EOG Resources, which produced more oil using less money and fewer rigs this year, is maintaining focus on high-return oil growth as it targets exploration opportunities and improves the quality of its assets.

Speaking on an earnings call May 3, executives of the Houston-based company told analysts the company is not shifting into a lower growth mode, and it does not plan to increase spending. Capex for first-quarter 2019 were below the target range, while oil volumes grew 20% to about 435,900 barrels per day, surpassing analysts’ expectations.

The update was delivered as EOG provided details on its first-quarter 2019 performance. The company reported a net profit of $635 million, down slightly from nearly $640 million a year earlier. Revenue increased by 10% to more than $4 billion. Common stock dividend rose by 31%.

“We’re excited about the steps we’re taking to improve future results through our organic exploration of the high quality plays,” EOG CEO William "Bill" Thomas said on the call. “Our exploration focus and 15 years of experience drilling horizontal wells has generated mountains of proprietary data that gives us an edge in identifying new plays.”

With more than a dozen years of premium oil inventory, EOG aims to improve the quality of its inventory instead of adding quantity, Thomas added. It’s a move EOG believes will pave the way toward oil growth, but at a lower cost with higher margins.

EOG, which has assets in shale plays such as the Eagle Ford and Permian among others and internationally, is targeting about 14% oil growth this year with a capital budget of about $6.3 billion and about 740 net completions planned. Technology and techniques will continue to play a crucial role as crews work to improve efficiency, reduce drilling times and lower costs.

“For example, eliminating even one trip where the drillbit must be brought back to surface can save up to $100,000,” COO Billy Helms said. “We first analyzed then designed the best downhole motor to use in our bottomhole assembly and took an additional step of bringing quality assurance in-house. As a result of having direct control of this equipment we have observed a pronounced reduction in the number of trips while also improving the rate of penetration. Together reducing the trips and increasing the penetration rate is saving up to $400,000 per well.”

Completion teams are also experimenting with new designs and using new diverting agents. The result has been improved well performance due to enhanced fracture complexity and lower completion costs due to lower material cost, he added. The ability to move faster has also enabled teams to complete more lateral feet per day, further improving capital efficiency.

Laterals are expected to get longer across all of the company’s shale acreage, including in the Permian Basin. But longer laterals don’t necessarily mean higher IP 30s per well, Helms said. It could mean slower declines over time.

Of EOG’s 9,500 or so net undrilled premium locations, 4,815 are in the Permian’s Delaware Basin. Premium is defined by EOG has having a minimum 30% direct after-tax rate of return with flat $40 oil and $2.50 natural gas. The company plans an average 20 drilling rigs and 270 completions in the basin this year.

The team has learned a lot about the reservoir in the last year in the Permian, figuring out which targets need to be co-developed and about spacing—both horizontal and vertically, said Ezra Yacob, executive vice president of E&P. The efforts have resulted in lower finding costs and higher capital efficiency, he said.

Companywide, EOG’s finding and development cost per barrel of oil equivalent fell 39% since 2014 to $8.86. Depreciation, depletion and amortization costs are also falling, estimated at $12.75 per boe this year. That’s down 31% since 2014.

EOG is betting on its so-called “workhorse asset”—the Eagle Ford—to deliver growth. The company has been developing the Eagle Ford for about 10 years, but only 40% of the identified locations have been drilled, according to Ken Boedeker, executive vice president of E&P. Production grew by 9% in the Eagle Ford for the first quarter.

“Even in a play that has already accumulated significant operating efficiencies we were able to reduce drilling costs by 7% and increase completed lateral feet per day by over 50% in the first quarter of 2019 compared to 2018.”

Hopes are high in the Eagle Ford as EOG moves to the west.

“Our western acreage will be a crucial component of long-term growth for the play and we expect it will make up the majority of our Eagle Ford drilling program by 2021 growing from about 40% of our program in 2019,” Boedeker said.

EOG has about 2,300 net undrilled premium locations in the Eagle Ford. The company plans to run on average 10 rigs in the basin with 300 completions planned.

Compared to the East Eagle Ford, laterals will be longer—7,200 ft vs. 9,200 ft. The cost and first-year oil production is also expected to be higher in the west. The estimated cost for a West Eagle Ford welll is $6 million, compared to $5.7 million in the east, according to EOG.

On the exploration front, Yacob said the company is excited about opportunities to apply drilling and completion techniques to higher quality unconventional reservoirs.

“What really drives our process is having a multi-basin dataset that allows us to compare and contrast different reservoir characteristics of each of the sweet spots in the established plays that we’re in and we apply that to new ideas and areas,” Yacob added.

Thomas added the company is working just about every U.S. basin, leasing in multiple plays.

“We believe the prospects that we are leasing on have premium economic potential due to rock quality,” he said. “Some of them are in basins that have a lot of historical production,” while others aren’t.

As for the size of the prospects, the company isn’t looking for anything smaller than the Woodford oil play it introduced a couple years ago, Thomas said. That was about 200 million barrels, net to EOG, still significant but not as big as the two new Powder River Basin plays EOG announced last year that totaled 1.9 billion barrels, Thomas said.

When it comes to growth, however, EOG isn’t focused on corporate M&A, executives said.

“But we do occasionally look at bolt-on type acquisitions, and they’re focused primarily in our exploration plays,” Thomas said. “These acquisitions are very low cost and very, very high potential. They are kind of one-offs.”

Velda Addison can be reached at vaddison@hartenergy.com.

Onshore