Delaware Basin drives EOG to big finish in last quarter of 2017

By Patrick C. Miller | March 06, 2018

The Delaware Basin provided EOG Resources with a banner year in 2017 as the company’s production of crude and condensates from the basin increased 80 percent and the cost of new completions fell by $800,000 per well.

In its report for the fourth quarter of 2017, EOG said its production from the Delaware Basin exceeded 100,000 barrels of oil per day (bopd). In addition, the company identified 1,240 additional premium well locations. EOG also added the First Bone Spring in Lea County, New Mexico, as its fourth premium play. EOG continued active development of its 416,000-acre position in the Delaware Basin during the quarter, completing 65 wells.

EOG’s capital expenditures for 2018 are expected to range from $5.4 to $5.8 billion—including production facilities and gathering, processing and other expenditures. The company expects to complete about 690 net wells in 2018, compared to 536 net wells in 2017.  Capital will be allocated primarily to EOG's highest rate-of-return oil assets in the Delaware Basin, Eagle Ford, Rockies, Woodford and the Bakken.  

The company’s net income for the final quarter of 2017 was $2.43 billion ($4.20 per share). A year ago, EOG reported a fourth quarter loss of $142 million. For 2017, EOG reported net income of $2.583 billion ($4.46 per share), compared to a net loss of $1.1 billion ($1.98 per share) for 2016.

"EOG emerged from the industry downturn in 2017 with unprecedented levels of efficiency and productivity, driving oil production volumes to record levels with capital expenditures approximately one half the prior peak," said William Thomas, EOG chairman and CEO. 

EOG’s board of directors increased the cash dividend on the common stock by 10.4 percent. Effective with the dividend payable April 30 to stockholders, the board declared a quarterly dividend of 18.5 cents on the common stock. The indicated annual rate is 74 cents per share.

One of the adjusting items in the fourth quarter and 2017 was a non-cash reduction in income tax expense of $2.2 billion ($3.75 per share), which was related to the revaluation of EOG's deferred tax liability and certain other items resulting from the Tax Cuts and Jobs Act.  The company said it also benefited from higher commodity prices, increased production volumes, well productivity improvements and per-unit cost reductions.  

According to EOG, increased development activity drove substantial volume increases in the Eagle Ford and Delaware Basin during the fourth quarter. Total company crude oil and condensate volumes increased 40,200 bopd compared to the third quarter of 2017.  Natural gas liquids (NGL) volumes grew 15 percent while natural gas volumes increased 6 percent, compared to the third quarter 2017.

Crude oil and condensate volumes in the U.S. increased 20 percent in 2017 to 335,000 bopd.  Increased development activity and well productivity improvements supported the volume increase.  Total company NGL volumes grew 8 percent while natural gas volumes decreased 6 percent primarily due to the sale of the company's Barnett and Haynesville shale dry gas assets in late 2016.  Transportation expenses decreased 11 percent and depreciation, depletion and amortization expenses decreased 12 percent, on a per-unit basis.

Increased development activity drove substantial volume increases in the Eagle Ford and Delaware Basin during the fourth quarter. Total company crude oil and condensate volumes increased 40,200 bopd compared to the third quarter 2017. Natural gas liquids volumes grew 15 percent while natural gas volumes increased 6 percent, compared to the third quarter 2017.

Thomas said EOG enters 2018 well positioned to generate significant shareholder value through the development of its large and diverse inventory of high rate-of-return premium wells.

"We are determined to maintain the discipline, record-level operational efficiency and performance gained through the downturn,” he continued. “Our deep inventory of premium wells across the U.S. offers flexibility to adjust to changing conditions.  We also see significant opportunities to increase our premium well inventory through organic exploration and development technology to further extend EOG's return on capital advantage."