Despite Gas Price Slump, EOG Full Steam Ahead in Emerging Plays

EOG Resources Inc.’s drilling plans — particularly in emerging plays in South Texas and the Utica Shale — are not being significantly impacted by the recent slump in natural gas prices, the company recently told investors. 

Houston-based EOG has kept an eye on volatility in the natural gas space since late last year, Chairman and CEO Ezra Yacob said in the company’s fourth-quarter 2022 earnings call on Feb. 24. But the company plans to continue development and infrastructure build-out in emerging plays and expand its drilling program in 2023.

Henry Hub gas prices averaged $3.27/million Btu MM(MMBtu) in January, down more than $2/MMBtu from December 2022, according to the U.S. Energy Information Administration’s most recent Short-Term Energy Outlook. 

After previously forecasting Henry Hub prices to average nearly $5/MMBtu this year, the EIA now anticipates gas prices to average around $3.40/MMBtu in 2023 and to stay below $4 until December. 

But recent volatility in gas prices won’t deter EOG from its long-term strategy, Yacob said. The E&P company anticipates “a pretty dramatic increase in the offtake and the demand coming on along the Gulf Coast” as more liquefied natural gas export projects start up in the next few years.

“The U.S., just this year, will have about 2 Bcf/d of LNG export back online after the disruption's clear,” Yacob said. “We've got an additional 5 Bcf/d a day coming online in kind of the [2024, 2025] time frame and then potentially another 8 Bcf/d still working through financing.”

EOG plans to produce between 1.67 Bcf/d and 1.81 Bcf/d of natural gas this year, up approximately 245 MMcf/d at the midpoint compared to 2022 volumes. 

Around half of EOG’s gas volume growth will come from associated gas from EOG’s sizable footprint in the Delaware Basin, where returns are being predominately driven by oil and NGL production. 

EOG completed 358 net wells in the Delaware Basin in 2022, up from 288 net wells completed during 2021. The company plans to complete around 365 net wells in the Delaware this year, the company said in its latest annual report.

The other half of EOG’s gas production growth will come from the company’s emerging Dorado gas play in South Texas. EOG completed 22 net wells in the Dorado play last year and anticipates completing 30 net wells in there in 2023.

“Our strategy at Dorado hasn’t significantly changed yet – and at this point, we don’t really see that it would, barring anything dramatic,” Yacob said. “The reason for that is that Dorado always has been kind of a longer-term strategy for us.”

Late last year, EOG began construction on a new 36-inch pipeline that will transport gas from the Dorado field to the Agua Dulce sales hub outside of Corpus Christi, Texas. 

Overall, EOG’s average rig count for 2023 is expected to grow by about two rigs and one additional frac fleet.

EOG’s strategy in the ‘new’ Utica

As EOG continues construction on the Dorado gas pipeline, the company has started to build out some infrastructure in its emerging plays – including EOG’s new “Ohio Utica Combo” play unveiled last year. 

EOG disclosed leasing 395,000 net acres and acquiring mineral interests for 135,000 acres in the Ohio Utica Combo in third-quarter 2022 earnings. The company’s fourth-quarter presentation noted that its Utica footprint is now 405,000 net acres. 

The company drilled and completed four wells in its Utica position during 2022. EOG is planning around 20 more wells this year in the Utica, where the company anticipates starting its drilling program at the end of the first quarter, said Ken Boedeker, EOG’s vice president of E&P.  

While large-scale M&A won’t be a major focus for EOG this year, the company will continue to look for lower-cost, bolt-on opportunities to grow its Utica position, Boedeker said.

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EOG posts slight misses in quarterly earnings

EOG reported annual net income of $7.76 billion in 2022 and made $2.28 billion during the fourth quarter. The company’s full-year profit grew over 66% from $4.66 billion earned in 2021. 

Excluding non-recurring items, fourth quarter adjusted net income came in at $1.94 billion, or $3.30 per share. Analysts at Tudor, Pickering, Holt & Co. had anticipated fourth quarter adjusted earnings of $3.38 per share. 

EOG’s revenues totaled $25.7 billion in 2022, up from $18.64 billion in 2021. The company’s fourth quarter 2022 revenue was $6.72 billion. 

EOG is setting aside around $6 billion for its 2023 spending plan, up 30% from the company’s total 2022 capital spend of $4.61 billion. Around 74% of EOG’s capex budget – or about $4.4 billion – is set aside for drilling in the company’s existing and emerging premium areas.