Good day, everyone, and welcome to the EOG Resources First Quarter 2020 Earnings Results Conference Call. Please note this event is being recorded. At this time, for opening remarks and introductions, I would now like to turn the conference over to the Chief Financial Officer of EOG Resources, Mr. Tim Driggers. Please go ahead, sir.

Thanks, and good morning. Thanks for joining us. We hope everyone has seen the press release announcing first quarter 2020 earnings and operational results. This conference call includes forward-looking statements. The risks associated with forward-looking statements have been outlined in the earnings release and EOG's SEC filings, and we incorporate those by reference for this call. This conference call also contains certain non-GAAP financial measures. Definitions as well as reconciliation schedules for these non-GAAP measures to comparable GAAP measures can be found on our website. Some of the reserve estimates on this conference call and in the accompanying investor presentation slides may include estimated potential reserves and estimated resource potential, not necessarily calculated in accordance with the SEC's reserve reporting guidelines. We incorporate by reference the cautionary note to U.S. investors that appears at the bottom of our earnings release issued yesterday. Participating on the call this morning are Bill Thomas, Chairman and CEO; Billy Helms, Chief Operating Officer; Ken Boedeker, Executive Vice President, Exploration and Production; Ezra Yacob, Executive Vice President, Exploration and Production; Lance Terveen, Senior Vice President, Marketing; and David Streit, Vice President, Investor and Public Relations. Here's Bill Thomas.

Thanks, Tim, and good morning, everyone. I first want to acknowledge those responding to the COVID-19 pandemic, in particular, the healthcare workers, first responders, and other dedicated professionals addressing this crisis on the frontlines. Some of you are part of the EOG family, and we thank you for your dedicated and courageous service. EOG is a resilient company. And we believe the severity of this process will demonstrate just how resilient we are. The COVID-19 pandemic compounded what started as an oil price war, which drove oil prices to levels we have not seen in more than 20 years. While this shock to the market is unprecedented, and it's difficult to predict exactly how long it will take demand to recover and inventories to decline, like every other downturn, EOG will emerge a stronger global competitor, uniquely positioned to capture the upside of the oil market recovery. There are two reasons we're confident in our resiliency. First is the EOG culture, and second is our premium drilling strategy. Times like these are when the EOG culture shines and becomes even more valuable because downturns supercharge our ability to improve. Our culture has responded quickly by aggressively reducing capital spending to a level that will allow EOG to generate free cash flow this year, assuming current commodity strip prices. We continue to be innovative and entrepreneurial by identifying creative ways to rapidly reduce operating expenses and develop new technical improvements that we can sustain into the oil price recovery. EOG is decentralized, driven by interdisciplinary teams that are empowered to make real-time data decisions based on basin-specific market conditions. Most importantly, we are rate of return-driven, and we will not invest a dollar unless it earns a good return, even in this price environment. The EOG culture is rising to the challenge and making a difference at every level and in every area of the company. Our super-talented EOG employees, armed with our advanced information technology analytics, are at the heart of this culture, and I am incredibly grateful for the way they have responded to this unique downturn. I can't thank our employees enough. The second reason we're confident that EOG will weather the severe downturn is our premium drilling strategy. We believe it's the most strict investment hurdle rate in the industry. Premium requires that all investments earn a 30% direct after-tax rate of return using an oil price of $40 flat. We initiated our premium strategy in 2016 during the last downturn. Since then, we have continued to improve the quality of our drilling inventory with substantial and sustainable well cost reductions. The improvement in our returns and cost structure has made EOG more resilient to low oil prices and positioned us to respond quickly to this unprecedented downturn and manage our business efficiently should the downturn be prolonged. As a result, we have a significant amount of premium inventory, more than 4,500 identified locations, in fact, that earn at least a 30% direct after-tax rate of return with $30 oil, which is even lower than the $40 used to meet the premium hurdle. Armed with this high-return inventory, EOG is well-positioned to continue to be a leader in returns. We entered this downturn in a position of operational and financial strength, and the reason for this is our consistent approach to the fundamentals of our business: return-focused capital allocation, supported by a strong balance sheet. Rest assured that EOG's priorities will remain the same throughout the duration of this crisis. First, only invest capital if it generates premium rates of return. Our disciplined approach to reinvestment does not change. We invest to make a return, even with low oil prices. We will not drill a well if it doesn't earn at least a 30% direct after-tax rate of return. Second, utilize our operational flexibility to cut expenditures quickly. We exercised the operational flexibility allowed by our contracts with service providers to revise our development plan to be consistent with our outlook for oil prices over the next three quarters. Third, accelerate technical innovation across the company. Lower activity does not hamper our innovation. In fact, true to the EOG culture, each of our divisions have already started to implement multiple initiatives to further reduce our cost structure, improve well productivity and advance our exploration program. Fourth, exit 2020 with momentum by increasing production in the price recovery. While we remain flexible and responsive to the pace of the price recovery, we have a large inventory of newly completed wells waiting to be put online. We plan to bring those to sales as prices begin to recover during the second half of 2020 and exit the year with momentum heading into 2021. Fifth, protect the financial strength of the company. Our goal each year is to spend within cash flow and maintain an impeccable balance sheet to support operations and protect our dividend through challenging times. Sixth, continue to strategically invest in the long-term value of our business. Through each of the prior downturns, EOG has emerged a stronger business because we continue to invest in the long-term value of the company. Whether it was leasing exploration acreage in the Eagle Ford to jump-start our transition to oil or the Yates acquisition in 2016. Challenging times for the industry often offer the best opportunities to invest. And finally and most importantly, maintain our unique culture. Our culture is the key to our success, and we put a priority on protecting our unique ability to sustainably reduce costs, improve our inventory and strategically adjust to market conditions. Our ultimate goal has not changed: to be one of the best companies in the S&P 500. We believe the company will make tremendous progress towards this goal in 2020. By making EOG more cost-efficient, by fostering innovation, by sharpening our technical edge and progressing new exploration potential, we will emerge a stronger global competitor, uniquely positioned to capture the upside when all markets recover and continue creating long-term value for our shareholders. Next up is Tim to review our current financial position.

Thanks, Bill. A conservative approach to our capital structure has been a cornerstone of EOG's financial strategy throughout our history. This is borne out of a recognition that the oil and gas business has always been capital-intensive and cyclical. These cycles are as inevitable as they are unpredictable, and so a business must be built not just to withstand them, but to have the financial strength at the right times to be able to take advantage of them. EOG entered the downturn in very good shape. Cash at the end of the first quarter was $2.9 billion, which included roughly $760 million of collateral from hedge contracts. This compares to total debt of $5.2 billion for a net debt to total capital ratio of less than 10%. This is down from 13% at the end of last year and a recent peak of 34% in 2016. We reduced net debt by $4 billion in the last four years. Our liquidity position is further supported by a $2 billion unsecured revolving line of credit, which has no borrowings against it. Our long-term debt ratings, which were recently reaffirmed by S&P and Moody's, stand four notches into investment grade. Furthermore, on April 14, EOG issued 10- and 30-year bonds totaling $1.5 billion, enhancing our already strong liquidity position. Last month, we also repaid a maturing $500 million bond, and we plan to repay with cash on hand, the $500 million bond maturing on June 1. Given the outlook for oil prices for the remainder of the year, EOG has also added additional hedges for 2020. We now have hedged more than 95% of our second quarter oil production at an average price of $48 and more than 50% of our third quarter production at $47. This mirrors how we view the periods of greatest price risk and adds another dimension to our approach to maintaining a resilient business by securing that portion of our cash flow. We will begin to look at adding additional '21 hedges later in the year if prices look attractive relative to our assessment of the market fundamentals. Maintaining and growing the dividend remains a top priority, as it is the most tangible output of EOG's high-return premium business model. We have never cut the dividend, never issued equity to support the dividend, and have not relied on asset sales at fire-sale prices to make it through a downturn. The Board yesterday declared a quarterly dividend of $0.375 per share or $1.50 per share annualized rate, which maintains the rate from the 30% increase declared last quarter. The dividend is designed to be sustainable through low price cycles without straining the balance sheet or sacrificing other priorities. We test these priorities against numerous down cycle scenarios so we can be confident these goals are achievable even under extremely stressed conditions. This resilience reflects EOG's strong returns, low-cost structure, and financial flexibility. EOG's financial strength also gives our operations teams the ability to make necessary actions with a focus on long-term benefits to the company instead of making forced short-term decisions. Next up is Billy to review our operational performance.

Thanks, Tim. I want to highlight the major steps taken to adjust our operating plan by providing some detail. First, on our capital and operating cost-reduction efforts. And second, the steps taken to reduce production during the low points in the oil price curve. Our swift response to the current environment is evident in our first quarter performance. We reduced capital by $265 million or 14%, while essentially hitting the midpoint of the guidance for oil volumes. For the entire year, we reduced our capital plan to $3.5 billion, more than 45% lower than the original plan. Demonstrating the flexibility in our operational plan, we reduced our drilling rig fleet 78% from a peak of 36 rigs down to 8 in the span of just six weeks. On the completion side, we reduced activity 69% from 16 frac fleets to just five. Our flexible contracting strategy, combined with our established reputation as a consistent operator that values strategic vendor relationships, have allowed us to make these adjustments without incurring significant costs. The goal is to generate high rates of return for the capital we choose to invest along with free cash flow while maintaining our leverage to the up cycle as demand recovers. Our ability to reposition the company to achieve that goal in a few short weeks is a testament to EOG's strong culture and decentralized organization, and most of all, our fast-acting innovative employees. I'm incredibly proud of them. We also reduced exploration and infrastructure capital without sacrificing projects with the highest long-term benefit to the company. Exploration capital has been focused on the prospects with the most promise to add future shareholder value. On the infrastructure side, the concentration of our activity in the Delaware Basin and Eagle Ford, where we have existing well-developed assets in place, naturally reduces infrastructure needs. And we are also maintaining our commitment to reducing our environmental footprint by retaining investment in high-impact projects. On the operating cost side, we reduced lease operating expense by more than $300 million or approximately 20% compared to the original plan. Our operations teams are highly engaged in cost reduction, and we are realizing savings from many areas, including fewer expense workovers, reduced maintenance and repairs, water disposal and compression expense, and contract labor. While reducing activity has driven significant initial cost reductions, we are maintaining a level of activity that allows us to accelerate technical innovation. The biggest opportunity from the downturn will be to identify step-change efficiencies and operational improvements that lead to sustainable cost reductions. For example, our drilling and completion teams continue to establish new performance records in each area as illustrated on slides of our investor presentation. Across all our operations, we believe we will be able to lower well costs another 8% this year, most of which will be sustainable as a result of the improved efficiencies. This is a testament to the continued drive and innovation to raise the performance bar in the spirit of continuous improvement that allows us to consistently reduce well costs in each of our plays. The cadence of our new capital plan is heavily front-end-loaded. Most of the $1.7 billion of first quarter capital was spent before the downturn began. As a result of rapidly reducing activity, we expect to spend about $650 million in the second quarter and decline sequentially in the third and fourth to total just $3.5 billion for the year, nearly half of our original plan. Our 2020 production profile reflects a rate of return decision. Even though 90% of our shut-in production is cash flow positive at $10 per barrel and we have access to multiple markets, rather than produce at potentially the lowest price point of the year, we elected to shut in existing and defer additional production by delaying the start-up of new wells. We plan to continue to defer production through the first half of the year. This deferred inventory of new wells has been completed and is simply waiting to produce. This allows us to exert more control over the cash margins of every barrel we produce and provides us the ability to quickly increase oil volumes into an improving oil price environment. We began deferring production during the first quarter, and even after delaying initial production from new wells and shutting in 8,000 barrels a day in March from existing wells, we achieved the midpoint of our guidance. First quarter and second quarter represent the peak and the trough, respectively, of our U-shaped production profile in 2020. Between deferred start-ups and new wells drilled and completed, we anticipate turning online approximately 300 additional wells in the second half of the year, for a total of 485 by the end of 2020. Volumes are currently forecasted to increase in the second half of 2020, with fourth quarter production averaging about 420,000 barrels of oil per day, establishing momentum going into next year. The capital required to maintain this level of production going forward would be approximately $3.4 billion per year. Our production profile corresponds to the current outlook for oil prices. However, we will remain flexible to make further adjustments if the operating plan conditions change. If prices stay lower for longer, we can make additional reductions to our capital and operating costs and further defer bringing new wells online. To be clear, we would rather shut in production than sell into an uncertain low-price market. Ultimately, the decision to begin increasing production will be based on a more sustainable and constructive outlook for oil prices in the second half of the year. For the oil that we do choose to sell, we have secured favorable prices through various contracts providing exposure to Brent, Gulf Coast, WTI and fixed prices. The marketing strategy provides flexibility to pivot each of our producing areas to multiple markets to capture the highest margin. In conclusion, I am proud of how decisively and thoughtfully our employees responded to this downturn. We exercised our flexibility to quickly cut capital and operating costs. And the decision to reduce volumes at the lowest point of the price curve supports our intent to accomplish two primary objectives: one, enhance the margins from each barrel that is produced; and two, maximize our rate of return for any investment. While EOG is not immune from the effects of low oil prices, we have the tools and the information to make real-time adjustments to maximize our profitability. We will remain disciplined, invest wisely and constantly evaluate market conditions to generate the most shareholder value. Now here is Bill to wrap up.

Thanks, Billy. EOG is a resilient company. And while we aren't completely immune to the level of demand disruption caused by the pandemic, we are prepared for it. Our financial structure is very conservative, and our capital-allocation process is hyper-disciplined. This is an unprecedented downturn. U.S. oil production is in severe decline, and it could take years for domestic production to turn around. We believe that the historic and prolific oil production growth by U.S. shale may have been forever altered. And while the timing and level remains uncertain, we are confident demand will improve. Therefore, current prices are not sustainable. In the inevitable price recovery ahead, there is tremendous opportunity for EOG. With a strong balance sheet in hand, a culture that drives continuous improvement and our commitment to generate strong returns with free cash flow, EOG will be ready to provide much-needed supply when prices show sustainable improvement. We don't believe there's a better company positioned to capture the upside as the oil market recovers. EOG will not only survive this downturn but emerge as a stronger competitor in the global market. Thank you for joining us this morning. Our thoughts are with you as we navigate this pandemic together. We sincerely hope your family, friends, and colleagues are healthy and safe. Operator, that concludes our remarks, so please open up the lines for questions.

And today's first question comes from Leo Mariani with KeyBanc.

Just wanted to ask in terms of the budget this year. Obviously, you cut it a couple of times here, clearly prudent response to oil prices. I, too, agree that oil prices are unsustainable at these levels on a global basis. If we were to see just a rapid increase, say, in oil prices as we got later in the third quarter and fourth quarter, would you guys consider adding more capital back late this year to get you guys a little bit more ready for growth mode in '21?

Yes. Leo, this is Bill. And I think we're going to be very cautious before we add capital this year. And it's unlikely that we would add any more additional capital until we want to get into 2021 and see how demand continues to recover. So I don't think we're going to be adding any capital for the remainder of the year.

Okay. That's helpful. And Bill, you certainly talked about emerging stronger from this pandemic. You kind of referenced potential M&A as an option. What do you think sort of other than continuing to lower the cost structure of what you guys are doing, what are the other keys to kind of emerging stronger? And do you think maybe there could be some likely M&A late this year if there are opportunities?

Yes. I want to be clear over the years about M&A. We're not really interested at all in any, certainly, low-return M&A or acquisitions. It's really difficult. It has been historically, as everybody knows, the M&A market. It's very difficult to make a good acquisition and generate a strong return at the same time. And everything we do, as you know, EOG, we're totally focused on returns. And so every dollar we spend, every deal we do has to be competitive on a return basis. And it's very difficult to compete with organic exploration effort. We're adding a lot of very low-cost acreage that we believe contains drilling inventory that will be better accretive to the quality that we have now. So it's very unlikely we'll do a large M&A. We do small bolt-on acquisitions to supplement our exploration efforts just to get low-cost acreage. But large M&As are really not, in our view, competitive. Other than the cost reductions that we're making, obviously, we've spelled out a lot of those here, Billy has, we continue to be very innovative all over the company. We continue to see excellent technical work and a focus on innovation and new ideas. And those are just coming out in multiple areas of the company, completion technology, a lot of great geotechnical work going on in the company. And we haven't taken our eye off of our exploration effort, and I'm going to ask Ezra Yacob to maybe comment on that a little bit.

Thanks, Bill. As everyone knows, we entered the year with a pretty exciting exploration program. We're focused on capturing positions in basins where we capture the Tier 1 position, and we're working plays that we think will improve the inventory quality with low decline and certainly low-cost plays. And we entered this year with a plan of testing and leasing in 10 different prospects. We've obviously reduced our exploration budget this year, commensurate with reductions across other categories. But we're still planning to progress each of those prospects a little bit this year. We'll remain flexible as we do. But really, the purpose, as Bill said, is that these all have the potential to add significant long-term value creation for the business and for our shareholders. And as Bill pointed out, we've all seen here, over the past, say, six or eight weeks since our employees have been working from home, is really just an amazing effort from all of them on the development side and the exploration side to come up with and generate new ideas. And we just couldn't be more impressed or commend the employees for their efforts on that.

Our next question today comes from Brian Singer with Goldman Sachs.

We appreciate the specificity on guidance for production for the remainder of the year and the quantification of the expected shut-in. When we look at the production, excluding the shut-ins, second quarter's oil production is implied down about 19% from the first quarter. Can you just talk to the drivers of that and whether to use that 19% as indicative of an annualized natural decline, whether there are other factors that are influencing that?

Brian, I'm going to ask Billy to comment on that.

Yes. Good morning, Brian. I want to emphasize that our previously stated annual decline rate of 32% remains accurate. The quarter-to-quarter variation largely depends on the timing of when new wells are brought online. This can result in fluctuating figures, making it somewhat variable. The decline tends to be steeper at the beginning of a well's life and gradually levels off later on. This explains what you're observing in the second quarter. I wouldn’t interpret the 19% decline you mentioned as a sign of a change in our quarterly or annual decline rate compared to what we've communicated before.

Great. And then my follow-up is both an EOG and then a broader question with regards to maintenance capital and shale supply costs. How much of the $3.4 billion of the maintenance capital do you think includes cost reductions you believe are secular versus cyclical? You talked about, I think, 8% cost reductions coming from here to well costs and wondering whether that was factored into the $3.4 billion. And then I guess that the lower maintenance capital, you and other companies are highlighting reflects another large step down in the supply cost for EOG and shale generally? Or is it just a function of the market and the low oil price environment that we're in?

I'm going to ask Billy to talk about the first part of the question.

Yes, Brian. To clarify, the $3.4 billion in maintenance capital we discussed is intended to sustain the 420,000 barrels a day that we expect to reach by the end of the fourth quarter. To elaborate on our calculations, this figure does not account for the cost savings we mentioned earlier. Our capital programs are based on actual well costs we've achieved so far and do not include potential cost savings moving forward. Therefore, we see this as an opportunity for upside to achieve better results. Our capital plan this year and the $3.4 billion maintenance cost do not incorporate the 8% cost savings we are addressing in this call. Additionally, it’s essential to reiterate that the $3.4 billion is aimed at maintaining the 420,000 barrels a day we plan to exit the year with.

On the second part of that question, Brian, as we examine the entire industry, there are certainly some companies that are successfully lowering costs, but we believe that number is quite limited since it requires significant scale. This is likely one of the main factors that enables ongoing cost reductions. Many of these reductions are related to infrastructure, as well as continuous drilling and completion programs. I think that, as I mentioned in my opening remarks, we expect there to be fewer companies after this downturn compared to before, and we anticipate they will operate with more discipline. Clearly, less capital will be invested in the shale industry. However, as we have stated, we believe EOG will emerge as a leader. Almost all of our cost savings are generated through our internal technical innovations and efficiencies. Our IRR chart shows substantial data on the number of stages completed per day and the feet drilled per day, among other metrics. I also want to highlight some recent achievements in the Powder River Basin, particularly regarding our completions in the Mowry and Niobrara, where our completion technology has significantly improved well productivity. Most of the advancements at EOG are driven by our internal culture of innovation and an ongoing commitment to improvement. We have a very sustainable model and culture, and we don’t foresee any limits to EOG's progress.

Our next question today comes from Charles Meade with Johnson Rice.

I appreciate the sentiments you expressed there at the end of your prepared remarks, and I just reflect that back to you and everyone there at EOG. One question, I was a little bit surprised to see that you guys still are forecasting some shut-ins to go into 4Q. And I'm curious if you could kind of characterize what sort of production that is that's still shut-in 4Q. I could see an argument for it being the last sort of legacy vertical wells to come back on, but I could also see an argument for it being high-rate wells that you want to deliver to the strongest market. So I wonder if you could add some color there.

Charles, I'll ask Billy to comment on that.

Yes. Charles, so that's a good question. I'm glad you asked it. The 20,000 barrels a day that we referenced that would likely still be shut in, in the fourth quarter, is simply wells that have some form of expense that's required to bring them back on production. For instance, you have a lot of reasons why production goes down. These are wells that might have to replace gas lift valve in downhole or maybe a hole in the tubing or things that require some expense work-over to bring back to production. And we just haven't made the decision yet to expend the capital or the expense dollars to bring those wells back to production until we see the margins improve to a point where we would do that. So for the sake of the plan, we just assume those wouldn't be brought back on until next year.

Got it. That's helpful. And then maybe perhaps related to that, it's interesting to me that, Bill, you mentioned in your prepared remarks that you guys have gone ahead and completed wells but are waiting to turn them to sales. And that's a little different from what we're hearing from a number of other companies that are maybe just electing to build DUCs and not complete. And I'm wondering if that's just a function of you guys wanting to honor your commitments to frac crews or if that's actually an expression of some other view about the best way to leave your well or the response time that you want to have when you do see a price signal?

Yes, Charles, this is Billy. To address your question, I think there are two aspects to consider. As the downturn began, we were completing several wells. As I mentioned earlier, we significantly reduced our frac fleet at the start of the year. However, we still had wells that were either being completed or were recently completed. We decided not to bring those wells into production during a time when prices were sharply declining. Additionally, as we continue to reduce our frac count, which is now about five, we are also holding off on bringing those finishing wells into production. This has led to an accumulation of wells in this situation, and we are waiting for the right market conditions to improve before we proceed with production.

Our next question today comes from Paul Cheng with Scotiabank.

Two questions. One is for either Bill or Billy. I think one of the silver linings of COVID-19 is that it triggered a lot of creativity, and you guys have certainly demonstrated that, as you mentioned. What have we learned from this entire experience? What are some of the best practices that could influence how you operate in the future?

Yes, Paul. This is Bill. I have been with the company for over 40 years, and I have experienced several downturns. This particular situation is the most unique we have ever faced. It has highlighted the significant value that our information systems and technology provide, allowing EOG to evaluate everything we do in great detail. We have comprehensive data on every well in the company, and our decentralized organization enables us to analyze every aspect at a granular level. This experience has underscored the importance of our information systems and technology and showcased how effectively our employees have adapted, with many working from home like everyone else. This has been a beneficial learning experience for us, and we see opportunities for continued improvement. On the technical side, we anticipate ongoing advancements because, as you know, all the ideas and innovations within EOG come from our employees at all levels, not just from management. Everyone is actively engaged, and communication has been strong. We are utilizing Microsoft Teams for large meetings, divisional meetings, departmental meetings, and intergroup discussions, which has proven to be effective. While this has been a learning journey, we are grateful for our established processes, and we can identify further areas for improvement.

Bill, you mentioned a couple of examples. In the post-COVID world, do you believe that the experiences you've gained will fundamentally change the way you manage your business? Can you provide any specific processes or examples?

I believe the company's fundamentals, which focus on driving returns, generating strong free cash flow, maintaining a robust balance sheet, and spending within our means, will remain unchanged. The adjustments you observe at EOG are simply the natural developments that occur daily as we collect data, analyze it, and implement our findings. These aspects define EOG's identity, and I don't anticipate them shifting. We are committed to continuous improvement every day. Furthermore, we believe the current unique downturn has been significant, and as a result, our future opportunities will be greater than they have been in the past.

A final question for me, a short one. On the curtailment, can you tell us that maybe how is the regional or basin split? And also that whether all the curtailment is essentially shut-in or if you're moving some of the well production?

Paul, I'll ask Billy to comment on that.

Yes, Paul. We analyze our business to shut in wells at a very detailed level, with all areas operating similarly. We have the necessary tools and information technology to collect and analyze data, enabling decisions to be made at the lowest organizational levels regarding profit margins for each well across the company. This information helps us determine the optimal timing and locations for shutting in wells to enhance cash flow. The decisions are based on economic factors, and we also consider market conditions using the same data to understand where we can sell products and how to optimize returns for each well. Part of our decision-making process involves evaluating whether to produce in a volatile, low-priced environment or to delay production based on market outlook, which affects most of our output. The analysis is thorough and consistent across all basins in the company. Our efforts reflect the company culture; we have many dedicated employees committed to improving the business, and we take great pride in our team's contributions.

And our next question today comes from Neal Dingmann with SunTrust.

My first question is just around your return requirements. I'm wondering, you all took certainly some major steps this quarter in curtailing existing production and suspending drilling and completion. I'm just wondering, are your margin requirements different when you look at bringing those curtailments back versus thinking about ramping up the drilling and completion activity?

When we look at when we're going to bring wells to shut-in or new wells on, we're really just looking at the strip. And we obviously stay very engaged on a daily, weekly basis on world events and the macro view of oil. When that becomes more positive and we get more firm that that's a sustainable recovery, that's when we'll begin opening things up. We don't have an exact number on the margin. We're just looking for the trends. And certainly, we're not, as Billy has talked about, interested in selling our oil at the lowest part of the market. When there's a steep contango in the prices, there's no use selling it now when we can get double in a few months. So that's really all we're doing in that area.

Very good. And then just one last question. You definitely hit this quite a bit, but just on activity. I was looking back in '16, it looked like, I think you all had gotten down to, I think, 9 or 10 rigs during that time when we were around $26. I'm just wondering, does some of that decision on sort of drilling and completion activity come down to how many of these premium locations you have? Or is it simply, Bill, what you had just mentioned, just not wanting to produce in sort of this environment? I guess I was just sort of comparing today versus 2016 and maybe you could just tell us a little color on how you're looking differently at these two periods at this point?

Well, certainly, we're not limited by inventory. We have tremendous inventory. Like we said, we've got 4,500 locations identified that will yield a 30% rate of return at $30, and I'm sure that will grow over time. So that's not the issue at all. Really, our investment pace every year is set on a very conservative price deck and our view of the macro. The limitations on that are we want to generate free cash flow. We want to spend within our means and generate free cash flow and maintain an impeccable balance sheet and also, obviously, generate very, very high rates of return. So those are the things that guide us. In this particular instance, we're just looking for a better view of the future and what the recovery is going to look like, not only in the price but what U.S. shale is going to look like and then where our spot is in there. We think we'll continue to be the leader in returns and continue to be the company that creates significant value.

Our next question today comes from Jeanine Wai with Barclays.

My first question is probably a follow-up to Charles' and Neal's question. It seems to us that EOG is just taking a more aggressive approach on production shut-in than others. I know it all depends on your macro view and whatever contracts or lease stuff you have or any related shutdown or start-up costs, but do you have an estimate on the NPV uplift for the year for doing the shut-ins and the well deferral versus maybe the business-as-usual case with no shut-ins and no deferrals?

Jeanine, we don't have an exact number. While we can calculate that, it's more a matter of common sense. We prefer not to give our oil away and aim to make a profit. Our focus is on returns, and we believe that by waiting a few months or a quarter, we can get twice as much for our oil compared to today. It's really about a sensible approach and our perspective on an improving market.

Okay. And then my second question is, I know we're in the middle of an oil rally here, but we're still only at, call it, $25 WTI. If we see a pullback in oil prices, to what extent are you willing to lean on the balance sheet to support long-term value? I know you're not trying to maximize dollars today or tomorrow, but in terms of the long term, if we see the pullback, is there a point where it becomes just too detrimental to long-term value to keep cutting CapEx? And if so, kind of, what is that level?

Yes, Jeanine, we certainly have a lot of flexibility to continue to cut capital. I'm going to ask Billy to comment a bit on that.

Yes, Jeanine. So we cut back to the level we did to basically be able to do the things Bill talked about: make sure we generate a rate of return and generate free cash flow while we see the commodity price outlook today. If that changes and we feel like we need to cut more, certainly we have that flexibility to do so and would continue to push that lever down throughout the end of the year, depending on the outlook. So we can still try to manage within cash flow, even with prices stay lower for longer.

And our next question today comes from Arun Jayaram with JPMorgan.

Bill, we've seen a lot of different approaches to shut-ins with EOG, Conoco, Exxon, and Chevron announcing significant shut-ins. I was wondering how clear is this decision to shut-in versus not? And I'd also just want to see if you could address one of the questions that came in last night, was just the execution risk in shutting down hundreds, maybe thousands of wells and then restarting those consistent with what you've guided to in the deck.

Yes, Arun. I'm going to ask Billy to comment on the execution part.

Yes, Arun, thanks for the question. Yes, I think, as we talked before, one of the unique things that we built the company around is our ability to gather data and analyze it very quickly and have that information basically in the hands of every employee in the company, including at the field level. So the actual execution of being able to shut-in and bring back the wells on is fairly painless. It's a very simple exercise by communicating that data down to the people out there in the field to be able to make those actions happen. So that effort is very easy to do. As far as any risk of shut-ins, there's really not any risk on our part. I think the cost of shutting in the wells is very minimal, if not zero. The cost of bringing the wells back on is kind of the same thing. We could actually have all the wells back on production in just a matter of days because, you have to remember, we are a decentralized organization. We have these assets across the country, we have people managing those assets that are very capable and committed to making sure that we do the best things we can, as quick as we can and safely. So the effort is very easy to attain with the culture of the company that we have and the operations we have set up.

This is Bill. I want to add that we have extensive experience with shutting in wells for varying durations. Our IR deck includes a chart demonstrating that shutting in shale wells does not result in any damage when they are brought back online after periods ranging from two weeks to two months, so we are quite confident in this. We consider shutting in wells as a form of low-cost storage, which is the most economical option available to us. It's an effective strategy for managing our business, particularly in the current pricing environment.

Yes, that's a clever way to think about it. Just a quick follow-up. You guys cited the $3.4 billion sustaining capital for the 4Q exit rate at $4.20. How fully loaded, Billy, is that $3.4 billion? I know you talked a little bit about the ability to even maybe push that down based on incremental cost savings, but how fully loaded is that CapEx number?

It's in line with our business operations. I would consider it to be somewhat of an upgrade compared to the $4.1 billion capital plan we announced earlier, which aimed to keep each division operating at a stable level. This new plan focuses on the wells that offer the highest returns at current prices. While it is somewhat more selective, it still encompasses various basins rather than concentrating on just one. It also covers infrastructure and facility expenses, as well as ESG investments, similar to what we would typically include in our standard budget, though perhaps on a slightly smaller scale.

And our next question today comes from Doug Leggate with Bank of America.

I hope everyone is doing well. Bill, you made several comments that I would like to revisit. U.S. shale has undergone significant changes. This downturn is unlike previous ones, and there has been a price war. My question is about how this impacts your future strategy. Considering the U.S. is producing at 50% capacity and Saudi Arabia has taken the lowest-cost barrels off the market, it seems there might be a shift in approach. Could you explain how you view the right balance of reinvestment, growth, and cash flow? I have a follow-up as well.

Yes, Doug. I think, looking into the future, as we said, we believe there's going to be a structural change in U.S. shale. There will be fewer players. I think, certainly, the industry is becoming more disciplined, and it will be even hyper-disciplined coming out of this downturn. So we believe there's going to be significantly less capital invested in growth in the U.S. And so and certainly, there will be substantially less growth. We have a hard time seeing that the U.S. production will be able to, certainly, in the next several years, get back up to the levels we've been just a few months ago. So in that lies tremendous opportunities for the companies that survive, and it's an enormous opportunity for EOG. If you look back on our last three years, we've generated an industry-leading return on capital employed of 14%. We generated $5.6 billion of free cash flow and returned $3.3 billion back in shareholder-friendly ways with substantial dividend growth and debt reduction. And over that last three-year period, we've increased our proven reserves by 55%. We've accomplished this all with an average WTI oil price of $58. So fundamentally, we're not going to change. As we've been talking about, we're return-driven and believe in a strong balance sheet. We believe we're improving at a rate much faster than we have in the past and that we're going to emerge a much better company in the next recovery. We're going to continue to stick with our fundamentals, evaluate the market conditions and continue to create value.

I appreciate the answer. My follow-up is related because I want to press you a bit on this. The $58 oil price, Bill, was supported by Saudi actions. In my view, the U.S. growth rate will no longer be accepted, and obviously, you've had a significant role in that growth. There are no concerns regarding the company's operational capabilities. You are undoubtedly a leader, if not among the leaders, in the industry. The real issue is whether the business model will continue to reinvest 90% of its cash flow and grow, as the Texas Railroad Commission would say, at an excessive level that exceeds reasonable demand. So the question is not about your capabilities but about the behavior that follows. With the reduction from 36 rigs to 6, will we see a return to that growth level, or will you adjust the organization to focus more on what I'm addressing? That $58 figure you mentioned was Saudi Arabia removing the lowest-cost barrels from the market.

Let me clarify something right away. We have invested around 80% of our cash flow, which is a solid level. We are dedicated to generating a significant amount of free cash flow. We eliminated all our debt and increased our dividend at the end of last year while having $2 billion in cash on our balance sheet. We haven't been using all our cash; we have been very disciplined in creating substantial value with it. As we look to the future, we believe things will be different. We will continue to assess the situation and remain focused on our core principles to determine the best way for EOG to keep generating significant value.

Thank you. This concludes the question-and-answer session. I'd like to turn the conference back over to Bill Thomas for any final remarks.

Thank you. In closing, I just want to say, we've never been so proud of the employees of EOG. The way you have responded to this historic COVID-19 crisis has been outstanding and heroic. During every downturn in my over 40 years with EOG, the company responds with record-breaking improvements. Sooner or later, this crisis will be over and oil will recover. We believe EOG will emerge with the ability to be a stronger and a higher-return company than ever before. Thanks for listening, and thanks for your support.

Thank you, sir. This concludes today's conference call. You may now disconnect your lines, and have a wonderful day.