50 per share
• Earned adjusted net income of $1.6 billion, or $2.74 per share
• Generated $1.3 billion of free cash flow
• Oil, NGL and natural gas production above guidance midpoints
• Capital expenditures below low end of guidance range
• Total per-unit cash operating costs below guidance midpoint
• Deployed in-house developed continuous leak detection system

Ezra Yacob, Chief Executive Officer, commented: "EOG delivered another quarter of outstanding operating execution. Our second quarter performance is attributable to the dedication and persistence of our employees and the power of our high-quality inventory across our multi-basin portfolio.

"We are adding reserves at lower finding costs and in turn lowering the overall cost base of the company. The Delaware Basin remains the largest area of activity in the company and is delivering exceptional returns. The Eagle Ford also continues to deliver top-tier results while operating at a steady pace. Our emerging South Texas Dorado dry gas play and Powder River Basin Mowry and Niobrara combo plays are contributing to EOG's success today while laying the groundwork for years of future high-return investment. And our robust exploration pipeline of potential new plays promises to further raise the bar on our performance.

"Our performance this year proves that we have emerged from the downturn better than ever. The company is positioned to deliver significant value to shareholders with our low cost structure and increased exposure to oil and natural gas prices with the recent reductions in our hedge position. This is supported by an industry-leading balance sheet and a regular dividend that allow EOG to deliver significant value through the cycle.

"We are well positioned to carry this momentum into 2023. We have offset a significant portion of inflation this year and are working on plans to identify further cost savings next year. We continue to advance new technology and innovative projects to further lower our environmental footprint, such as an EOG-developed continuous leak detection system that is being deployed at our Delaware Basin facilities. Throughout the year and as we begin to plan for 2023 we remain focused on disciplined capital allocation. 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."

Second Quarter 2022 Financial Performance

Adjusted Earnings per Share 2Q 2022 vs 1Q 2022

Prices and Hedges

 Crude oil, NGL and natural gas prices increased significantly in 2Q compared with 1Q. Cash paid for hedge settlements in 2Q increased by $1.8 billion compared with 1Q, of which $1.3 billion related to the early termination of certain contracts.

Total company crude oil production in 2Q of 464,100 Bopd was above the high end of the guidance range and 3% more than 1Q. NGL and natural gas production were each above the midpoint of the guidance ranges and increased 6% and 5%, respectively, compared with 1Q. Total company equivalent production increased 4% compared with 1Q.

Cash operating costs declined to $10.12 per BOE in 2Q compared with $10.24 per BOE in 1Q. Lower lease and well cost was the most significant contributor to the reduction. A higher DD&A rate offset the reduction in cash operating costs. Lower marketing margin (gathering, processing and marketing revenue less marketing costs) and higher taxes other than income reduced earnings from other sources in 2Q compared with 1Q.

Change in Cash 2Q 2022 vs 1Q 2022

EOG generated cash flow from operations before changes in working capital of $2.4 billion in 2Q. The company incurred $1.1 billion of cash capital expenditures, resulting in $1.3 billion of free cash flow.

EOG paid $1.5 billion in dividends in 2Q, including $1.1 billion of special dividends. Acquisitions and divestitures in 2Q reduced cash by $0.2 billion, primarily related to a bolt-on acquisition in an exploration area and partially offset by sales of non-core assets.

Second Quarter 2022 Operating Performance

Per-unit LOE costs declined $0.13 in 2Q compared with 1Q and were within the guidance range. The divestiture of legacy gas assets in the Rocky Mountain area and overall efficiency improvements in the Delaware Basin were the largest contributors to the cost reduction.

Per-unit transportation and G&P costs in 2Q were in-line with 1Q and slightly below the guidance midpoints.

Per-unit G&A costs in 2Q were in-line with 1Q but significantly below the guidance midpoint. A transaction expected to occur in 2Q was not executed.

Depreciation, Depletion and Amortization Per-unit DD&A costs in 2Q were slightly above the guidance midpoint and increased 2% compared with 1Q. Facility additions and the divestiture of legacy gas assets contributed to the increase.

Special Dividend and Continuous Methane Monitoring

Special Dividend

The Board of Directors today declared a special dividend of $1.50 per share on EOG's common stock. The special dividend will be payable September 29, 2022, to stockholders of record as of September 15, 2022. Consistent with its past practice for the third quarter regular dividend, the Board will consider the quarterly regular dividend in September.

EOG has been evaluating continuous methane monitoring technology for several years and initiated a pilot project using an EOG-developed system about 18 months ago, named iSense^SM. The company tested iSense^SM against other monitoring solutions in use and available in the market. The testing confirmed that iSense^SM detects methane release events consistent with other commercial systems. iSense^SM is currently deployed in the Delaware Basin covering about 60% of production. The system will be deployed across additional sites in the Delaware Basin and other operating areas over the remainder of 2022 and in 2023.

As an in-house developed system, iSense^SM enables EOG to integrate the data it collects with existing operational data from EOG's other proprietary systems. This allows for the unique ability to analyze production and facility data to conduct root cause analysis, prioritize resources and dispatch repair measures. EOG expects to learn through analysis of the growing data set collected by iSense^SM how to design and build better facilities and continuously improve its infrastructure.