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Is EOG Resources’ Crude Oil and Natural Gas Production Rising?

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EOG Resources’ 2Q17 operational performance

For 2Q17, EOG Resources (EOG) reported production of 603.9 Mboepd (thousand barrels of oil equivalent per day), which is significantly above its 2Q17 production guidance range of 562.2–592.7 Mboepd. EOG Resources’ 2Q17 production is ~10% higher than its 2Q16 production of 551.1 Mboepd. Sequentially, EOG’s 2Q17 production was ~6% higher than its 1Q17 production.

Commenting on the production beat, EOG Resources’ CEO, William R. Thomas, noted, “EOG’s premium drilling strategy continues to drive outperformance every quarter, delivering strong production growth with industry-leading capital efficiency. Our permanent shift to premium drilling, driven by an organic exploration focus and best-in-class technology, is a sustainable competitive advantage.”

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In 2Q17, EOG Resources had ~7,200 premium drilling locations with an estimated premium net resource potential of ~6.5 billion barrels of oil equivalent. EOG defines premium drilling location by “a direct after-tax rate of return hurdle rate of at least 30 percent assuming $40 flat crude oil prices.”

EOG’s year-over-year increase in production can also be attributed to its increased capital expenditures, which resulted in higher exploration and production activity levels. We’ll study EOG’s capital expenditures in the next part.

EOG’s production mix

In 2Q17, EOG Resources reported total liquids (USO) production of 421.3 MBbls (thousand barrels) per day, which is ~70% of the total production in the quarter. In 2Q17, EOG reported natural gas (UNG) production of ~1,096 MMcf (million cubic feet) per day, which is ~30% of the total production in the same quarter.

In 2Q16, EOG reported ~64% liquids and ~36% natural gas in its production mix. EOG’s liquids percentage in the production mix has increased significantly in last one-year period. This increase can be attributed to EOG’s operational strategy of drilling only at the premium locations, which typically have a higher percentage of crude oil and condensate in the production mix.

EOG’s production guidance

According to EOG Resources’ 2Q17 earnings press release, EOG expects its 3Q17 production to be 581.7–613.7 Mboepd, a midpoint increase of ~8% from its 3Q16 production of 555.2 Mboepd. Sequentially, EOG’s forecast 3Q17 production is ~1% lower when compared with 2Q17.

EOG’s peer ConocoPhillips (COP) expects its 3Q17 production to be 1,170–1,210 Mboepd, a midpoint decrease of ~24% when compared with its 3Q16 production. Sequentially, ConocoPhillips’s forecast 3Q17 production is ~16% lower when compared with 2Q17.

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