U.S. Shale Producers Sing the Same Tune

Given that EOG has among the cleanest balance sheets of the lot with a net cash position and Occidental has among the most strained one (roughly $30 billion worth of net debt, much of it tied to the Anadarko purchase), industry watchers might have expected their strategies to diverge somewhat. Not so: At the high end of its guidance, EOG expects to increase crude oil and condensate production in the U.S. by just 5% in 2022. Occidental expects total production in the U.S. to be roughly flat for 2022 compared with 2021.

Their conservatism mirrors the message of other large U.S. producers such as
Pioneer Natural Resources,
Devon Energy
and
Continental Resources,
all of which telegraphed plans to limit production growth this year. Executives also have broadly signaled that they will stick to their plans even if oil prices were to rise substantially.

Vicki Hollub,
Occidental’s chief executive, said on Friday that the company has “no need and no intent to invest in production growth.”

Aside from atoning for past years of excess spending, there is a more practical reason for their apparent discipline. As is true for many other sectors, pricier and scarcer equipment and labor are crimping production somewhat. The highest-end, most efficient rigs are all deployed and active today and there aren’t a lot of new pieces of equipment that can come into the market, said

Billy Helms,
EOG’s chief operating officer, on Friday. EOG has said it is countering the increased costs by self-sourcing more of its sand and water used to complete its wells.

Where things start to differ between EOG and Occidental is what they are able to do. Both companies had their best year of free cash flow last year. Between its regular and special dividends, EOG returned roughly $2.7 billion of cash to shareholders in 2021, or roughly half of its free cash flow. For 2022, it is committing to return at least $2.3 billion worth of cash to shareholders. Occidental, on the other hand, was able to pay just $839 million worth of dividends to shareholders. It still needs to reduce its net debt position by about half to get to an investment-grade rating, so its generosity will be limited.

The biggest difference, of course, is that EOG has choices. Should it change its mind, it has the option to drill—maybe even excessively—without severely crimping its balance sheet or its shareholder returns. Should there be a downturn, EOG has the option to buy back its shares at a discount or pursue acquisitions. Occidental simply can’t pursue any of those choices, at least not for a while.

Everyone in the shale patch is singing the same tune at the moment. Only some have the freedom to change it.

Write to Jinjoo Lee at jinjoo.lee@wsj.com