Good day, everyone and welcome to EOG Resources Third Quarter 2021 Earning 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, [Indiscernible] EVP Exploration and Production. [Indiscernible], EVP Exploration and Production. [Indiscernible], Senior VP Marketing, and [Indiscernible], VP Investor and Public Relations. 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 72%. We also expanded our inventory of premium wells by more than 3 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.…

Thanks, Ezra. As we have been progressing premium the last 5 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 1 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 form 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 0 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 buybacks 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 a 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 simply 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 $1.5 billion. Increased the cash balance by $3.6 billion. And we'll 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, to special dividends, and debt repayment. You can expect us to continue returning cash going forward. There might be times when we strategically increased or decreased the cash balance, but over time, the cash will go back to our shareholders. Here's Billy.

Thanks, Tim. As a result of the -- to 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 out perform while our drilling and completion teams pushed the [Indiscernible], 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 cost. Our ability to continue to lower cost and deliver reliable execution quarter after quarter is tied to common set of operating practices that together form a sustainable competitive advantage for EOG. First, we are a multiplay Company, with activities spread across 4 different basins in the U.S. As conditions change, we have the flexibility to shift capital between place 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 front line employees to make decisions, bringing them to drive innovation and efficiency improvement. Third, we have established strategic vendor relationships with our preferred service providers. We are typically -- we're not typically 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…

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 1/3 to less than 1/10 of 1% of our natural gas production. Since 2017, we've reduced our methane emission intensity percentage by 80%. Our sustainability report profiles that 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 to the 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 returned announcements we made yesterday deserved to grab some headlines. However, the real story behind our performance is 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. [Operator Instructions]. Questions are limited to 1 question and 1 follow-up question. We will take as many questions as time permits. [Operator Instructions]. If you find your question has been answered, you may remove yourself by [Operator Instructions]. 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. 2 questions, please. First, you have the authorization for the buyback, but quite frankly, I don't recall EOG ever done any buyback for the past 20 years. So can you talk about what is the condition or criteria to -- 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, so -- in order for you to be able to afford it. My last [Indiscernible] saying that at the top the pandemic, your share pie as really attractive, but I'm not sure that you have the [Indiscernible] or that 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. Curious that with your low break-even requirement and very strong Balance Sheet, why put on hedges so aggressively onto some degree even though you have a physical barrel of [Indiscernible] that to support you. But is that the fundamental basic 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're buyback authorization. We've had one previously and we haven't exercise that, in quite some time. What we've done right now as 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. Turn my microphone, I'm sorry. First of all, we will evaluate buybacks like any other investment decision, how does it creates long-term shareholder value? So that will be the first thing we'll have to look at every time we make this decision. Specifically to answer your question about could we have started during the pandemic but didn't have the financial wherewithal to do that, you're exactly right. At that point in time, oil was negative, the price oil was negative and we had two bonds coming to -- totaling $1 billion. So had we been in the shape we're in today, that would've been a perfect time to buy shares. But we weren't in that same position we are today. That's how -- that's why continuing to work on the balance sheet and positioning ourselves for the future has been so important to EOG. So we should not ever have that situation again. We have positioned the Company to be able to opportunistically take advantage of these situations.

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, 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 as tally 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 the benchmark?

Yes, Arun. This is Ezra. No, I wanted to -- I would not take that as any type of benchmark. I think we've been very clear for the last couple of years in talking about our framework for cash return, really just our free cash flow priorities. The emphasis -- the priority really is on a sustainable growing regular dividend. We think that's the hallmark. It's forward-looking and that's the hallmark of a very strong Company. Hopefully, it sends a signal to everybody the -- of our confidence in the growing capital efficiency of our Company. Obviously, we've talked about some low cost property bolt-on acquisitions. We've highlighted those on the last call and in the slide deck today. we've obviously covered a very strong, not just strong, but really a pristine Balance Sheet. And then to the last part of -- really the other part of your question is our other cash returns options for excess-free cash flow, which is the special dividend, and then as Tim was just mentioning, some of the share repurchases. And as we've said, we're very committed to returning excess-free cash flow. We have stayed away from a specific formula because, we'd like to be able to -- we try not to run the Company on a quarter-to-quarter basis. We tried to take a longer view of things. We realized that there are times when potentially the cash on hand may need to move up or down. But regardless of it over the long term, I think we've demonstrated, especially this year, that we're very committed to returning that excess free cash flow.

Great. And my follow-up, with the dividend increase to $3 on an annualized basis, as well 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 step-up this year in the regular dividend is really a reflection of what we've been doing for the last 5 years in reinvesting this -- in the premium wells. We've been seeing it slowly but surely show up in our financial performance as we've lowered the cost basis of the Company. And the confidence going forward really is what we're seeing with our change in focus over the past 18 months to these double -premium wells. We feel that it's providing another step change in operational performance that should filter through to a step change in financial performance as we've witnessed with that change to premium. And then our inventory, of course, is spread across multiple basins. We have 5,800 of these double -premium locations and over 11,000 of the premium locations, and we're adding to that every day. Our employees are working through either low -- identifying low cost bolt-on acquisition opportunities, sustainable well-cost reductions, as we've highlighted this quarter's stronger well productivity, and then, of course, our low - cost entry into organic exploration opportunities to further expand both the quantity and the quality of that inventory. So I think as we continue moving forward and sticking to our game plan of investing in double premium, it has the potential to continue to expand the free cash flow potential of EOG and thereby continue to provide an opportunity for us to remain committed 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?

Jeanine, this is Tim, so as already been stated, we are committed to our free cash flow parties and that has not changed. So we look at all the factors every quarter to determine when is the right time to do either special dividend, or nail the share buybacks, or increase the regular dividend. So when we looked at our cash balance at September 30, was sitting at $4.3 billion. That gives us -- that leaves us well-positioned to pay off our bond in 2023 and provide this $2 special dividend. So it's a combination of all those factors and we felt this was a meaningful amount of cash to return at this time.

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 getting 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 and 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, 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 place. Those places are at various states of either initial drilling, collecting of 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 increased 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, increased 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 [Indiscernible] are you investigating pure storage? And what level of resources having 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 is going to be allocated towards all of our ESG projects, is what 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 transports? 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 [Indiscernible] with KeyBanc, please go ahead.

Hey, guys. Just looking at the guidance here for 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 bit of a signal that EOG is perhaps flexing up a little bit on the natural gas side to try to capture what it probably some fantastic returns at the current prices here.

Yes, Leo. This is Billy Helms. So on the capex side, certainly part of our program as we laid out earlier this year, was just advanced some of Dorado prospect in South Texas, as you know, it's a very competitive gas play with rest of the place in the U.S. And we've been very pleased with the results here. But we may -- we remain disciplined to only completes the 15 wells we targeted and laid out at the start of this year. It's really a little bit early to be talking about what we're going to look like next year. But obviously with the results we're seeing, we're very pleased with the results being -- meeting or exceeding the top curves we have laid out, that certainly gives us an option to look at increasing activity there.

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 probably be challenging to meet all the necessary conditions at year-end '21 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 we -- I've 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 '22. Just wanted to get a sense if you think perhaps in the mid to second half part of '22, 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 3 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 there 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 this 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 '22. 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 and those 2 factors are going to be just as important as seen, how the continued demand recovery COVID really develops with any potential future lock down, 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 [Indiscernible], 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 the question. I'll answer the first part of it and then ask Billy to provide a little bit more color also. How far out we can see the balance or the imbalance? To be perfectly honest, we're watching a lot of the same things that all of you are. Those 3 things that we highlighted. Demand has recovered pretty aggressively, I would say. I think it's surprised everybody. And then the inventory numbers in concert with the spare capacity coming back online. And the spare capacity again, if you simply look at the schedules that have been laid out and everybody sticks to the schedules and the supply actually comes back online. That would contemplate sometime in the front half of the year. But as I highlighted, and everyone has been seeing, there are some challenges or hurdles to getting all that spare capacity back online. As far as the -- the color on what we would be looking at, perhaps Billy can speak to it.

Yeah, Charles. For 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 2 after. So to have a meaningful difference in financial performance.

Got it. So, if I'm understanding you correctly, it's -- it would be 2 quarters, maybe you start to see it nearly 3 quarters before there was a real Delta.

That's correct.

Great. And then just one quick follow-up for Tim. And 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 through the cycle and see there's all sorts of factors we have to take into consideration for the cash balance. As you know, working capital changes, for example, as prices swing up and down, so that's a big consideration. But no, it has not changed -- the authorization has not changed our philosophy on 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, Neil. 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're reinvesting only at a rate of about 78% 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.

Very good, very clear. And then follow up on -- that earlier about you. It looks like you all had been added a little bit of gas hedges. Is that in relation to -- does that mean that you're you've been increasing the focus on the Dorado play given what natural gas prices are doing, so I guess I'm just wondering, is that are the 2 correlated or are you adding to that activity in the 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 is above $3. So it gave us encouragement of locking 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. Would -- 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 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 in line to reduce our cost 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.

And how about just on -- was there anything unusual you'd say this year that we should think about next year in terms of exploration play or ESG spending? Is that -- is there any reason for us to think about that any 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 be greater cash returns. I'm wondering, why is it reluctant, 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 framework as to how you think about the go-forward cash returns as opposed to one of those special dividend?

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 returns options which are special dividend 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 were generated. And so I think we've laid out a framework, I think our 2 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 act even 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.

Great. Thanks for that.

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, appreciate the question and the opportunity. I think the bigger thing for our investors, our employees, 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 would you see 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 medicating 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. Certainly as industry is seeing, we're seeing quite a bit of an inflationary pressure mainly in three areas that would say steel process. So tubulars, labor which is certainly affects all industries. And then fuel, those are probably the three inflationary pressures that are throughout our industry and really throughout the all industries. The one thing that I think is going to be, or maybe two things, two top priorities would be probably steel. I think availability of tubulars is something that I think most companies are struggling with or dealing with, I guess. And then, the other one would be labor and just getting enough people to manage the activity levels. Just to maybe give you a little bit color then on where EOG sits. Each year we try to get ahead of the curve and lock in a certain amount of our services to secure activity. But in this case, also protect us from inflation. For instance, in 2021 we protected about a 65% of our well costs going into the year. As a result of that, plus the improving efficiencies, we're able to reduce our average well costs by about 7%, as that stated earlier. During the year though, we also took advantage and renegotiated many of our services at lower rates and locked in through and through the end of next year. So going into 2022, we expect to have about 50% of our well cost secured and with over 90% of our drilling rigs secured at lower rates and also 50% of our frac fleets secured. We expect to see inflation certainly in arms of such as steel, labor, and fuel just like everybody else. But by doing that, we've given ourselves visibility into areas of also improving efficiencies that we expect to offset much of this inflation. So we're still confident, we can keep well cost. At least flat going 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 they all on oil?

Yes. Thank you, Michael. Long term, we believe the hydrocarbons are going to have a -- be 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 often times you hear about. And we're very bullish on the prospects for both. As far as the exploration plays goes as we've said in the past, dominantly the exploration plays are all oil-focused.

Okay, thanks for that. Ken, you had said on your CO2 pilot -- excuse me, your CCS pilot. I think you said you plan to inject in late '22, that seems to suggest you would not need a Class six permits. I'm wondering, is it fair to say you're reinjecting CO2 into an EOR project? And when you say it's not really economically competitive with your upstream business, are you planning on capturing 45 tax credits with any of your projects?

Michael, this is Ken. To answer your question on the tax credit side, we are planning on capturing was 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, guys. Just very quickly on -- can you talk about your LNG or what downstream natural gas strategy? Thanks.

Hey, good morning. This is Helms.

Hey.

Thanks for your question. And good morning. We're -- the team is definitely executing. You've seen several of our slides that we've put back, talking a lot about our transportation position is so incredibly valuable. We can move gas from all our different basins, from the Permian Basin, from the Eagle Ford, we talked a lot about Dorado earlier. And then with that and it gets access as you look along the Golf Course and you look at the LNG demand, especially that's growing over time. Obviously, you know, we've got a position there that we started. And just really speaks to being a first mover, especially, when you think about LNG. We went through a whole BD effort, kind of 17 and 18, we got the contracts finalized in 2020. And in 2021, obviously, we're definitely seeing the value of that contract. So being a first-mover is absolutely important. And yes, we're going to continue to look at new opportunities from an LNG standpoint, very well-positioned. Again, it gets back to our transport, our export capacities, and just having that ability to transact, we can definitely be very nimble as we even think about new opportunities.

Got it. And then a follow-up on the buybacks. I'm not clear. Are you saying that it's a shelf ability to buybacks 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 remark.

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.