EOG Resources, Inc. (NYSE:EOG) 2022 BofA Securities Global Energy Conference November 17, 2022 8:45 AM ET
Company Participants
Ken Boedeker – EVP, Exploration and Production
Conference Call Participants
Doug Leggate – BofA Securities
Dan Lungo – BofA Securities
Doug Leggate
So, folks, again, I know we have a lot of parallel meetings and one-on-ones and so on going on, but we are delighted to have Ken Boedeker, EVP of Exploration and Production of EOG. We just heard a discussion in the last session about inventory depth, and it’s really one of the things I think has — EOG has probably done one of the best jobs of laying out what your portfolio, your double premium strategy and so on has looked like. And so we’re going to go into that in a bit of detail. So thanks, everybody, and Ken, thank you for being here.
Question-and-Answer Session
Q – Doug Leggate
So I’m going to kick off with that, if I may. And I’m going to ask you to contrast and compare how EOG thinks about this relative to many of our peers. And before I go any further, I should also add, we have Dan Lungo, our investment-grade credit analyst, who’s going to join me in this session. He’s going to take the financial questions.
But when you define your double premium inventory and you define your — the parameters that frame that inventory, how did you come to the commodity assumptions? And what would that inventory look like if your commodity assumptions were different?
Ken Boedeker
Sure. We have a premium and double premium strategy that you mentioned, Doug. The premium marker is, is that it has to make a 30% return — after tax rate of return at $40 flat oil, $16 flat NGLs and $2.50 flat gas. And as we continue to see improvement throughout the company, we increased our capital allocation model to be the double premium, which is the 60% return at those same parameters.
So when we look at that, we have 11,500 premium locations, and we have about 6,000 double premium locations and we’re drilling 550 to 600 locations a year. So it’s a 10-year double premium inventory or a 20-year premium inventory. The main reason that we picked those parameters was it was the way we would make investment decisions that would create value throughout the commodity price cycles.
I mean what we saw is a low during — the significant price dislocation in COVID was, I think, $37 average for the year. So $40 is really at about the low end of where you’d see the commodity price forecast. And we want our projects to be able to create significant returns throughout the commodity price cycle.
Your question of how would the inventory look if we had changed those parameters is our inventory would be much higher. I mean, we have a number of locations that don’t make to 30%. But that’s all part of the company culture, where if we have that parameter we can work with our operating areas so they can continue to get better and work, where our main goal is to convert more premium locations to double premium locations and more non-premium locations to premium locations. That’s — you can see that in the last update. We actually replaced 170% of the double-premium locations that we drilled. So we added more premium locations than what we drilled. And it’s all about having our decentralized structure and our operating areas have a benchmark that they can begin to compare themselves to us to make sure that they’re getting better.
Doug Leggate
I’m going to put you on the spot a little bit. And ask you to opine on how you see your definition and disclosure on that with what you really think is going on with the rest of the industry. Just presumably, you see a lot of third-party data. You don’t have too many areas with low working interest, I guess, but I’m sure you see your partner data and their disclosure. So do you think the industry is as resilient in terms of inventory debt as it’s suggesting versus the way you define your portfolio?
Ken Boedeker
Yes. I guess where I see is we have the most stringent capital allocation framework with premium and double premium of any of our peers in the industry that we see. What we tend to see from our peers is they tend to get in, drill their best wells first and get into manufacturing mode. And then a lot of times, by definition, you’re getting — you’re not getting better.
What we do is we stay out of manufacturing mode. We want every well to be better than the last. When that’s the way you can mitigate inflation, it’s the way that you can continually have that culture of continually trying to get better. It’s a real advantage to have a multi-basin inventory as well. That’s a big differentiator between us and our peers. That allows you to have a significant amount of flexibility operationally. Takeaway wise, let’s say, for inflation, if you’re having more inflation in one area than the other, that multi-basin inventory is one of the stalwarts of what we need in our inventory to create long-term value.
Doug Leggate
So when you hear other companies say, well, we have a 10-year inventory, does it — how can I put it? You’ve got your double premium is about a 12, 13-year inventory today. I don’t want to spend too much time on this. But if I include premium is…
Ken Boedeker
20.
Doug Leggate
20?
Ken Boedeker
20, yes.
Doug Leggate
But that was at $2.50 gas. What does it look like in today’s environment?
Ken Boedeker
Oh, it’s significantly higher. We haven’t given out those numbers of what the tail end of that is, but we’re continuing to work those wells that aren’t premium into premium, and there are several ways you can do that. You can drive cost down, which we’ve shown we’ve been able to do over a number of the plays, or drive performance up. But really, it’s just a matter — and you’re right, it’s a very high cut, but that’s okay. It gives us a chance for continual improvement to get those locations to make the cut. It also helps us in our exploration program to be able to say we’re going to explore for those type of assets that are — we don’t need more premium. We have a 20-year life-of-premium inventory. We want to improve the quality of the inventory.
Doug Leggate
And yet you still explore.
Ken Boedeker
We are still exploring because we think we can improve the quality. Utica is a great example, right?
Doug Leggate
Well, we’re going to get to that. I don’t want to sound like I’m just being so concentrated on this one issue, but so everyone understands why I’m so focused on — or we are so focused on inventories because to me that’s the constraint on value that you’re laying out a framework of what the market is prepared to pay for, if you like. If you say this is our inventory depth, you’re constraining the market’s view on that.
So I guess my follow-up on this last question on this topic is, when I think about $20 oil, $25 oil a couple of years ago, and you’re still drilling, obviously. Presumably, you were drilling your very highest return assets because they were the most resilient in that price environment. But in a higher-price environment, why does it not make sense to degrade the portfolio because you’re dealing with $6 gas and $90 oil? And clearly, what would not be economic at 20 is economic today and preserve the higher-quality inventory. Why does that not make sense?
Ken Boedeker
Yes. I guess it makes sense when we feel like we have a significant amount of inventory. That’s really not the issue. It’s all about the upper end of that inventory. And it’s also when you said that we were drilling our best wells first. That was what we were doing several years ago. But with a culture of continually learning what were our best wells, we now have wells that we’ve learned from those wells on, whether it is cost performance or production performance.
Doug Leggate
So maybe I can transition the discussion to some of the current world problems that we have as it relates to [Southeast] by current production. President Biden is asking oil and gas companies to invest more. And the whole industry is, obviously, including EOG, has adopted a very strict capital return strategy. Is there any temptation to go back to growth at EOG in the boardroom?
Ken Boedeker
Really, when we look at value creation, it’s creating free cash flow. And one of the most important principles of free cash flow is having capital discipline, right? That’s really the true intrinsic value of the company is the free cash flow that you can create, and that has to do with capital discipline and high-return projects. So we don’t really look at it as going back to growth or whatever we look at it as maximizing the value that we can create. We invest in those plays, those areas that we can continue to get better at. Our ultimate goal is to continue to drive that cost basis down to the point where we have the lowest cost and highest return hydrocarbons available in the market.
Doug Leggate
So when we think about the cash return strategy that was revealed earlier this — I guess it was this year, right?
Ken Boedeker
It was this year, yes.
Doug Leggate
Time is running fast. The commodity environment has gotten so much different again. So there’s a lot of choices for where you have with cash. You have no net debt currently?
Ken Boedeker
Correct.
Doug Leggate
So when you think about the right level of investment, how does that get defined, given that you’ve got a lot of choices currently?
Ken Boedeker
Sure. No, the right level of investment really is about getting better in all those assets. And to be able to invest significantly more today, A, it’s an inflationary environment, that really isn’t part of getting better is investing — increasing your investment in an inflationary environment. So what really constrains us, obviously, you have to have the market on the hydrocarbons. But on top of that, we invest in those properties so that we can continue to get better in.
Doug Leggate
I guess the — you raised inflation, so I may as well jump into that, dive in, then deal with it. You’ve been able to — I have the opportunity to meet with Ezra recently. And you’ve done a lot to offset inflation this year. How sustainable are those offsets as we look into 2023?
Ken Boedeker
Sure. I guess the inflation story starts at the beginning of this year, we thought we could mitigate inflation with operational efficiencies, basically drilling wells faster and cheaper than what we had done before. Then the Ukraine war came along, and we couldn’t quite keep it at that level. So we’re seeing inflation increases this year of about 7%, although we have a lot of options to be able to stay within our capital guidance. On top of that…
Doug Leggate
That’s average or exit to exit?
Ken Boedeker
That’s average of ’21 to ’22 on a D&C cost basis. And then the average from ’22 to ’23, right now, we believe that we’re going to see about a 10% increase on top of that.
Doug Leggate
So still low end of your peers.
Ken Boedeker
So still low end of our peers. And again, we’re subject to all the same inflationary pressures our peers are. It’s just that continual improvement that’s within our culture. We have a proven track record of that. That really is the basis of EOG’s culture.
You can look at wells like — we started drilling Eagle Ford wells, 8,500-foot laterals at $12 million a well. We’re down to $4 million or $5 million a well at this point in time. That’s that continual improvement. If you’re on the wells less, you have less time that you’re on the wells, you’re less subject to the inflationary pressures in the market.
We’ve also brought in-house a number of the higher-margin things that you need, water, sand, motor programs, stuff like that. We brought that in-house so we can capture that incremental margin that’s out.
Doug Leggate
Do you think the — when we think about well productivity, you saw a lot of — as a means of an offset to inflation. I’ll use a specific example. Occidental came out the other day, [Python] well, Silvertip area where they bought the Anadarko assets. And they claim it’s is probably the best well ever in the Lower 48 in the Permian. I’m sure you might dispute that. But nevertheless, the fact that they did that, my question to them was, if your productivity is improving that much and you still don’t want to really change your growth outcome. Why not slow down the capital spending? So I’m curious when you think about productivity improvement. Are you still seeing step changes in productivity to the extent that you can use that as an offset on activity level?
Ken Boedeker
Sure. No, I think that has to do with the maturity of an asset. And within our portfolio, we have seven different areas that we really operate in. The amount of productivity improvements in the less mature areas are much more significant than the productivity improvements that we’re seeing in the more mature areas. So that’s all part of being able to allocate that capital across those seven areas, such that you can maximize the returns and the free cash flow generation from that.
Doug Leggate
I want to make sure I give Dan some time here. So I’ve got a couple more down on the operations, and I’ll throw it to you for some financial questions. So you just mentioned the seven areas. Again, you’re helping me along here and go where I wanted to go with this. Do all seven have the scale to compete currently?
Ken Boedeker
As far as scale goes, they obviously have different scale. We have much less scale left in the Bakken. It’s one of our older areas than, say, the Permian, the asset base you have in the Permian. We have a significant amount of scale in the Powder River Basin, significant amount in the Eagle Ford, a significant amount in Dorado, obviously. And then the latest one that we added in the Utica, we don’t know exactly the size of that one. We do know we have 400,000 acres or 395, 000 acres across that position. 18 legacy wells, four wells that we’ve drilled that have outstanding results. We need to do some more testing both up-dip and down-dip and North to South and some additional spacing tests, but we do believe it will have scale and it will have double-premium results from everything that we’ve seen. It has helped out in the Southern portion by 135,000 acres of minerals that are on top of that 395,000 acres of leasehold.
Doug Leggate
And again, you give me a great segue to talk about gas. So I touched on it earlier about you’re using a $2.50 gas assumption, but if we go back five, six, seven years, when Bill pivoted the company away from — I guess, it was Mark actually pivoted the company away from gas towards oil, what happened to the legacy gas assets?
Ken Boedeker
We’re always high-grading our portfolio. We have — we don’t talk about it much, but in the last 12 years, I think we’ve divested off $7 billion of legacy assets. We still have a few legacy assets around the Barnett’s, one of them — a portion of the Barnett that we used to have, and it’s generating significant free cash flow at this time.
We’re always looking to high-grade our portfolio at the right time. But we do have a few of the legacy gas that’s around assets around and then some of them, part of that $7 billion that we have divested.
Doug Leggate
And Dorado is a gas play?
Ken Boedeker
Dorado is a gas play, yes, closest to the Gulf Coast, dry gas, outstanding well performance. And you’ll see us — we really haven’t talked about it, but you’ll see us increase investment in Dorado year-over-year in the next several years.
Doug Leggate
So I guess it’s probably an unfair question, but — so you came under — the industry came under a reasonable amount of criticism of growing too quickly on oil. Was there any element of that to say, well, the industry is not — the market is not going to allow us to grow oil, but we can go look for gas and we can grow grass gas because there’s no whole pack of gas. Was that part of the consideration in looking for Dorado?
Ken Boedeker
It really wasn’t. What the consideration in finding Dorado was is, what have we learned from what we can on the exploration side with the premium strategy? Where can we make premium and double-premium wells in either $40 or $2.50? And we really let the geology drivers and then the premium investment overtone of that…
Doug Leggate
So drive the other way.
Ken Boedeker
Yes.
Doug Leggate
I have to ask about the Utica, obviously, because we had Range Resources sitting up here yesterday, and they were very happy to have something like yourself shining a light on one of their assets. But you guys are — you’ve gone back to an area that has not seen modern or current completion type of technology in quite some time. What was the genesis of going to the Utica?
Ken Boedeker
We look at all the different basins within the North American shale realm, I guess, you would call it. And when we look back at the Utica, and then using what we’ve learned in the Powder River Basin in the Eagle Ford and the Permian Basin and even Dorado, also what we learned in the Woodford and some of our other areas, it looked to us like the older wells, there was 18 legacy wells across our acreage position. They have the performance and the characteristics of something that we could actually make premium or double premium with the existing technology and operational expertise that we have today.
So really, we look at it as four things: there’s a certain target in there. And I think we talked about staying in an 8-foot target for a 12,000-foot lateral. So there’s a certain target. We looked at it from a liquid standpoint, in other words, a phase standpoint. And obviously, we’re in the — we call it volatile oil. It’s just a higher gas oil ratio range of that. And then we looked at the pressure across the interval, and then we look at what we can do operationally these days.
I mean the majority of wells up in that area are now 3-mile laterals. That obviously helps the economics. So we went up and worked our way into it. And what we found is our models that we have predicted at the start are actually coming through, and we’re seeing outstanding well performing.
Doug Leggate
Was this — again, I don’t know how much you’ve disclosed on this, but was this an organically built land position? Or was that an M&A position?
Ken Boedeker
It was an organically built land position by small M&A is the way I would say that. But yes, there were several acquisitions and leasing that went on to amass that position. The interesting thing about that up there is if you look at our North and our South position, it’s a very consolidated acreage position, which is really unique for that portion of the country.
Doug Leggate
So I guess last question I have on this — sorry, Dan, I’d throw it to you in a minute. To come out with and declare a double-premium asset, #7 in the portfolio, with four wells, how does the market get comfortable that, that has been demonstrated to be that competitive?
Ken Boedeker
Sure, sure. No, I think you get comfortable with it by knowing — first of all, EOG’s reputation and what we’ve been able to do is, as we release things, we begin to capitalize them. The point that we’re going to be increasing capital there next year to 20 wells, and the well performance that we talked about, I mean we had a well in the south doing 2,500 barrels a day for a couple of weeks and 3,500 barrels a day of equivalents. And don’t forget, that’s on the acreage down there that you have the minerals as well. So that significantly helps the returns.
Doug Leggate
Yes. Yes. Okay. Dan?
Ken Boedeker
You got a whole list of questions.
Doug Leggate
I know.
Dan Lungo
So most of that’s the zero net debt. As Doug mentioned, zero net debt. Historically, we’ve seen EOG during upcycles build pretty much a war chest on their balance sheet that they then deploy at times of downturn. What do you need to see before you feel comfortable deploying the cash on your balance sheet for things such as more share repurchases or M&A opportunities?
Ken Boedeker
Sure. First thing is, we’re very comfortable and proud of our net debt position. We think that’s the way — it’s a real competitive advantage in cyclical commodity price business. So it’s allowed us to have a significant amount of optionality. If you look at the advantage that we’ve seen with that in the past, I mean, the best example of that is the Yates acquisition. That was a negotiated acquisition of a significant acreage position, and they really wanted to do business with us because of our balance sheet.
And that balance sheet is also used for — we’ve had a growing sustainable base dividend. We just increased it 10% last quarter. And it’s really backed up. We’ve never had to cut or suspend our dividend, and it’s really backed up by that strong balance sheet that you talked about. So we’re very proud of it, and we’ll use it to create long-term shareholder value when the price is right.
Dan Lungo
Got you. And then for now, just as the maturities come due at about…
Ken Boedeker
We do. We have a maturity coming due in the first quarter of next year, I think, $750 million. We will — we are planning to pay that off.
Dan Lungo
Perfect. And then in terms of this upcycle we’re in, and as Doug has mentioned multiple times, we feel that there is a reset in the long-term oil price, how long does this need to do oil prices need to stay in the 80s and 90s before you feel that we are actually at that higher oil price over the long term and that you will then deploy that cash?
Ken Boedeker
I think you’re asking about the cyclicity of the commodity price.
Dan Lungo
Yes. Yes.
Ken Boedeker
It seems like we’re always wondering one of these upturns. Everybody says we’re here forever, and it’s never going to go back down. I think where our point is, is we want to run the company where we can invest in super high return projects. That’s why we use a $40 price basis, to generate significant amounts of free cash flow. I think we’re going to continue to run the company like that. It just shows the amount of free cash flow generation potential you have when you consider today’s pricing versus basing your economic decisions on a $40 oil price.
Dan Lungo
Do you feel the down cycle is going to be at a much higher point?
Doug Leggate
There’s a down cycle?
Ken Boedeker
I hate to speculate about the down cycles. The last down cycle, I guess, to me was obviously COVID. And I think the average price for that year was $37. So we — there’s just a lot of volatility that can happen.
Dan Lungo
Turning to hedging a little bit. Can you just kind of talk — a company of your size, what is the appropriate level of hedging going into every single quarter? And is it different for gas versus oil?
Ken Boedeker
Sure. As we’ve been able to drive down the cost basis that we talked about as well as improve the balance sheet, we feel like we need to hedge less than we have in the past. If you think about hedging for next year, we’re about 90% exposed to market prices on oil and about 80% exposed to market prices on gas. So we’re comfortable with that level where we’re at.
And really, the other thing that I think about with hedging is we used to hedge at some level to give us operational continuity to be able to feel comfortable in making some longer-term contracts, but what we’ve been able to do is work with our service providers, and like we did during COVID, be able to shut down or to minimize the amount of activity that we had to have during that amount of time. And it gave us that flexibility to be able to do that.
Dan Lungo
Perfect. I’ll pass it back to you, Doug.
Doug Leggate
Thank you. So Ken, I want to — if I may ask you to take us inside the boardroom a little bit.
Ken Boedeker
Sure.
Doug Leggate
And I want to frame this in such a way that everything you do, everything management does ultimately, you’re doing things safely, you’re executing, you’re doing the best engineering job you can. But at the end of the day, people here are looking at what’s the value proposition for EOG. So when you think — when the Board thinks about or the management think about, here’s what we are trying to achieve, here’s our strategic objective, where does value for shareholders in terms of how the market recognizes value, free cash flow, how does that enter into the conversation? How does the strategy evolve to achieve that objective?
Ken Boedeker
Really, I’m going to break those up just a little bit with strategy and then value. So really, the strategy is obviously the goal is to create the most long-term shareholder value that we can. The strategy for doing that is having this multi-basin portfolio of high-return projects available to invest in on a disciplined basis and to do that in a sustainable fashion and obviously, to be able to have a clear and simple cash return framework that we’ve set aside and then perform on that.
This year, I think we’ve been able to get back, I think, at 67% of our free cash flow on the 60% framework that we have. So we talk about that. And in the long term, what we talk about is the real value proposition of EOG is that we create value by generating free cash flow and having a multi-basin portfolio that we can invest in high-return projects as we lower the cost basis, we’ll continue to increase the free cash flow generation.
Doug Leggate
On a sustainable basis?
Ken Boedeker
On a sustainable basis. That’s part of the culture of the company, if we continue to bring additional inventory into the upper portion.
Doug Leggate
It’s not intended as I got your question, which, of course, means it’s I got your question. But where I’m going with this is that — so the way you’ve walked through the portfolio is you have longevity of asset base. It’s clearly conservative. Anybody would — way man can see that it’s clearly conservative with upside that even if you reset the commodity deck. A lot of your peers don’t have that but yet, EOG has decided to pursue a special dividend policy of cash returns. Why?
Ken Boedeker
There’s obviously several ways that you can do cash returns to our investors. We have a $5 billion buyback authorization as we’ve talked about.
Doug Leggate
Which I only felt about. I didn’t even though it was there. Was that like 2002 or something you’re still authorized?
Ken Boedeker
Well, we actually updated it at the beginning of this year. So we do have that policy, and we really have…
Doug Leggate
Original authorization was 2000 — what?
Ken Boedeker
The original, yes, 20 years ago, something like that. But we do have a $5 billion buyback authorization in place, and we agree that is one potential route as far as cash return to shareholders goes. We really haven’t seen at this point in this part of the commodity cycle the situation that we wanted to use that or call it a dislocation in value. And we talked to a number of our shareholders, and they’re very supportive of the special dividend at this point.
We do listen to shareholders and see, and there’s obviously a spectrum out there, but a number of our shareholders are very supportive of our special dividend. And really, the key for us that I think I’d like people to take away is that growing base dividend, I think we’ve increased it by 22% annual compound growth rate since for the last 25 years. And it’s that growing base dividend that really gives the — shows the confidence that we have in the go forward financial value of the company.
Doug Leggate
The real question is — my favorite question to CEOs and senior executives like yourself is, do you think your stock is undervalued?
Ken Boedeker
Yes.
Doug Leggate
So why don’t you buy back your stock?
Ken Boedeker
We look at it. We look at buying back our stock like any other investment opportunity so.
Doug Leggate
Right. So I’d like to kind of finish off with a couple of operational questions again. There is a perception here in Miami, and I think after earnings, that the industry is starting to bump up against productivity limits and efficiency limits. We saw it, particularly Pioneer was probably the poster child for the questions over the quarter. What’s EOG’s view at the industry level and at EOG’s level in terms of productivity degradation?
Ken Boedeker
Sure. I think that, that has to do with just the complete difference in culture that you see with EOG, with our peers. If you get into manufacturing mode by definition, as you drill up your best inventory, you can continue to get worse, be subject to the entire inflation environment that we talked about. With us, it’s in our culture. I’ve been with the company 28 years. We’ve talked about getting better 28 years ago and we talked about getting better this morning, right?
So depending on the maturity of the play, some of those gains are more, some of them are less, but that’s the real power of a multi-basin inventory as you can really capitalize those areas where you still see continual improvement.
Doug Leggate
So when you think about — if I not oversimplify your development thesis, you had single-zone developments with — in the case of Pioneer and ultimately, [indiscernible] issues as a consequence. You have the Ovintiv, the Permian characterization. We’re going to be talking to them shortly. How would you characterize your development philosophy? And I think you’d also throw in there your flowback philosophy.
Ken Boedeker
Sure, sure. In terms of the development philosophy, we’re trying to maximize the value of the acreage that we have. A lot of times, that has to do with developing multiple zones within it, either because of interactions that you see on the completion, stimulation site.
Doug Leggate
Co-development.
Ken Boedeker
Co-develop, right? Or it has to do with looking at the overall returns, and that’s where you have your infrastructure. So if you have your infrastructure there, it might make sense to incrementally develop other zones that you wouldn’t have if you think about it that way. So we do co-development to maximize the value of that. We call it maximize the value on a per acre basis.
Doug Leggate
And the flowback?
Ken Boedeker
As far as flowback goes, that’s really dependent on the completion that you have and the phase of what you’re looking at, the ability of the zone to flow and the hydrocarbons and the interaction with the oil, gas and NGLs. So our flowback is to maximize returns and maximize recovery. And also, you see that in the reduction in DD&A that we’ve seen over time. It really has a lot to do with the way that you complete the wells, and it has a lot to do with understanding the reservoir and the rock that you’re in.
Doug Leggate
Okay. Dan did you want it back?
Dan Lungo
No. I’m all set.
Doug Leggate
No. Okay.
Ken Boedeker
He’s got a whole lot of question.
Doug Leggate
I saw you looking at me thinking that are you ever going to shut up and give you another question? But so you — so I really do have a couple of things I wanted to close out with. And I guess the other topic that’s becoming, especially with Dorado, I believe you guys have invested in a 36-inch line.
Ken Boedeker
We have.
Doug Leggate
Which suggests Dorado’s headed to be sizable growth assets. I wonder if you could share with us a little thought around that.
Ken Boedeker
Yes. Our focus in Dorado, obviously, is continuing to grow volumes out of there and learn. We haven’t drilled a number of wells, I think, at 40 or 50, something-like-that wells and in Dorado. And they’re outstanding wells and outstanding performance. So to really capture that entire value chain going out of the basin, we are laying out that 36-inch pipeline all the way to the main hub over on the Gulf Coast of Agua Dolce. So that just really allows us to be in control of timing on takeaway, also be in control of getting our gas out to that hub, which then we have a significant liquidity up and down in the Gulf Coast.
Doug Leggate
And is there an LNG vertical associated with that?
Ken Boedeker
There is LNG over on the Corpus area, over in that area. We have a significant amount of flexibility on what we can take with LNG. The majority of our gas out of the Eagle Ford, out of the Permian and Dorado obviously goes into that area. We do have an increased exposure to LNG. We have 140 million a day now exposed to international pricing with LNG. And that goes up to 420 million a day in 2025 with Cheniere Stage 3 coming on. There’s an additional 300 that’s linked to Houston Ship Channel, just to make sure there aren’t any differentials at that point in time. But this obviously gives us a lot of optionality to be able to feed those contracts.
Doug Leggate
Okay. Well, I guess we’ve only got a minute left. So probably too long of a question for a minute, but I’ll give it a go. A couple of years ago, in the depths of COVID, you laid out sustaining capital breakeven economics. We’re dealing with the inflation you talked about earlier, a different level of activity. What do you think your breakeven sustaining capital if there was such a thing and breakeven economics look like today?
Ken Boedeker
Yes. When we talk about sustaining capital, I guess, our problem is, is we really don’t run the company thinking about sustaining capital. We were above sustaining capital, pre-COVID and below sustaining capital post-COVID. And then the way we run the company and add additional plays into it, if we gave you a number today, it’s different tomorrow. And then if we gave you a number, does that include using our — exploring in the other basins or not include exploring in the other basins? So really, we don’t look at it as a sustaining capital number. We just look at it as where can we continue to get better and drive down the cost basis.
I would say you talk about breakevens. In 2021, I think we had driven it down to $44 to create a 10%…
Doug Leggate
Including the dividend?
Ken Boedeker
Yes, $44 to provide a 10% ROCE is what I was going to say. And I think one of our earlier slides showed, depending on what gas is and NGLs in that, we were down as low as $32 oil to cover the base dividend.
Doug Leggate
Again, it’s maybe overly simplistic, but when you give us those benchmarks, we can then say, okay, this is the free cash flow capacity of the business on a sustainable basis, and then growth comes on as an option on top of that. That’s why we asked those questions.
Ken Boedeker
Yes. We understand. For your model, it’s just not the way…
Doug Leggate
Yes. For equity value definition, I would say, rather than just seeing for the model.
Doug Leggate
But Ken, really helpful discussion. Thanks very much for being here. I wish you continued success and can’t wait to see where the next exploration play is. Maybe it will be in Australia.
Ken Boedeker
There you go, next year.
Doug Leggate
That’s crazy but thanks very much.
Ken Boedeker
Thank you.
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