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EOG restores shut-in crude output, but says another third will remain down in Q3

Highlights

Q2 shut-in crude volumes totaled 73,000 b/d

Expects 25,000 b/d shut in on average in Q3

But nearly all wells to restart by end-September

Houston — US operators demonstrated the ability to be nimble during the second quarter of 2020, quickly curtailing production while facing multiple hurdles such as the commodity price collapse and reining in natural gas flaring volumes in oil-rich plays such as the Permian and Bakken.

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"Second quarter results show EOG's ability to quickly adapt to an unprecedented commodity price drop," said EOG Resources CEO Bill Thomas during an earnings call on Aug. 7. "EOG employees rose to the challenge. Compared to our aggressive plan and guidance we produced 7% more oil with a whopping 22% lower operating costs while oil prices averaged less than $30/b."

EOG Resources continues to restore oil volumes shut-in during Q2 from the coronavirus pandemic, but estimates a third of those volumes will remain curtailed on average in the July-September period.

EOG, a big US shale producer, averaged 73,000 b/d of shut-in oil output during the second quarter, but projects on average 25,000 b/d will remain shut-in on during Q3, the company said in releasing its Q2 results. But almost all production will restart by the end of September, it added.

EOG improved its metrics amid lower oil price, output growth
Capex (cumulative; $ billions)
Oil production growth
Return on capital employed
Oil price ($)
Free cash flow ($ billions)
2012-2014
22.9
37%
10%
95
-1.3
2017-2019
16.6
17%
14%
58
4.6
Source: EOG Resources

Net oil volumes shut in from existing wells peaked at roughly 107,000 b/d in May, when the company began shutting in production along with dozens of other upstream producers of US shale oil and gas.

The curtailed volumes affected the company's Q2 crude and condensate production, which totaled totaled 331,100 b/d – 27% below year the same period in 2019. Total production, including oil, gas and NGLs, was 623,400 boe/d, down 23% from the same 2019 quarter.

Despite shutting in numerous wells to slice into production volumes during the commodity price collapse, EOG managed to generate more oil and gas than expected.

"We beat our production forecast due to bringing production back on quicker than expected," said Ken Boedeker, executive vice president of exploration and production. "We made the decision to shut in rather than sale to an uncertain and low market. We enhanced cash flow for each barrel produced."

Some of the wells also performed with higher daily rates of production following the temporary shut ins.

"As we shut-in wells they continue to develop bottom well pressure," Boedeker added. "When we bring them back online, it allows flush production. We didn't have any underwater floods or multiple zones where one zone is damaged and it affects how much production is brought back online following a shut in."

Had warned of prolonged shut-ins

EOG had warned in its last quarterly call three months ago of its unwillingness to sell high-quality new oil at bargain prices. EOG executives even said at the time that depending on oil prices and market conditions, it might even continue output curtailments into Q4.

EOG's move to shut in production in the second quarter was part of a broad industry response to the coronavirus pandemic which ravaged oil and gas demand and created a surplus that pulled down prices around the world. In that rapid mass effort, E&P operators slowed drilling activity and slashed both capital expenditures and operating costs.

Flaring down

On the natural gas flaring front, EOG, along with fellow Permian producers, managed to decrease flaring outputs during the second quarter as output dipped.

"Our gas capture rate now exceeds 99.5%," Boedeker said. "To reduce flaring we have introduced a new technique called closed-loop gas capture. We reflow gas back into our wells when a downstream interruption occurs. It allows us to eventually bring the captured gas back to production."

In May, only half a percent of gas in Texas was flared, according to the Texas Railroad Commission. This was down from 3% one year prior.