Executing The Plan -- A More Detailed Look At EOG's 2Q13 Earnings Presentation

Somewhere around 2008, EOG started announcing in their public statements that they were going to turn their focus from natural gas to oil. I can't remember if I actually posted a note when they first started talking about that switch, but I remember the "talk" vividly.

Back on April 24, 2010, an individual posted elsewhere noted the same thing:

They have publicly said for the last couple of years that they are switching their focus from gas to oil and that they are working on several horizontal oil plays in addition to the Bakken and the Barnett Combo. However, they would not publicly comment on those plays until they were ready as they want to lease acreage before any public announcements. 

By the way, that particular post is interesting for any number of other reasons. But I digress.

As I was saying: somewhere around 2008, EOG publicly announced they were changing their focus from natural gas to oil. I believe at that time, more than 50% of EOG's revenues were from natural gas (I could be way wrong on that, but I certainly saw EOG primarily as a natural gas company, something akin to Chesapeake).

So, how has EOG done? How well has EOG executed this plan? This caught me by surprise: look at slide 3 of their 2Q13 earnings presentation:

Natural Gas 
- North America – no dry gas investments, assoc'd gas drives modest growth profile
- International – profitable flat production profile

That's pretty impressive -- actually, very, very impressive: NO DRY GAS investments in North America. I assume that internationally, EOG continues to derive a positive cash flow from legacy natural gas investments but has minimized additional dry gas investment overseas.

 *****************************

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here. I post this data because it helps explain the Bakken and/or put the Bakken into perspective. 

Some other random data points from that presentation:

• EOG added a threshold asset in 2013: the Delaware Basin Wolfcamp
• top three onshore domestic horizontal plays: Eagle Ford, Bakken/Three Forks, Delaware Basin Leonard/Wolfcamp
• high rates of return; ~ 100% direct ATROR
• majority of US oil prices based on LLS; $9.50/bbl premium over WTI
• self-sourced sand is a discriminator for this company
• CBR innovator; loading facilities in all three major domestic plays
• US horizontal crude oil growth 2005 - 2013: only two major drivers -- the Bakken and the Eagle Ford
• EOG has 12 years of drilling inventory in the Eagle Ford; 12 years of drilling inventory in the Bakken
• This will change once they get going but right now EOG shows an incredible inventory of 83 years of  activity in the Leonard, and 118 years (no typo) in the Wolfcamp; 25+ years in the Midland Basin Wolfcamp. Overall EOG says their current acreage has a drilling inventory of greater than 15 years
• cash margins: 41% (2010), 56% (2011), 71% (2012), 75% (1H13)
• cash margins: $20 (2010), $29 (2011), $34 (2012), $40 (1H13)
• dividends: 24 cents (2006), 58 cents (2009), 75 cents (2013E)

*********************************

This is a portion of Slide 12 of the presentation. Note that production in the Bakken is leveling off; compare this to the Eagle Ford:

 The question is whether the rate of production in the Bakken will increase once the delineation of the Three Forks is further along.