While many larger E&Ps have been growing bigger through massive, headline-grabbing acquisitions, EOG Resources — by market cap, the second-largest non-integrated U.S. producer — has been expanding for a quarter century now by focusing on the stealthy exploration and development of new resource plays. The results of EOG’s long-standing strategy have been impressive, and include finding and development (F&D) costs that are significantly lower than its Oil-Weighted peer group and a higher-than-average reserve replacement rate. In today’s RBN blog, we analyze the scope and impact of EOG’s singular focus on organic growth instead of M&A.
A few weeks ago, in Everybody Dance Now, we discussed ConocoPhillips’s planned $22.5 billion purchase of Marathon Oil and noted that the big-money deals closing this year may well set an all-time record — surpassing an extraordinary 2023. Already in 2024, ExxonMobil closed (in May) on its $60 billion purchase of Pioneer Natural Resources, and a long list of other deals — Chevron’s planned $53.5 billion acquisition of Hess Corp., Occidental Petroleum’s $12 billion buyout of privately held CrownRock, Chesapeake Energy’s $11.5 billion purchase of fellow gas producer Southwestern Energy and Diamondback Energy’s planned $26 billion acquisition of Endeavor Energy Resources — are expected to close over the next few months.
EOG Resources has taken a decidedly different tack, largely eschewing the strategy of acquiring other large E&Ps for billions in stock and cash and instead focusing on the identification and buildout of previously unknown or overlooked hydrocarbon plays, the two latest of which are the Dorado play in South Texas and what EOG called the Utica Combo in eastern Ohio. (More on those later.)
Organic growth has been EOG’s strategy since 1999, when it was spun off as a separate entity from Enron, which imploded in financial scandal in 2001. (The EOG name comes from Enron Oil & Gas.) Then-CEO Mark Papa steered the company in the path forged by George Mitchell, who made the breakthrough of using hydraulic fracturing to break up shale and release huge supplies of natural gas. Papa disagreed with the many experts who were skeptical that fracturing would be effective in increasing the flow of crude oil molecules, which are much bigger than gas molecules. In 2006, EOG made a drilling deal with a petroleum geologist who had identified oil potential at a field outside Parshall, ND, in the Williston Basin. The company kept the success of the horizontal discovery well (Parshall #1-36H) a secret while it quietly leased substantial acreage on what became the Parshall Oil Field and was largely responsible for the development of the Bakken Shale.
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