Good day, everyone and welcome to EOG Resources Third Quarter 2021 Earnings Results Conference Call. As a reminder, this call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Chief Financial Officer of EOG Resources, Mr. Tim Driggers. Please go ahead, sir.

Good morning and thanks for joining us. This conference call includes forward-looking statements. Factors that could cause our actual results to differ materially from those in our forward-looking statements have been outlined in the earnings release in EOG's SEC filings. This conference call also contains certain non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures can be found on EOG's website. Participating on the call this morning are Ezra Yacob, Chief Executive Officer, Billy Helms, President and Chief Operating Officer, and several other executives. Here's Ezra Yacob.

Thank you, Tim. Good morning, everyone. EOG is delivering on our free cash flow priorities. Yesterday, we announced an 82% increase to our regular dividend to an annual rate of $3 per share, a $2 per share special dividend, and an update to our share buyback authorization to $5 billion. These cash return announcements reflect EOG's consistent outstanding performance and are the direct result of our disciplined approach to high return investment. During the third quarter, we set new quarterly earnings in cash flow records, adjusted Net Income of $1.3 billion or $2.16 per share, and free cash flow of $1.4 billion. The strength of our current and future earnings in cash flow that supports both dividend announcements can be traced back to 2016. Amid a potentially prolonged low commodity price environment, we made a permanent upgrade to our investment criteria. Our premium hurdle rate was established, not only to protect the Company's profitability in 2016, but all future commodity cycles. The discipline to only invest in new wells that earn a minimum 30% direct after-tax rate of return, assuming a $40 oil price for the life of the well continues to improve our capital efficiency, profitability, and cash flow. Our employees immediately embraced the challenge of this new investment hurdle. And by the second half of 2016, EOG was reinvesting capital and paying the dividend within cash flow. We've generated free cash flow every year since. From 2017 to 2019, we generated enough free cash flow to significantly reduce net debt by $2.2 billion, while also increasing the dividend rate by 72%. We also expanded our inventory of premium wells by more than three times. While adding inventory that meets the minimum premium threshold increases quantity, our goal through technical innovation and organic exploration is to add higher quality inventory. Our employees empowered by EOG's unique culture, applied innovation and efficiencies to raise the return of much of the existing inventory, while adding higher rate of return wells through exploration. The premium standard established in 2016, and the momentum that followed provided a step change in operational and by extension, financial performance, which set the stage for the second upgrade to our reinvestment hurdle rate, Double premium. Double premium, which is a minimum return hurdle of 60% direct after-tax rate of return at $40 oil, was initiated during the depth of last year's unprecedented down-cycle. That capital discipline enabled EOG to deliver extraordinary results in a $39 oil price environment last year. There is no clear indication of the impact premium, and now double premium has had on our confidence in EOG's future profitability than the 82% increase to our regular dividend announced yesterday. Combined with the 10% increase made in February of this year, we have doubled our annual dividend rate from $1.50 per share to $3 per share. After weathering two downturns during which we did not cut or suspend the dividend, the new annual rate of $3 per share reflects the significant improvement in EOG's capital efficiency since the transition to premium drilling. Going forward, we are confident the double premium will continue to improve the financial performance just like premium did, five years ago. We're also confident in our ability to continue adding to our double premium inventory without any need for expensive M&A by improving our existing assets and adding new players from our deep pipeline of organic exploration prospects. Developing high return, low-cost reserves that meet our stringent double-premium hurdle rate expands our future free cash flow potential and supports EOG's commitment to sustainably growing our regular dividend. EOG's focus on returns, disciplined growth, strong free cash flow generation, and sustainability remain constant. Just as our free cash flow priorities are consistent, so remains our broader strategy and culture. EOG's competitive advantage is our people. And today's announcements are a reflection of our culture of innovation and execution. Looking towards 2022, oil market supply and demand fundamentals are improving, but remain dynamic. While it's unlikely the market will be fully balanced by the end of 2021, we will continue to monitor macro fundamentals as we plan for next year. We are committed to maintaining production until the oil market needs additional barrels. Under any scenario, we remain focused on driving sustainable efficiency improvements. We are well positioned to offset inflationary price pressures to help keep our well costs flat next year. To summarize this quarter's earnings release in three points. First, our fundamental strategy of investing in high return projects consistently executed year-after-year is delivering outstanding financial results. Second, we're still getting better. As we continue to expand our opportunity set to add double-premium inventory through sustainable well-cost reductions in our organic exploration, EOG is set up to improve performance even further. And third, we are well-positioned to execute our high return reinvestment program in 2022 to deliver another year of outstanding returns. Here's Tim to review our capital allocation strategy and our free cash flow priorities.

Thanks, Ezra. As we have been progressing premium the last five years, our capital allocation decisions have been guided by a set of long-standing consistent priorities. First, is high return disciplined reinvestment. Our returns on capital investment have never been higher. Our market fundamentals remain the number one determinant of when to grow. Second is a regular dividend, which we believe is the best way to return cash to shareholders. We paid a dividend for 22 years without suspending or cutting it. At the new level of $3 per year, we can comfortably fund both the dividend and maintenance CapEx at $40 WTI. The combination of our low-cost structure, high returns, and strong financial position will sustain this higher regular dividend. This resilient financial position is backstopped by our third priority, a pristine Balance Sheet with almost zero net debt. We remain firmly committed to a strong Balance Sheet. It's not conservatism, it's a competitive advantage. Fourth, we regularly review other cash return options, specifically special dividends and share buybacks. Yesterday we declared a special dividend for the second time in 2021 and updated our share buyback authorization. Share buybacks have always been part of our playbook and will remain an opportunistic cash return alternative. We are cognizant of the challenges of successfully executing share buybacks in a cyclical industry. We now expect there will be periods in the future when the stock will be impacted by macro factors, such as the commodity cycle, geopolitical events, and other unforeseen events like the COVID pandemic in 2020. The updated $5 billion authorization provides the flexibility to act and take advantage when the right opportunity presents itself. We believe our strategy for the use of other cash return options is well designed to deliver value through the cycle. Finally, we're not in the market for expensive M&A in a low-return proposition. We can create much more value through organic reinvestment and our shareholders can do better with their excess cash our premium strategy generates back in their hands. Since our shift to premium in 2016, EOG has generated nearly $10 billion of free cash flow. With that cash flow, EOG has reduced debt by $1.5 billion, increased the cash balance by $3.6 billion, and will return more than $5 billion to shareholders by the end of 2021. This is a significant amount of shareholder value driven by premium. Today, EOG is positioned to translate that value creation into even more cash returns to shareholders. In the third quarter, we generated a record $1.4 billion of free cash flow, bringing our year-to-date free cash flow to $3.5 billion, which is equal to the total return of capital paid and committed this year to our regular dividend, special dividends, and debt repayment. You can expect us to continue returning cash going forward. There might be times when we strategically increase or decrease the cash balance, but over time, the cash will go back to our shareholders.

Thanks, Tim. As a result of the consistency of our operating performance, we delivered another quarter of outstanding results. I couldn't be more proud of the engagement of our employees and their culture of continuous improvement. Their execution of our 2021 plan has been near perfect. For the third quarter in a row, we produced more oil for less capital. That is, we exceeded our production targets while spending less than our forecast for capital expenditures. Well productivity driven by our double premium hurdle rate continues to outperform while our drilling and completion teams pushed the limits on new sustainable cost savings and expand those efficiencies throughout our active operating areas. Examples include in-sourcing and re-designing drilling equipment, adopting innovative techniques to reduce nonproductive time, expanding super zipper completion operations, and reducing sand and water sourcing costs. Our ability to continue to lower cost and deliver reliable execution quarter after quarter is tied to a common set of operating practices that together form a sustainable competitive advantage for EOG. First, we are a multiplay company, with activities spread across four different basins in the U.S. As conditions change, we have the flexibility to shift capital between plays to optimize returns. Second, we are organized under a decentralized structure. Decisions are made by discrete focused teams, closer to the operation, rather than dictated by headquarters. Our culture is non-bureaucratic and entrepreneurial. We empower our frontline employees to make decisions that drive innovation and efficiency improvement. Third, we have established strategic vendor relationships with our preferred service providers. We are typically not the biggest beneficiary of price reductions during downturns. We also tend to not be on the leading edge of price increases during inflationary periods. Fourth, we have taken ownership of the value-added parts of the drilling, completions, and production supply chain by applying our operational expertise and proprietary technology to improve efficiency and lower costs. Examples include sand, water, chemicals, drilling fluids, completion design, drilling motors, the marketing of our products, and much more. As a result, our operating teams have complete ownership of driving improvements in every step. Finally, we apply world-class information technology to every part of our operations. Our data-gathering and analysis capabilities continue to improve, which we leverage to better manage day-to-day field operations for more efficient use of resources, as well as discovering new innovations. As a result of these strategic advantages, we are confident in achieving our target of 7% well cost savings this year. This is an incredible accomplishment given the state of inflation. As we move into next year, we're on track to lock in 50% of our total well cost by the end of this year. We have locked in over 90% of our drilling rigs at rates that are flat to lower than 2020 and 2021. We've also secured more than 50% of our completion crews at favorable rates. While it is still early, the savings from these initiatives and other improvement efforts will continue to be realized next year, helping us offset the risk of additional inflation. And thus we remain confident that we will be able to keep well cost at least flat in 2022. Now, here's Kent.

Thanks, Billy. Last month we published our 2020 sustainability report. As detailed in this report, we are focused on reducing emissions in the field. Our flaring intensity rate decreased 43% in 2020 compared to 2019, which drove an overall 9% reduction in greenhouse gas intensity. We continue to make progress toward our goal of zero routine flaring across all our operations by 2025, with our more immediate goal of 99.8% wellhead gas capture this year. We also made significant progress on methane last year, reducing our methane emissions percentage by one-third to less than one-tenth of one percent of our natural gas production. Since 2017, we've reduced our methane emission intensity percentage by 80%. Our sustainability report profiles the technology and innovation that contributed to these improvements and illustrates why we are optimistic about future performance on our path to net-zero by 2040. Examples of how we are addressing emissions in the field include closed loop gas capture, which helps us continue to reduce flaring. We're leveraging information technology and our extensive data analysis capabilities from both mobile platforms and our central control rooms to better manage day-to-day operations. In addition, we're piloting technology in the field, such as sensors and control devices that complement our already robust leak detection program. These are just a few examples of the initiatives we have underway. Like all efforts at EOG, our sustainability strides are bottom-up driven. Creative ideas to improve our ESG performance come from employees working in our operating areas every day. We have a long list of solutions we expect to pilot and profile in the future. Our record of significantly reducing our GHG intensity over the last several years speaks for itself, and we're committed to continuing to improve our emissions performance. Now here's Ezra to wrap things up.

Thank you, Ken. Our record-breaking operational and financial results throughout this year, and the cash return announcements we made yesterday deserve to grab some headlines. However, the real story behind our performance is the consistency of strategy supported by our unique culture. At the start of the call, I said there is no clear indication of the impact premium and now double premium has had on our confidence in EOG's future profitability than the annual $3 per share regular dividend. And while establishing the premium standard back in 2016 shifted us into a different year, culminating in the magnitude of our cash return this year. Our fundamental strategy executed year-after-year by employees united by unique culture dates back to the founding of the Company. That's ultimately what gives me confidence that EOG's best days are ahead. We are a return-focused organic exploration Company that leverages technology and innovation to always get better. Decentralized, non-bureaucratic. Every employee is a business person first focused on creating value in the field at the asset level. Our financial strategy has always been and remains conservative, not just to offset the inherent risks in a cyclical business, but to take advantage of them. We're committed to the regular dividend and believe it is the best way to create consistent and dependable long-term value for shareholders. We have a proven track record that our strategy works and going forward, investors can expect more of the same consistent execution year after year. Thanks for listening. We'll now go to Q&A.

Thank you. The question-and-answer session will be conducted electronically. Questions are limited to one question and one follow-up question. We will take as many questions as time permits. If you find your question has been answered, you may remove yourself. We'll pause for a moment to give everyone an opportunity signal for questions. Our first question will come from Paul Cheng with Scotiabank. Please go ahead.

Thank you. Good morning. Two questions, please. First, you have the authorization for the buyback, but quite frankly, I don't recall EOG ever doing any buyback for the past 20 years. So can you talk about what is the condition or criteria for you to actually act on it? And in theory, if you're going to buy it when the market is suffering the downturn, does that mean that you should have a really strong bond in circling into the downturn, maybe at a net cash position, in order for you to be able to afford it? My last question is that at the top of the pandemic, your share price was really attractive, but I'm not sure that you had the capacity or the will to do the buybacks at that point. That's the first question. The second question is on the hedging, you have been quite aggressive, putting in a lot of natural gas hedges. I'm curious that with your low break-even requirement and very strong Balance Sheet, why put on hedges so aggressively to some degree even though you have a physical barrel of production that could support you? But is that the fundamental basis you said you could become a speculation on the direction of the commodity prices when you're doing it that way? Thank you.

Yes, this is Ezra. Paul, thanks for the question. Let me start by outlining a little bit on the buyback and then I'll hand it to Tim Driggers for a little more detail on it. You're right, we have the buyback authorization. We've had one previously and we haven't exercised that in quite some time. What we've done right now is we've refreshed it to a size that's a little more commensurate with the scale of our Company today. And we plan to exercise the buybacks in more of an opportunistic way, rather than something problematic is how we expect to be able to use it and I'm going to ask Tim to provide you a little more details on exercising it.

Sure. Let me first clarify that we will assess buybacks as we would any other investment decision, focusing on how it generates long-term shareholder value. Specifically addressing your question about whether we could have initiated buybacks during the pandemic but lacked the financial resources, you are correct. At that time, oil prices were negative, and we had two bonds totaling $1 billion maturing. Had we been in our current position, it would have been an ideal opportunity to buy shares, but we were not in that situation. This underscores the importance of continually strengthening our balance sheet and preparing for the future at EOG. We should not face such a scenario again, as we have positioned the Company to seize these opportunities when they arise.

And following on the second question regarding our hedges, specifically gas, but really in general, our hedging strategy hasn't changed at all. As you know, we invest on a very stringent hurdle rate, our premium and now double-premium rate. That's based on a $40 oil price, but it's also based on a $2.50 natural gas price for the life of the well. And so when we can opportunistically look to lock in some hedges north of $3, we feel very good about the returns that we're generating going forward on the gas price. In general, we like to have a bit of hedges put on whether oil or gas, just give us a little bit of line of sight into our budgeting process as we enter into a new year. And so really that's the commentary on both the gas and the oil hedges.

The next question will come from Arun Jayaram. Please go ahead.

Good morning. Ezra, the 2021 cash return to equity holders is tallying just under 30% of CFO, if you add in debt, it's around 36% of your CFO. I know there's no formal framework in place, but how should investors be thinking about cash returns on a go-forward basis and could this 30% be viewed at some sort of benchmark?

Yes, Arun. This is Ezra. I wouldn't consider that as a benchmark. We have clearly communicated over the past few years our approach to cash returns, focusing on our free cash flow priorities. The primary focus is on a sustainably growing regular dividend, which we believe reflects a strong company. This should convey our confidence in the improving capital efficiency of our business. We have discussed potential low-cost property acquisitions, which we've mentioned in our previous calls and in today’s presentation. Our Balance Sheet is not just strong, but exceptional as well. Regarding your question about additional cash return options, we have the special dividend and, as Tim just noted, share repurchases. We are committed to returning excess free cash flow. We avoid a strict formula because we prefer not to operate on a quarter-to-quarter basis, instead taking a longer-term perspective, knowing that cash levels may fluctuate. Nevertheless, we have shown this year that we are dedicated to returning that excess free cash flow.

Great. And my follow-up, with the dividend increase to $3 on an annualized basis, that will represent just over $1.75 billion in annual outlays to equity holders for the dividend, how should investors be thinking about future growth? Does this temper how we should think about longer-term production growth given the higher mix of dividend payments?

Yes, Arun. The increase in the regular dividend this year reflects our efforts over the past five years in reinvesting in premium wells. We've gradually seen improvements in our financial performance as we've reduced the company’s cost base. Our confidence moving forward is driven by our focus over the past 18 months on these double-premium wells, which we believe will enhance operational performance and translate into a significant improvement in financial outcomes, as we experienced with the transition to premium wells. Our inventory is diversified across various basins, including 5,800 double-premium locations and over 11,000 premium locations, with ongoing additions. Our team is actively identifying low-cost acquisition opportunities, focusing on sustainable cost reductions, and benefiting from this quarter's strong well productivity, along with pursuing organic exploration opportunities to enhance both the quantity and quality of our inventory. As we progress and adhere to our strategy of investing in double-premium wells, we see the potential to further boost EOG’s free cash flow, allowing us to maintain our commitment to sustainably growing our dividend.

Our next question will come from Jeanine Wai with Barclays. Please go ahead.

Hi, good morning everyone. Thanks for taking our questions. Our first question is on the special dividend. In terms of the timing and the process for that, when you looked at the potential to announce one, what did you see this time around that perhaps you didn't see last quarter when you decided to forego a special dividend?

So as previously mentioned, we remain dedicated to our free cash flow priorities, which have not changed. Each quarter, we assess various factors to determine the appropriate timing for issuing a special dividend, executing share buybacks, or increasing the regular dividend. As of September 30, our cash balance was $4.3 billion, positioning us well to pay off our bond in 2023 and issue the $2 special dividend. Considering all these elements, we believe it is the right time to return this meaningful amount of cash.

Okay, great. And then my second question, maybe following up on Arun's question on the base dividend. The large increase in the base, it seems like it's a catch-up to close the gap between what the business can support given the premium and double premium wells like you just said, and what was actually being paid out. So I guess in terms of the timing also on the base, we're just curious how much of a factor the potential that you now see in your exploration plays factored into the decision to increase the base.

Yes, Jeanine, this is Ezra again. It's not just the exploration plays; it's really just our confidence in being able to expand the overall inventory, the quality of the inventory into that double premium. And some of it comes from the announcements that you saw on this quarterly on the quarter results, the stronger well productivity supporting better than guidance volumes, and the better than guidance CapEx driven by sustainable well cost reductions. When I think about that, I think about our existing inventory increasing in performance and quality. And then I think about converting some of our premium wells into double premium status. And then of course, we have identified small bolt-on acquisitions where we can continue to grow and expand that inventory level for us. And then as you highlighted, we've got the organic exploration mix. We're drilling 15 wells this year that we've talked about that are not in the publicly disclosed places. Those places are at various states of either initial drilling, collecting data, or evaluating as we've talked about on other calls, repeatability production performance of those plays. And so we're very excited and confident in our ability to continue to expand. And as I said, increase the quality of our double premium inventory. And ultimately that's what gives us the confidence to be able to see that we can continue to lower the cost base of the Company, increase the capital efficiency of EOG, and continue to support a sustainably growing base dividend, which is our commitment.

Our next question will come from Scott Gruber with Citigroup. Please go ahead.

Yes. Good morning. In your deck, you mentioned a carbon capture pilot project, which is interesting. Ezra, can you speak to your early ambitions in carbon capture? Are you looking strictly at the storage or are you investigating pure storage? And what level of resources have you committed internally to the initiative?

Yes, Scott. I appreciate the question. I'm going to ask Ken Boedeker to address it.

Yes, Scott. We're continuing to make good progress on that initial carbon capture project that we've talked about. We've finalized many of the below-ground geologic studies and we're currently working on the engineering and regulatory portions of the project. As we work our way through these steps, we'll get more clarity on timing. But right now, we hope to initiate CO2 injection in late 2022. In terms of capital that we're allocating towards it, it's roughly 2% to 3% of our budget that we see.

Ken, and as you investigate the opportunity, how are you thinking about participating in the value chain? Would you be interested in entering transport? Obviously, it's an exciting opportunity, but it gets more capital intensive where you kind of broaden participation. Just how are you thinking about the broader opportunity in participating across the value chain?

Scott, we're really not going to change the business that we're in. We're looking at carbon capture right now to significantly reduce our Scope 1 and Scope 2 emissions at this point. That business is a much lower return business than what we see with our development that we have. So we'll keep an eye on that but our real goal for carbon capture is just reducing our Scope 1 and Scope 2 emissions, which we've made significant progress on in the last several years.

Our next question will come from an indiscernible speaker with KeyBanc, please go ahead.

Hey, guys. Just looking at the guidance here for the fourth quarter, we can certainly see some pretty significant growth on U.S. gas. Obviously, looking at gas prices right now, we're at multi-year highs at this point in time. Should we see that as a signal that EOG is perhaps flexing up a little bit on the natural gas side to try to capture what is probably some fantastic returns at the current prices here?

Yes, Leo. This is Billy Helms. On the capital expenditures side, part of our plan this year was to advance some of our Dorado prospect in South Texas. It's a highly competitive gas area compared to other regions in the U.S. We're very satisfied with the results so far. However, we are committed to only completing the 15 wells we initially targeted at the beginning of the year. It's a bit too soon to discuss what next year will look like, but we are pleased that the results are meeting or exceeding our projections. This gives us the option to consider increasing activity in that area. It's a little bit early yet to be saying what we're going to do next year, but we're very pleased with what we're seeing.

Okay. That's helpful. And obviously in your prepared comments, you still spoke about the fact that it would probably be challenging to meet all the necessary conditions at year-end 2021 that you all have laid out to put any type of real oil growth back in the market at this point in time. But I guess, I have certainly heard some rumblings lately that perhaps we might already be in pre-pandemic demand levels here as we work our way into November. I think OPEC+ has a plan to reduce its spare capacity pretty dramatically by mid-2022. Just wanted to get a sense if you think perhaps in the mid to second half part of 2022, there's a good shot at hitting the conditions that EOG laid out to potentially put a little growth back in the market.

Yes, Leo. This is Ezra. As Billy said, typically we don't provide guidance for the following year on this call but in general, our focus on 2022, the potential for that and us, as you highlighted, the things that we're looking at, we're focused on remaining disciplined and that hasn't changed. As we look into 2022, they are the three items that you've referenced that should signal a bit of a balanced market. First is demand, which has probably surprised to the upside a bit with just how quickly we've approached pre-COVID levels. The second is going to be the inventory numbers, which for us we'd like to see at or below the 5-year average, which they're currently at right now. But that brings up that third item that you spoke to, which is the spare capacity. And we'd like to see that spare capacity back to low levels more in line with historic trends. So as we sit here today, 2022 is looking like a year of transition. Spare capacity is going to come back online at its scheduled rates. That should translate into rising inventory levels and if things move forward, we could be looking at a balanced market sometime in the first half of 2022. For us, for EOG in a scenario like that, we could probably return to maybe our pre-COVID levels of oil production around that 465,000 barrel a day mark. That would represent no more than 5% growth next year. But again, that's as we are sitting here today, we will be officially firming up that 2022 plan or watching how the market develops over the next couple of months. But as we're witnessing, bringing spare capacity back online has hit some snags as we're watching to see if that more routine startup challenges or is that more structural in nature due to under investment. Those two factors are going to be just as important as seeing how the continued demand recovery from COVID really develops with any potential future lockdowns, and so on and so forth. So ultimately, we continue to remain to be disciplined going forward.

Our next question will come from Charles Meade with an indiscernible source, please go ahead.

Morning, Ezra, to you and the whole EOG team there. You actually anticipated a large part of my question with your answer to the last one. But maybe just to dial in on it a little more closely, how far out do you think your view holds or your ability to look at the balance or unbalance in the oil market? And then once you did see a call to increase your oil activity, how long would it be before we actually saw it in the public markets in your quarterly financials?

Yes, Charles. Thanks for your question. I will address the first part, and then I'll ask Billy to add more detail. Regarding how far out we can assess the balance or imbalance, to be completely honest, we're monitoring many of the same factors as you. The three aspects we highlighted indicate that demand has recovered quite aggressively, which I believe has surprised everyone. Additionally, the inventory numbers, along with spare capacity coming back online, are significant. If we consider the schedules that have been established and if everyone adheres to these schedules, we would expect the supply to return sometime in the first half of the year. However, as I've noted, there are challenges to getting all that spare capacity back online. Billy can elaborate further on this.

Yeah, Charles. As far as how long it would take before we would see any response basically showing up in our financials. If you just simply look at, when we see the signal and the time we deploy rigs and get the wells completed, non-production takes usually 3 to 4 months. So you'd start seeing it no earlier than that, but probably sometime a quarter or two after to have a meaningful difference in financial performance.

Got it. So, if I'm understanding you correctly, it would be two quarters, maybe you start to see it nearly three quarters before there was a real delta.

That's correct.

Great. And then just one quick follow-up for Tim. I think you partly address this in your earlier comments. In the past, I recall you guys have talked about a target of $2 billion of cash on the balance sheet. With this new $5 billion share authorization in a slightly different posture about wanting to have some dry powder, does that mean that your target for $2 billion in cash, and I recognize you're not always going to be at the target, but does that mean that the target has gone north of that? And if so, has it gone to 3 or 4 or what's your thinking?

No, we haven't changed our target. We will continue to monitor that throughout the cycle and consider various factors affecting the cash balance. For example, working capital changes as prices fluctuate are significant considerations. But no, it has not changed; our authorization has not altered our philosophy regarding the cash balance.

Our next question will come from Neal Dingmann with Truist Securities. Please go ahead.

Good morning, all. I don't want to belabor this just on the growth and reinvestment. But Ezra just want to make sure I'm clear on this, you guys have been quite clear about returns. I just want to make sure that I'm certain around the priority about the moderating reinvestment rate in order to drive the cash returns. Is that what I'm hearing over growth?

Yes, Neal. When we think about moving forward, we've done a lot on reinvesting in building this Company to take a bit of a step away from the commodity price cycles by focusing in on the premium wells and now double premium strategy. The growth for us has always been an output of our ability to reinvest at high rates of return. Through 2017 to 2019 during a period of rapid growth for the industry. In fact, we were reinvesting only at a rate of about 70% and still generating free cash flow every year and putting that towards an aggressively growing base dividend. So the strategy for us hasn't really changed. I think we've talked about potentially watching the macro environment a little bit more to help formulate our plans year-to-year. And that's where it falls in line with what we've been discussing over the last couple of questions. We still remain very committed to that. We don't want to push barrels into a market that's oversupplied or doesn't need the barrels. And so we'll be looking for the right time to see if the market needs our barrels before contemplating any return to growth.

It seems you have been increasing your gas hedging activities. Is that related to your heightened focus on the Dorado play in light of the movements in natural gas prices? I'm curious if these two factors are connected or if you're simply expanding your efforts in Dorado.

Yeah. Neil, this is Billy Helms. As far as the volume of gas hedges and then what we've been doing there, really it's not focused strictly on Dorado. It simply goes back to our premium strategy that as we just laid out, it's based on a $40 oil and a $2.50 gas price. We saw the opportunity to lock in gas prices above $3. So it gave us encouragement to lock in returns over the next several years at those prices. We have gas production quite a bit as you know in Dorado, but also quite a bit in other places as well. So it just helps ensure locking in returns over a multi-year period.

Our next question will come from Scott Hanold with RBC. Please go ahead.

Yes. Thanks. I'm going to try, Ezra, I know you'll probably give me the answer that you'll talk about the budget next year. But if I could talk about a more big picture, if we all think of just a base maintenance spending levels into 2022. Has the capital changed too much from what you all did this year? Like what would be the puts and takes from that? Because it seems like your well-cost, you're going hold pretty steadily. So is your maintenance capex case this year somewhat similar to what it would be next year all else being equal or are there anything else to consider?

Yeah, Scott. This is Ezra and we'll talk about next year's budget, next year. So that a little bit facetiously for you, but quite frankly, I think we haven't updated our maintenance capital number yet. We'll provide that number commensurate with our plans laid out for next year. But I think what you can see is that our team continues to make great progress and sustainable well cost reductions through their efficiency gains on applying innovation and technology. And I think Billy highlighted pretty well that we feel very confident that we achieved our first initial goal, I should say, 5% well cost reduction and were inline to reduce our costs by 7% this year. And we feel that a lot of those costs are what's going to insulate us against some of the inflationary pressures out there.

Was there anything unusual this year that we should consider for next year regarding exploration play or ESG spending? Should we think about that differently?

No, Scott. Really over the last few years, a lot of our percentage dedicated towards exploration and ESG have been pretty consistent.

Our next question will come from Doug Leggate with Bank of America. Please go ahead.

Good morning, everybody. Ezra, I think your share price reaction today, I think you can see the market's response to greater cash returns. I'm wondering, why is there reluctance, seemingly still from EOG to provide a framework around the proportion of cash returns? It seems to be a persistent body or perhaps the recognition of sustainable free cash flow, which at the end of the day is what defines the value. I'm just wondering why there is reluctance not to commit to at least lay out a framework as to how you think about the go-forward cash returns as opposed to one of those special dividends?

Yes, Doug. It's a question that we've been answering and we feel that we have provided a framework for our free cash flow priorities. It's as you mentioned, the sustainable growing base dividend to strengthen the Balance Sheet, these low-cost property acquisitions, and then more on point with your question, the other cash return options which are special dividends and opportunistic share repurchases. And in a lot of ways, when we look back, I think we've shown our commitment to that. Not only this year with committing to $2.7 billion return in dividends over a year-to-date free cash flow generation of about $3.5 billion. But I think we added a slide into the deck that shows longer-term what we've been able to do in providing just over $5 billion of free cash flow returns since 2016 on about $10.9 billion of free cash flow we generated. And so I think we've laid out a framework; I think our two announcements this year on special dividends totaling $3 per share on the specials really demonstrates our commitment to it and as far as having the ability for our investors to see through and capitalize on that number. I think we've demonstrated our commitment to the point where the investors can capitalize on some of our excess free cash flow. To us, we still remain committed to delivering on those free cash flow priorities. We do want to continue to make decisions based on what we think will create the most significant long-term shareholder value. And that means sometimes not necessarily running the business on a quarter-by-quarter basis, but really taking a longer-term approach. And so locking ourselves into a formula that might have to change as conditions change, is really at the heart of our reluctance to do that.

I understand that. I guess it's a moving piece. Maybe my follow-up is related then. I want to talk specifically about the buybacks. There's been a lot of reference to the '16, '19 period. And you know the history; it was a subsidized environment. You doubled production. Saudi was taking oil off the market, and we will see how that ended. We know what the response to the industry has been, but I want to get specifically to your view of mid-cycle and how you think then about the relative priorities around mid-cycle. What is your definition of mid-cycle? And how should we think about growth versus growth per share, given the buyback commencement?

Well, Doug, I don't think I'm comfortable getting into mid-cycle metrics on here. But what I would tell you is we continue to think of this buyback as opportunistic. We think, again, with our authorization in place, we want to use it in a way that we feel confident we're going to be generating long-term shareholder value. More often than not for us, that's going to tend towards special dividends. And we're going to reserve our buyback authorizations to be used really just in times of dislocations and use it opportunistically rather than a more programmatic method.

Our next question will come from Bob Brackett with Bernstein Research. Please go ahead.

Good morning. It looks like you turned a couple of pads on in Dorado in the third quarter. Any color or commentary there; hitting expectations, exceeding?

Yeah. Bob, this is Ken. As Billy said earlier, we have turned on several wells in the last few months and the color is all of them are at or above our type curve and what our plans were going into the year. We do have one drilling rig active in the play right now and we're really moving rapidly up the learning curve. Again, just to reiterate, this play has really double premium returns and it's competitive for capital with our oil plays.

Our next question will come from Neil Mehta with Goldman Sachs. Please go ahead.

Good morning, Tim. Ezra, every new CEO has an opportunity to put their own thumbprint on the business and recognize that you're part of the prior leadership team as well, but just talk about your early observations as the new leader of the organization. Any subtle changes that you're making and talking about your messages to your internal and external stakeholders that you want the market to be aware of?

Yes, Neil. I appreciate the question and the opportunity. I think the bigger thing for our investors, our employees, and everyone who is listening to the call is that EOG has got a proven track record. Our strategy works; the shift to premium strategy has put us on a different trajectory and the shift to double premium is going to as well. The culture of EOG, the people that EOG has always been our competitive advantage, and that will continue to be that way. Honestly, Neil, the most important thing we can do as a leadership team is put our employees in a position to succeed, where they can really contribute to the best of their abilities. And that's where we try to do every day, and that's going to translate into not only our operational performance, that's what you see in the results of this quarter, but to our financial performance as well.

Thanks, Ezra and the follow-up is I appreciated the slide that shows the breakdown of the well costs in how you guys are ahead of your competition in terms of managing and mitigating some of these inflationary pressures. As you step back and think about the U.S. oil industry broadly, do you think this is ultimately going to be a challenge, these inflationary pressures, to restart the shale machine? And which of these bottlenecks or do you worry about the most in terms of being a constraint on the ability for the industry to grow again?

Yeah, Neil, this is Billy Helms. As the industry is experiencing, we are noticing significant inflationary pressures primarily in three areas: steel and processing, tubulars, and labor, which impact all sectors, as well as fuel costs. These three areas represent the key inflationary pressures across the industry. I believe the top priorities will be steel availability, which many companies are struggling with, and labor, particularly in terms of recruiting sufficient personnel to manage activity levels. To provide some insight into EOG’s approach, each year we aim to get ahead of the curve by securing a portion of our services to ensure ongoing activity and to shield ourselves from inflation. For instance, in 2021, we managed to protect around 65% of our well costs for that year, and combined with improved efficiencies, we achieved a reduction in our average well costs by approximately 7%. Throughout the year, we also renegotiated many of our services at lower rates, securing them through the end of next year. Going into 2022, we expect to have about 50% of our well costs locked in, along with over 90% of our drilling rigs and 50% of our frac fleets secured at lower rates. While we anticipate inflation in areas like steel, labor, and fuel just as everyone else does, we believe our strategy will provide visibility and promote efficiencies that should counterbalance much of this inflation. We remain confident in our ability to maintain flat well costs as we head into next year.

Our next question will come from Michael Scialla with Stifel. Please go ahead.

Hi. Good morning. It's a high-level question. Ezra, on your long-term outlook, as you think about the energy transition, how are you thinking about oil versus natural gas? Is there any preference there in or any of the exploration plays focused on gas or are they all on oil?

Yes. Thank you, Michael. Long term, we believe the hydrocarbons are going to have a significant part of the energy solution long term. Obviously, we need to do as an industry a better job with our emissions profile. But when you think about oil and natural gas, they both go to different markets dominantly. Your natural gas essentially is more on your power side and potentially in direct competition with things such as coal and your renewables. And then your oil transportation. Your oil obviously is a little more focused on transportation. In general when I think longer-term, I think the energy transition is going to be significantly slower than oftentimes you hear about. And we're very bullish on the prospects for both. As far as the exploration plays go, as we've said in the past, dominantly the exploration plays are all oil-focused.

Michael, this is Ken. To answer your question on the tax credit side, we are planning on capturing the 45Q tax credits. Our goal in terms of foot class or permit that we would secure. We believe that we will initially secure a class 2 permit that can be converted, will go through all of the regulatory requirements to be able to convert it to a class 6 later in its life. But that's what the plan is for our CCS project at this point.

Our next question will come from Paul Sankey of Sankey Research. Please go ahead.

Hi, can you discuss your LNG strategy or your approach to downstream natural gas? Thank you.

Good morning, this is Billy. Thank you for your question. The team is definitely executing. You've seen several of our slides highlighting our incredibly valuable transportation position. We can move gas from various basins, including the Permian Basin and the Eagle Ford. We also discussed Dorado earlier, and this gives us access as we consider the growing LNG demand, particularly along the Gulf Coast. We have established a significant position there as a first mover in the LNG space. We went through a thorough business development effort in 2017 and 2018, finalized contracts in 2020, and in 2021 we are clearly seeing the benefits of those contracts. Being a first mover is very important, and we will continue to explore new LNG opportunities. We are well-positioned in terms of transport and export capacities, which allows us to be agile when considering new prospects.

Got it. And then a follow-up on the buybacks. I'm not clear. Are you saying that it's a shelf ability to buy back shares when you want? Or are you actually going to try and get through this amount in the next 12 months?

Hi, Paul. This is Tim. We do not have a timeline on when we plan to buy back the $5 billion. When the opportunity presents itself, we will be in the market.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Yacob for any closing remarks.

We just want to thank each of you for participating in our call this morning and thank our shareholders for their support. As I highlighted at the start of the call, EOG's competitive advantage is our employees and they deserve all the credit for delivering another outstanding quarter. So thank you and enjoy the weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.