Earnings Call Transcript - EOG Q4 2021

Operator, Operator

Good day, everyone, and welcome to the EOG Resources Fourth Quarter and Full Year 2021 Annual 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.

Tim Driggers, CFO

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 and EOG's SEC filings. This conference call also contains certain non-GAAP financial measures. Definitions and reconciliation schedules for those non-GAAP measures can be found on EOG's website. Some of the reserve estimates on this conference call may include estimated potential reserves and estimated resource potential not necessarily calculated in accordance with the SEC's reserve reporting guidelines. Participating on the call this morning are Ezra Yacob, Chief Executive Officer; Billy Helms, President and Chief Operating Officer; Ken Boedeker, EVP, Exploration and Production; Jeff Leitzell, EVP, Exploration and Production; Lance Terveen, Senior VP, Marketing; and David Streit, VP, Investor & Public Relations. Here's Ezra.

Ezra Yacob, CEO

Thanks, Tim. Good morning, everyone. 2021 was a record-setting year for EOG. We earned record net income of $4.7 billion, generated a record $5.5 billion of free cash flow, which funded a record cash return of $2.7 billion to shareholders. We doubled our regular dividend rate and paid two special dividends, returning about 30% of cash from operations. We are continuing to deliver on our free cash flow priorities with an additional special dividend announced yesterday of $1 per share. The last time we set an earnings record was in 2014. We earned $5.32 per share while oil averaged $93 per barrel. Last year, we shattered that record, earning $7.09 per share with $68 oil. That’s 50% higher earnings with a 27% lower oil price. The catalyst for that improvement was our shift to premium six years ago. Premium is our internal investment hurdle rate that uses low fixed commodity prices to calculate the returns that drive our capital allocation decisions, $40 oil and $2.50 natural gas for the life of the well. While our premium strategy ensures high well-level returns and quick payouts in any given year, the more significant and durable impact is to our full-cycle development costs. The benefit of making investment decisions using fixed low commodity prices has the enduring impact of steadily improving corporate level operating and cash margins over time. That impact is now directly observable on the face of our financial statements. And last year, we raised the bar again to double premium. Our hurdle rate increased from 30% to a minimum of 60% direct after-tax rate of return using the same low fixed prices of $40 oil and $2.50 natural gas. The switch promises to further improve financial performance in the years ahead and is what gives us great confidence in our ability to continue delivering shareholder value through commodity price cycles. We expect to look back on 2021 like we do on 2016, as the year we made a permanent increase to our return hurdle that drove another step change in the financial performance of EOG. We also delivered as promised operationally in 2021, with production volumes, CapEx, and operating costs in line or better than the targets set at the beginning of the year. We successfully offset emerging inflationary pressures during the year to lower well costs by 7%. 2021 was also a significant year for ESG performance. We reduced our methane emissions percentage and injury rates and increased water reuse. We announced our 2040 net-zero ambition and added our goal to eliminate routine flaring by 2025 to our existing near-term targets for greenhouse gas and methane emissions rates. We continue to develop creative solutions, leveraging existing technology to make progress on our path towards our net-zero ambition. There's growing recognition that oil and gas will have a role to play in the long-term energy solution. We know that to be part of that solution, we not only have to produce low-cost, high-return barrels, but we must also do it with one of the lowest environmental footprints. As we look into 2022, the global oil market is poised to rebalance during the year. Our disciplined capital plan aims to increase long-term shareholder value through high-return reinvestment that optimizes both near-term and long-term free cash flow. The plan also funds exploration and infrastructure projects to improve the future cost structure of the business. With the improvements we made last year, combined with a higher commodity price environment, EOG is positioned to generate significant free cash flow once again. We continue to follow through on our free cash flow priorities. Our stellar fourth-quarter performance allowed us to further strengthen our balance sheet and return cash to shareholders with the $1 per share special dividend declared yesterday. Combined with our $3 per share regular dividend, we have already committed to return $2.3 billion of cash to shareholders in 2022. We remain firmly committed to our long-standing free cash flow and cash return priorities, and you can expect EOG to continue to deliver on them as the year unfolds. EOG has exited the downturn a much better company than when we entered it. Higher returns with the shift to double premium, a lower cost structure, more free cash flow, a smaller environmental footprint, and a culture strengthened by the challenges we have overcome together. Our culture is the number one value driver of EOG's success. By remaining humble and intellectually honest, we sustained the cycle of constant improvement that drives our technology leadership. Of all the fundamentals that consistently create long-term value, none of them matter without the commitment, resiliency, and execution from our employees. Now, here's Tim to review our financial position.

Tim Driggers, CFO

Thanks, Ezra. EOG generated record financial results in the fourth quarter with adjusted earnings of $1.8 billion and free cash flow of $2 billion. Capital expenditures of $1.1 billion were right in line with our forecast, while production volumes finished above target. For the full year, adjusted earnings were a record $5 billion, or $8.61 per share. This yielded a return on capital employed of 23%, while oil prices for the year averaged $68 per barrel. Perhaps more important than setting records is what drove our outperformance. 2021 illustrated EOG's success at driving down our cost structure. ROCE would have been 10% or better at oil prices as low as $44. Keep in mind that back in 2016, when the premium investment standard was introduced, the oil price required for a 10% ROCE was in excess of $80 per barrel. The dramatic improvements made to the profitability of our business reflect the benefits of using the highest investment threshold in the industry. The bottom line financial impact of double premium is just beginning to show up. But like our original switch to premium, it will grow over the coming years. Our goal is to position the company to earn economic returns at the bottom of the cycle, less than $40 oil, and generate returns that are better than the broader market on a full cycle basis. Free cash flow in 2021 was a record $5.5 billion, and we deployed this cash consistent with our long-standing free cash flow priorities. We doubled the regular dividend rate, which now stands at an annual $3 per share and represents a 2.7% yield at the current share price. We are confident in the sustainability of our high-return, low-cost business model that supports a dividend that has never been cut or suspended in this more than 20-year history. We solidified our financial position, finishing the year with effectively 0 net debt. We were also able to address our cash return priorities. We paid two special dividends for a combined $3 per share. We also refreshed our buyback authorization, which now stands at $5 billion. We will look to utilize this on an opportunistic basis. In total, EOG returned $2.7 billion of cash to shareholders in 2021. This represents 28% of discretionary cash flow and 49% of free cash flow, putting EOG among E&P industry leaders for cash return in 2021. Looking ahead to 2022, our disciplined capital plan and regular dividend can be funded at $44 oil. At $80 oil, we expect to generate about $11 billion of cash flow from operations before working capital. The $4.5 billion capital plan represents about a 40% reinvestment ratio, resulting in more than $6 billion in free cash flow. This, of course, is on an after-tax basis, as we expect to be a nearly full cash taxpayer in 2022 as we were last year. We are in an excellent position to continue to deliver on our free cash flow priorities in 2022. EOG declared a $0.75 regular dividend yesterday, which is our highest priority for returning cash to shareholders. The size of the regular dividend is evaluated every quarter. As the financial performance and cost structure of EOG continues to improve, we expect that this will be reflected in continued growth of the dividend. Turning to our second priority. This period of high oil prices allows us to further bolster the balance sheet. To support our renewed $5 billion buyback authorization and prepare to take advantage of other countercyclical opportunities, we plan to build and carry a higher cash balance going forward. We expect there will be opportunities in the future to create significant shareholder value by deploying a strong balance sheet and ample liquidity at the right time. Finally, we also announced an additional cash return to shareholders yesterday with a $1 per share special dividend to be paid in March. Along with the regular dividend, EOG has already committed to return $2.3 billion of cash to shareholders in 2022. We are fully committed to continuing to deliver on all of our free cash flow priorities.

Billy Helms, President & COO

Thanks, Tim. First, I want to thank all of our employees for their outstanding accomplishments and stellar execution last year. I'm especially proud of their safety performance. In addition to outstanding operations and financial improvements, we achieved a record low injury rate and found opportunities to increase efficiencies, lowering the average well cost by 7%, beating the 5% target we set at the start of the year. Our drilling teams are achieving targeted depths faster with lower costs by focusing on the reliability of the tools and technical procedures that drive daily performance. For example, in our Delaware Basin Wolfcamp play, our teams have improved the days to drill by 42% since 2018. In our Eagle Ford oil play, after drilling several thousand wells, our teams continue to refine the drilling operation to drive consistent performance for our rig fleet, resulting in a 21% reduction in drilling costs since 2018. With our decentralized organization and collaborative teamwork across operational areas, we continue to generate ideas for improvement through our innovative approach to areas such as improved bit design, drilling motor performance, and share them throughout the company. On the completion side, we made great strides to expand the use of our Super Zipper or simo-frac technique to about one-third of our wells completed last year. Completion costs also benefited from reduced sand and water costs through our integrated self-sourcing efforts and water reuse infrastructure. Utilizing local sand and water pipelines includes the added benefit of removing trucks from the road, contributing to a safer oilfield with lower emissions. Cash operating costs were in line with the forecast. While delivering a higher level of total production, they were nearly equivalent to our cash operating costs pre-pandemic in 2019. The savings are a result of a focus on reducing workover expenses and improvements in produced water management. These efforts will expand in 2022 to help offset additional inflationary pressure. We also had another great year improving our ESG performance metrics. Preliminary calculations indicate that we reduced our methane emissions percentage by about 25% and our total recordable incident rate by 10%. We also achieved a 99.8% target for wellhead gas capture and increased water reuse to 55%. Again, these are preliminary results as our final metrics will be published in our sustainability report later this year. As we enter 2022, EOG is not immune to the inflation that we're seeing across our industry. But we have line of sight to offset these inflationary pressures through innovation and technical advances, contracting for services, supply chain management, and self-sourcing of materials. Over 90% of our drilling fleet and over 50% of our frac fleets needed to execute this year's program are covered under existing term agreements with multiple providers. Our vendor partnerships provide EOG the ability to secure longer-term, high-performing teams at favorable prices while providing the vendors a predictable and reliable source of activity to run their business. EOG's technical teams take ownership of various aspects of the drilling and completion operations to drive performance improvements and eliminate downtime. As a result, we will see opportunities to sustainably improve our performance. Some of the largest efficiency gains will be in our completion operations this year. For example, we expect to utilize our Super Zipper technique on about 60% of our wells, increasing the amount of treated lateral per day. We're also enhancing our self-sourced local sand efforts, which we expect to not only secure the material needed for the year, but also offset the effects of inflation. We continue to expand our water reuse capabilities, which will assist in offsetting inflation in both our capital program and lease operating expense. We remain confident that we'll be able to keep well costs at least flat in 2022. EOG's capital efficiency continues to improve as a result of EOG's culture of continuous improvement. 2022 looks to be a year of challenges and inflationary headwinds. I'm excited about the opportunity to bring our talented employees to further improve our business through innovation and improved operational execution. Here's Ken to review the year-end reserves and provide an inventory update.

Ken Boedeker, EVP, Exploration and Production

Thanks, Billy. Last year, we replaced more than 2x what we produced and reduced our finding and development costs by 17%. Our permanent shift to premium drilling and focus on efficiencies driven by innovation and our unique culture are key reasons why our capital efficiency continues to improve, and our corporate finding costs and DD&A rate continue to decline. Our 2021 reserve replacement was 208% with a finding and development cost of just $5.81 per barrel of oil equivalent, excluding revisions due to commodity price changes. Since 2014, prior to the last downturn and the implementation of our premium strategy, we have reduced finding and development costs by more than 55%. With our double premium standard and the high grading of our future development schedule, we grew our reserve base in 2021 by over 500 million barrels of oil equivalent for total booked reserves of over 3.7 billion barrels of oil equivalent. This represents a 16% increase in reserves year-over-year. In terms of future well locations, we added over 700 net double premium locations across multiple basins to our inventory in 2021, replacing the 410 drilled last year by 170%. Our double premium inventory is growing faster than we drill it, and the quality of the locations we are adding to the inventory is improving. Innovation continues to drive sustainable cost improvements and operational efficiencies. When you combine that with our focus on developing higher quality rock, we further improve the median return of the portfolio. We don't need more inventory. We are focused on improving our inventory quality. With this in mind, our double premium inventory now accounts for 6,000 of the 11,500 total premium locations in our inventory, representing more than 11 years of drilling at the current pace. Now let me turn the call back to Ezra.

Ezra Yacob, CEO

Thanks, Ken. In conclusion, I'd like to note the following important takeaways. First, investment decisions based on a low commodity price put the emphasis on full-cycle cost of development and demand efficient use of capital. While the benefits of such discipline are realized immediately, the larger impact builds over time. The seed to our stellar results in 2021 was the premium strategy established six years ago, and we have set the stage for the next step change in financial performance by instituting double premium last year. Second, we are confident EOG's innovative and technology-driven culture can offset inflationary pressures this year. Our disciplined capital plan is focused on high-return reinvestment to continue improving our margins in not only 2022, but in future years as well. Third, we are committed to returning cash to shareholders. We demonstrated this through the return of nearly 50% of free cash flow last year, and this quarter's special dividends are our third in less than a year. Doubling our regular dividend rate indicates our confidence in the durability of our future performance. The regular dividend is our preferred method to return cash to shareholders. As we continue to increase the capital efficiency of EOG through low-cost operations and improved well performance, growth of the regular dividend will remain a priority. We truly believe the best is yet to come. Going forward as a company and an industry with a financial profile more competitive than ever with the broader market and a growing recognition of the value we bring to society, EOG has never been better positioned to generate significant long-term shareholder value. Thanks for listening. Now we'll go to Q&A.

Operator, Operator

Our first question today comes from Paul Cheng from Scotiabank. Please go ahead. The line is yours.

Paul Cheng, Analyst

First, we have been asked by many that with your CapEx plan and your production profile, if current commodity prices hold by mid-year, will you change the plan? Under what circumstances might that plan be revised? That's the first question. The second question is that in your future capital allocation, is 2022 the way how you will view future years, or will we see the percentage in the new domestic drilling, which is about 10% this year, and also that the facility and the gathering and processing percentages will go up in total of your CapEx as you're trying to prove up more new resource areas?

Ezra Yacob, CEO

Yes. Paul, this is Ezra. I'll answer the first question, and then I'll hand the second question over to Billy to answer for you. With regards to our plan this year, as we've talked about, the way we're approaching our planning is not based on the oil price that we're seeing. We're really looking to see the broad market fundamentals that are underlying and supporting that oil price and other macroeconomic indicators. So when we look at our '22 plan, we think we've designed a very high-return capital program. It balances our free cash flow this year with increased free cash flow in future years. It really starts with investing in the double premium wells. When we bring those low-cost reserves into the company's financials, it helps drive down the cost basis of the company and continues to expand the margins. It's what allows us to continue delivering high corporate level returns, as well as increase the cash flow potential of the company, further supporting our free cash flow priorities. So the program this year is at a pace that allowed us to capture and incorporate technical learnings to continue to improve each of our assets. That is the most important thing that we look to do every year, not only in 2022 but also going forward into future years as well. And I'll turn it over to Billy to answer the second part of the question.

Billy Helms, President & COO

Yes, Paul. On the second part of the question, going forward beyond 2022 and the percentage we have allocated to new domestic drilling potential or really our exploration plays and infrastructure spend, it's been fairly consistent in the past, and I expect it to be fairly consistent going forward. The largest amount of our CapEx spend will always be dedicated to our more developing plays like the Delaware Basin play. Going forward, we remain excited about the exploration potential we see in many of our new emerging plays. We'll continue to fund those at a pace where we can continue to learn and get better, just as Ezra mentioned. The infrastructure spend has always been about the same percentage each year, and I expect that will continue to be managed in the same way. We want to make sure that we don't get too far ahead with the infrastructure spending, but it's done at a pace commensurate with the development activity in a given area. So I expect that will continue to be the case.

Operator, Operator

Our next question today comes from Arun Jayaram from JPMorgan Securities. Please go ahead. Your line is now open.

Arun Jayaram, Analyst

Yes. Global gas is clearly in focus right now. I wanted to get your thoughts on the revamped agreement, which will provide you more linkage to JKM. I think today, you're selling about 140,000 MMBtu, and that increases to 420 over time. I was wondering if you could give us a sense of timing and shed some light on the type of realizations you get from marketing the gas to LNG? And how is the economic rent shared amongst you and your partners?

Lance Terveen, SVP, Marketing

Arun, this is Lance. I was just saying good morning. We're very excited about the new amendment that we have, and you're exactly right. I mean, we've got thousands that started in 2020. I think that just really speaks to being really a first mover because, as you can see right now, you can look at the price realizations; JKM spot prices are near $40. Having that first-mover capability, moving quickly there to get that exposure is exactly right. I'm very excited about the commitment. You're right, it ramps up. We've got the 140 today that will ramp to 420 as they go into service. That's estimated to be probably with the first stage of development in 2026. We still maintain and we extended the 300,000 MMBtu a day sale that we have that's linked to Henry Hub. So we're excited about it. It's a brownfield facility, and they've demonstrated being early on many of their projects. So we're excited to see our relationship grow from that standpoint and expect to see the price realizations materialize as well.

Arun Jayaram, Analyst

And my follow-up is just on the 2022 program. Ezra, you guided to 570 net wells. We want to get a bit more color on the decision to allocate more capital to the Delaware versus Eagle Ford? It looks like your Eagle Ford activity will be down, call it, more than 50% year-over-year, while your Delaware will be up 30% more, including a little bit more second bone activity. I was wondering if you could give us a little bit of color there.

Billy Helms, President & COO

Yes, Arun, this is Billy Helms. We're allocating a little bit more money to the Delaware Basin, and it's really just a function of the maturity of the Eagle Ford at this point. The Eagle Ford has been an active play for more than 12 years and certainly has been a highly economic play for the company and continues to be. Last year was the single best returns we've ever generated in the Eagle Ford play since its inception 12 years ago. So it's still a very valuable play, but it is more mature. The Delaware Basin, on the other hand, is still a lot earlier in its maturity in this life cycle and still has a lot of opportunity to grow and test new horizons and expand our development capabilities over time. It’s just a younger phase of maturity. I think it naturally will command a bit more activity on that side.

Operator, Operator

Our next question today comes from Doug Leggate from Bank of America. Please go ahead. The line is yours.

Doug Leggate, Analyst

Last time I spoke to you, you were talking about the mix of the double premium wells in the production profile and, of course, the impact on sustaining capital and breakeven oil prices. I wonder if you could just walk us through how you see that? The $32 breakeven you've given us today obviously comes with some element of growth in the capital. How do you see the sustaining capital? How do you see that breakeven trending? That's my first question.

Ezra Yacob, CEO

Yes. Doug, this is Ezra. Thanks for the question. Our maintenance capital, on the back of a 7% well cost reduction last year and then additional well improvement combined with increasing the percentage of double premium wells, is decreasing, which is fantastic for us. You're right; the $32 breakeven that we provided today is essentially commensurate with the CapEx program that we have this year. But the double premium wells — we can’t stress enough that not only does the impact show out on very rapid payout and a high rate of return, but really by bringing those lower-cost reserves and a lower decline into the base of the company, over time, it really starts to have an impact on full cycle returns and free cash flow generation potential of the company in the future.

Doug Leggate, Analyst

So where do you think those two numbers are today, the sustaining capital and the ex-growth breakeven?

Ezra Yacob, CEO

So we didn't release maintenance capital this earnings call due to the fact that we've started to allocate some additional capital into the Dorado play. It starts to get a little bit messy as you start going from oil into a BOE equivalent as we are starting to see the phenomenal results there with the Dorado play as we dedicate additional capital to it. Nevertheless, what we've outlined is with the 7% well cost reduction and slight improvements on the well mix year-over-year, we've continued to drive down that breakeven. For the full cycle return, we have a slide in our deck that shows, one way that we like to present it is the price required for a 10% return on capital employed. You can see we made a big step change last year as we drove that price down to $44.

Doug Leggate, Analyst

My follow-up is a question about capital allocation, and it might be directed towards Tim. The free cash flow shown in your presentation, exceeding $4 billion a year after the special, could effectively eliminate most of your share buyback authorization. I'm curious why you believe there is no need to establish some form of capital return framework. Given the clarity around your breakeven level and the duration of your inventory, the valuation process appears more transparent. This might make buybacks more defensible. So, I am interested in understanding your reluctance to pursue that approach. I'll leave it at that.

Ezra Yacob, CEO

Yes. Doug, this is Ezra again. Just to reiterate our free cash flow priorities, first, the commitment begins with sustainable dividend growth of our regular dividend. In '21, we doubled that regular dividend. For us, that regular dividend is indicative of what we're trying to accomplish. It reflects the continuing increase in the go-forward capital efficiency of the company. It's also focused on creating through-the-cycle value and free cash flow. That's ultimately what we’re trying to do. Again, going back to what we were just discussing with the investment in the double premium wells and lowering the cost base of the company, attempting to take at least a small step away from the inevitable commodity price cycles of our industry. The second free cash flow priority for us is a pristine balance sheet, which provides tremendous competitive advantage in a cyclical industry. The third is additional cash return in the form of specials or opportunistic repurchases. As we talked about, last year, we demonstrated the commitment with $2.7 billion in cash return through the form of $3 per share special dividends and our regular dividends. We reluctantly will use our reserve repurchase opportunities to be more opportunistic than programmatic. In times of rising share or oil price, you can expect us to prefer special dividends. The way we think about share repurchase is we measure it as an investment, just like we do any investments across our business. We want to ensure that it competes on a returns basis. That’s why, in an environment like this, we prefer to stick with the special dividend as the priority for additional cash return.

Operator, Operator

Our next question today comes from Scott Gruber from Citigroup. Please go ahead. Your line is open.

Scott Gruber, Analyst

Just following on that line of questioning, given that your net debt is negative here at the start of the year, should we think about the cash build as largely being over this is Tim. No. First of all, we are excited to be in a position where we have a cash balance going forward. We'll continue to build cash on the balance sheet during these high oil price scenarios and look to opportunities in countercyclical times to deploy that cash meaningfully in the form of more specials or stock buybacks or just opportunistic investments that come along in a countercyclical environment. So the answer, again, is no, in these high price environments, we will be building more cash on the balance sheet. Got you. I appreciate the clarification. And then congrats on the expanded export agreement. Just thinking about the broader backdrop here, there's likely another round of LNG project sanctioning along the Gulf Coast. It seems like the industry is in an advantaged position there. How aggressive is EOG on entering additional agreements, thinking kind of in similar terms? Do you guys foresee an expanded JKM to Henry Hub spread that you'd want to capture? Do you think that's sustainable? Or do you look at additional agreements more through a traditional diversification lens?

Lance Terveen, SVP, Marketing

Yes, Scott. Thanks for your question. This is Lance. I think what I can really point you to is like you think about each of our operating areas and you think about our transportation positions that we have, it really puts us in a position where we are: one, in close proximity; and two, we have the capability that we can transact very quickly. So I would first point you to that. Then I'd say secondly, yes, we're always interested in new opportunities. We’ll be continuing to look at that from a business development standpoint. It’s really going to be commensurate, like you heard from Billy as you talk about growth and our volumes. Moving forward, we will be looking at new opportunities, but that will be commensurate with our plans moving forward.

Operator, Operator

Our next question today comes from Neal Dingmann from Truist Securities. Please go ahead. The line is yours.

Neal Dingmann, Analyst

Maybe for you or Tim, just ask one more on the shareholder return. I know it's the most popular question. But you guys continue now to pay out over 50% of your free cash flow. I'm just wondering on a go forward, I know there were some thinking you all would have potentially a higher payout. Is that something that you're targeting? I know you're not going to have the exact metrics on how much you want to pay out at a certain amount, but is that something internally you're always continuing to sort of look at paying out over 50% or 60% on a go-forward basis, given your strong free cash flow?

Ezra Yacob, CEO

Yes. This is Ezra. We continue to evaluate our cash position with respect to dividends on a quarterly basis. I would say that, you're correct, we're thrilled to be in the position where we can offer our shareholders such a competitive regular base dividend, which again, I think, is our number one priority as a way to create value through the cycles. But on top of that, we are in a great position to offer continued strength of our balance sheet to support that dividend and continue providing additional cash return of excess free cash flow in the form of specials and buybacks. We don't have a specific target that we do. We stay away from providing a formula because we want to be able to have the flexibility to do the right thing at the right time to really maximize shareholder value in a way that is protected through the cycles. Said another way, I think we've demonstrated that over the past year. We've taken the opportunity to both strengthen the balance sheet last year. Again, last year, we paid out a significant amount, $2.7 billion in cash returns. We've doubled down on this with the first-quarter announcement with the $1.75 per share cash return this quarter. Essentially, that reflects the evaluation, the positive commodity price environment that we were experiencing and the strength of the underlying business and our confidence in it going forward. Yes. We actually divested of our Marcellus position a couple of years ago that was in the dry gas part of the Marcellus acreage in Pennsylvania. With respect to some of the other opportunities that we haven't discussed publicly, that's primarily exploration. First and foremost, we're an exploration company, always striving to be a first mover and improve the quality of our inventory. Domestically, we continue to explore across the U.S. Our exploration program has been progressing. We finished last year drilling 12 wells across multiple opportunities, all dominantly oil-focused, and we'll slightly increase that number this year to about 20 as we're encouraged with some of the results that we had last year. Generally, we don't discuss the details of the exploration other than to say that the opportunities are low-cost entry, oil focused, and reservoirs that we believe we can exploit with our horizontal drilling and completions expertise. This year, we look forward to doing some delineation and appraisal drilling. The goal of our exploration program is not just to find oil or reserves, but to add to the quality of our inventory from a lower finding cost and higher returns perspective. It takes time to evaluate these opportunities and bring them into the mix where they can help lower the company's cost base and significantly contribute to our portfolio going forward.

Neal Dingmann, Analyst

And I guess just to follow up on that. As far as the NGL guide going up, that's simply a function of the fact that we have opportunities to make an election on how much we recover or reject going forward on several of our processing contracts. With the strength of much of the NGL pricing, we're assuming we'll be in recovery mode more than rejection mode in several of those contracts this year.

Operator, Operator

Our next question today comes from Scott Hanold from RBC Capital Markets. Please go ahead. Your line is yours.

Scott Hanold, Analyst

And maybe just since you talked a little bit about the exploration opportunities in the U.S. Can you give us a sense of how you think about international exploration opportunities? I know you all were doing some work in Oman and offshore Australia. Is there any update there? How do you think about international versus onshore or U.S. opportunities?

Ezra Yacob, CEO

Yes. Scott, in general, the international opportunities have a higher hurdle to compete and be considered additive to the quality of our inventory since we need access to services, contracts, and subsurface geology that is not just competitive but truly superior to what we're drilling here. In Australia, we still have that opportunity. We are in the permitting phase currently, and we plan to initiate drilling in that one early next year. In Oman, we announced a low cost of entry into Oman, which included a two-well commitment. During the second half of '21, we drilled those two exploratory wells, one of which was a short horizontal. We completed that horizontal, making a natural gas discovery. Ultimately, the prospect is not going to compete with our existing portfolio, so we won't be moving forward with that project. We feel encouraged by international opportunities because we see a lack of exploration competition out there. National oil companies or ministries, the owners of those lands have realized they cannot rely on traditional term contracts to drill some unconventional prospects. Therefore, we see a little more flexibility on the negotiation side.

Scott Hanold, Analyst

I'm going to hit on the shareholder returns too because obviously, you are in a very enviable position. Ezra, Tim, you guys talk about being opportunistic and countercyclical ways with your balance sheet. During the fourth quarter, I guess, post things given, there was a disconnect as your stock was a lot lower than it is today. Why not take that opportunity to buy back stock? Can you frame for us when you think the right opportunities to buy back stock are?

Ezra Yacob, CEO

Yes. In general, Scott, we didn't see that as one of the opportunities to look for there in the fourth quarter. When we talk about a significant dislocation, we're referring to something more so than that. As I said, we consider share repurchase in the same way we do any investment decision. It's how does it create the most long-term shareholder value. Being in a cyclical industry, that's why we prefer to use it opportunistically with a significant opportunity. The challenge is that executing during market dislocations can be very challenging. However, we feel that with the strength of our balance sheet and low cash operating costs, we're well-positioned when we see such opportunities.

Operator, Operator

Our next question today comes from Leo Mariani from KeyBanc. Please go ahead. Your line is yours.

Leo Mariani, Analyst

I wanted to see if there's any update on the Powder River Basin. Certainly, I noticed in the slide deck that activity there is going to be down a little bit in terms of a few less wells in '22 versus what you did in '21. So perhaps you could speak to how well costs have trended and kind of where that opportunity ranks on your list amongst the different plays? Clearly, you described a significant increase in Delaware activity this year. How does the Powder River Basin rank?

Jeff Leitzell, EVP, Exploration and Production

Leo, this is Jeff Leitzell. The Powder River Basin, we’re really excited about where it's going. In 2021, we had a record year from both a well performance and an economic standpoint. Last year, our team continued to delineate our core areas, completing about 50 wells, with half of those exceeding our double premium threshold. So we’re really encouraged by that. We also brought on multiple record wells in the basin, both in the Niobrara and Mowry formations, all while reducing costs year-over-year by about 10%. The one thing that we look at with the Powder River Basin is it’s a bit more geologically complex compared to our other basins. It’s critical that we operate at the right pace, and we don't outrun our learnings. Looking forward to 2022, we plan on maintaining a similar level of activity, as our team really high grades our acreage, refines our well spacing, and strategically builds out our infrastructure. We expect the Powder River Basin asset to be able to increase activity in 2023 and beyond.

Leo Mariani, Analyst

If I can just take another crack at the exploration. I certainly noticed that you guys are spending around $100 million more on some of these U.S. plays here in '22, and you clearly talked about drilling more wells. A common question I hear from investors is it's been a number of years since EOG announced its strategy, and I guess we'd kind of like to see a new significant U.S. oil play for the company. I know these things are hard to predict, but if I had to look at a high-level timeline, do you think that's likely in '22 or maybe '23? Anything you can say from a high level to give people some assurance that these are progressing?

Ezra Yacob, CEO

Yes. Leo, what I’d say is it’s hard to predict, so I’d hate to commit to something to lead you down the wrong path. Historically, we did some early drilling in the Powder River Basin, and it took years before we felt comfortable talking about it publicly. The same goes for the Dorado project; speculation was high. We waited until we had long-term production and felt confident before we talked about it publicly. The current exploration program slowed down, perhaps more than we anticipated during the pandemic. It was a bit more challenging to get leasing completed and things of that nature. As we talked about in 2021, the plays coming out of the pandemic have started to progress at various paces. Some of the wells last year were initial wells, while other prospects focused more on delineation, repeatability, and appraisal to ensure that they truly add to our existing, lower-cost barrel needs. It takes a bit longer to confirm these opportunities and ensure they indeed add quality to our inventory.

Operator, Operator

The next question today comes from Jeannie Wai from Barclays. Please go ahead. Your line is open.

Jeannie Wai, Analyst

Our first question is back to the double premium. You added 700 new net double premium locations in 2021. Were these additions spread out across your plays? Or are they concentrated in maybe one or two of them? Where do you see the most runway for future conversions?

Ken Boedeker, EVP, Exploration and Production

Yes, Jeannie, thanks for the question. This is Ken. We added double premium locations over several of our active premium plays, really in line with where we drilled our wells last year, mainly in the Permian and the Eagle Ford. This is really just an example of our culture where we're working to get better, continuing to lower well costs while focusing on increasing recovery, which increases returns and allows us to convert wells to premium and double premium over time. Our goal is to always replace at least as many double premium locations as we drill each year.

Jeannie Wai, Analyst

Maybe our second question, maybe for Tim or Ezra. In the past, I think if memory serves me correctly, you've commented that after you pay off the 2023 notes, you don't really have the desire to pay down any further debt. I wanted to check in if that was still your thinking? Also, looking for a little more color on how you decided that $1 per share for the special this time around was the optimal level?

Tim Driggers, CFO

Yes, this is Tim. No, we have not announced any intention of paying off more bonds as they become due. We'll continue to evaluate that as we go forward. Repurchasing at this point was a way of giving back a meaningful amount of cash to the shareholders at this time. This reflects a backward-looking approach, not a forward-looking one.

Ezra Yacob, CEO

Yes. I know EOG has developed some more internal macro forecasting capabilities, and I'd be curious about your views on U.S. shale production. How are you guys thinking about U.S. oil growth? Talk about the moving pieces ranging from what you're observing from your competitors in the private market to services constraints such as pressure pumping; your thoughts on U.S. growth would be valuable. Yes, Neil, I'll add a bit of an overview and then maybe I'll pass it off to Billy for some more details on the activity side. In general, when we think about the growth forecasts that are out there, we are probably on the lower end regarding crude and condensate. The North American E&P space is committed to remaining disciplined. Coupled with inflationary and supply chain pressures, we think the U.S. will face some headwinds in growth this year. Billy can provide a bit more detail.

Billy Helms, President & COO

Yes, Neil, this is Billy. I'm sure you've heard similar comments from many of our peers about the supply chain constraints the industry is experiencing across all sectors, certainly on the drilling rig side. Most of the super-spec rigs are actively engaged today. Not much new equipment can enter the market. This is also true for frac services, where our good equipment is already in use. Bringing in new fleets on both the drilling and frac sides is challenging, especially when attracting labor to the market. There are significant headwinds for the industry to ramp up activity and grow production this year, which will be viewed as maybe a transitional year. The industry needs to strengthen and improve going forward.

Ezra Yacob, CEO

Yes. As you mentioned, there are many moving pieces right now around natural gas, especially given the geopolitical context. Most in the industry have adopted a lower-for-longer U.S. natural gas view. Do you see that evolving as we have more LNG linkage into the global market? Thinking about global gas, especially in light of your announcement and the expanded agreement, do you see a structural change in this market until Qatar's supply comes in mid-decade? Yes. Neil, this is Ezra. In general, the U.S. has uncovered a vast supply of natural gas, and it's important for us to get that gas offshore and into global markets for various reasons, including geopolitical ones. That’s one reason we're so glad to partner and continue to take out some of our LNG. When thinking about the natural gas market globally, cost of supply is a significant factor. While we may sound like we focus only on oil, this also pertains to gas. We’re very excited about our Dorado prospect and believe it competes as one of the lowest costs of supply in North America due to its geographic proximity to many marketing centers, including the Gulf Coast. The U.S. will continue as a significant player in global gas supply over the long term.

Operator, Operator

Thank you. This concludes today's Q&A session, so I'll now hand the call back to Mr. Yacob.

Ezra Yacob, CEO

Yes, we thank everyone for participating in the call this morning, and we appreciate our shareholders for their support. As we said, EOG had an outstanding performance in 2021, and we’re poised for an upgrade in 2022. It really comes down to our employees. Our employees are keys to our success, and it’s why I’m convinced that we are one of the lowest cost, highest return, and lowest emissions energy suppliers that can significantly contribute to the long-term future of energy. Thank you.

Operator, Operator

This concludes today's call. You may now disconnect your lines.