EUR 850.00 For Business Accounts Only

Morningstar | EOG Is the Most Competitive Large-Cap U.S. E&P

EOG stands out among large-cap exploration and production companies because it derives most of its production from shale. Only about 10% of the firm’s output is sourced overseas (mostly in Trinidad, with a small contribution from the U.K. as well). Shale-focused E&Ps tend to be much smaller, with assets concentrated in one or two basins. But EOG has exposure to most major shale plays, including the Permian Basin (Delaware), the Eagle Ford, and the Bakken. Additionally, the focus now includes the Powder River Basin (Wyoming) and the Anadarko Basin (Oklahoma).Due to the combination of its size and focus, the firm has significantly more shale wells under its belt than most peers. This has enabled it to advance more quickly up the learning curve in each play. As a result, initial production rates from new wells are usually well above industry averages (though subsequent declines are usually steeper as well--EOG isn't necessarily producing more oil from each well, but it is recovering the available volumes more quickly, boosting profitability).The firm's acreage contains more than 20,000 net drilling opportunities, which translates to 20-30 years of potential activity. Of these, about 8,000 are designated “premium” and should, according to management, generate internal rates of return when drilled of at least 30% (assuming WTI crude is $40 per barrel). Opportunities that don’t currently satisfy this criteria may be upgraded later, if the company can reduce the expected development cost or boost the likely flow rate of the well. During 2017, the firm added 2,000 net locations to its premium inventory, replacing 4 times the number drilled.The company also benefits from a high degree of vertical integration. In addition to gathering structure, the firm has its own sand mine (to supply proppant for fracking). It was also the first upstream company to bring completion design in-house, giving it more control over the cost of each well, and it supplies its own water, tubular goods, chemicals, and drilling mud as well. It is therefore less beholden to the service industry, and can utilize more low-cost “mom and pop” suppliers for its third party equipment needs.