EOG shuts in 125,000 b/d of oil this month, eyes less in June

EOG Resources will temporarily shut-in production for at least four months, including 125,000 b/d in May, owing to recent low crude prices from the global coronavirus pandemic, top company executives said Friday.

But June shut-ins will total 100,000 b/d, EOG said in a late Thursday statement, adding it also shut in 24,000 b/d last month.

Shut-ins for 2020 will average 40,000 b/d, as output is gradually brought back over the rest of the year if oil market conditions permit, Bill Thomas, CEO of EOG, said in a first-quarter earnings call.

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"We view it [shut-in output] as low-cost storage," Thomas said. "It's a great way to manage your business especially in the price environment we're in."

Billy Helms, EOG's chief operating officer, said 90% of the company's shut-in production is cash flow positive at $10/b and the company has access to multiple markets to sell it.

Crude oil prices have been volatile and unusually low for the last two months. NYMEX WTI crude futures were in the teens for a couple of weeks, but have moved to the $20s/b this week as more oil companies have continued to voluntarily curtail production.

EOG SHUT-INS BEGAN IN MARCH

EOG initially shut-in 8,000 b/d of oil in early March, after crude prices plunged when Russia and OPEC+ could not agree on production cuts and walked away from the negotiations. By the start of Q4, EOG expects 20,000 b/d will still likely be shut in. That output represents wells with "some form of expense" required to start them back up, Helms said.

"You have a lot of reasons why production goes down," he said. "These are wells that might have to replace gas lift valve downhole or maybe a hole in the tubing or things that require some expense or workover to bring back to production."

EOG hasn't decided yet to spend money to bring the wells back, until it sees margins improve to a point where it would make that effort, he added.

In addition to curtailing production, EOG executives have opted to defer startup of new wells until oil prices recover, so they will generate higher-return rates. Those are wells completed and waiting to be turned online. .

The company has also sharply reduced its field activity, slashing its operated rig count from 36 rigs to eight rigs in the last six weeks. It plans to average six rigs for the rest of the year.

And, it plans to bring about 485 net wells on production this year, a sizeable reduction from its earlier projection of 800 net wells.

The company will also delay drilling 150 new wells until second-half 2020 as it builds inventory for 2021 production into what is widely presumed will be a better market, although EOG executives have repeatedly said the company will only produce wells when they meet its internal economic thresholds.

"Our 2020 production profile reflects a rate-of-return decision," Helms said.

For four years, EOG said it would only drill wells that generate at least 30% at $40/b WTI, but Thomas said the company's cost-cutting and efficiency efforts have changed the threshold.

The company has identified more than 4,500 net drilling locations – more than nine years of inventory at a 2020 activity pace – that can generate strong return rates of at least 30% at a WTI oil price below $30/b. It plans to concentrate activity this year on these wells.

OIL PRODUCTION WILL DROP 15% IN 2020

This year, EOG's oil production is projected to drop 15% compared with 2019, to roughly 390,000 b/d, down 15% from 2019 levels.

Q2 production is predicted at 310,500 b/d and Q4 production should average about 420,000 b/d, as shut-in wells come back and completed wells are turned to production.

In Q1, EOG's total oil, gas and NGL production averaged 874,100 boe/d, up 3% from Q4 and up 13% from the same period in 2019. Its Q1 crude and condensate output was 483,300 b/d, up 3% from Q4 2019 and up 11% from the same period a year ago.

EOG has also reduced its 2020 capex a second time. Its spending is now set at $3.3 billion-$3.7 billion, down $1 billion from a mid-March revision and down 46% from its original $6.3 billion-$6.7 billion spending plan.

Also, targeted well costs are projected to drop 8% this year compared with 2019 levels, including reductions of 9% in the Delaware sub-basin – the western part of the Permian Basin – and 7% in the Eagle Ford Shale of South Texas.

In 2019, and also 2018, EOG had targeted well cost savings of 5%. Last year it came in ahead of plan at 7% savings.