# DEAR
SHAREHOLDER

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_EOG_2021/NYSE_EOG_2021.mmd` · pages 1-7_

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DEAR
SHAREHOLDER,

Value matters. For over 30 years, EOG has focused on creating long-term shareholder value throughout industry cycles. And the matters that consistently create value long-term are constant even in a commodity business - returns, free cash flow, capital discipline, sustainability, and culture.

Consistency is key. Our financial performance last year is a testament to EOG's consistency highlighted by our record cash return to shareholders of \(2.7 billion. We doubled our regular dividend rate and paid two special dividends. We also earned record net income of \)4.7 billion and return on capital employed was 21 percent. \( ^{2} \) 

Outstanding operational execution combined with strong commodity pricing drove our exceptional results. Despite inflationary pressure, EOG lowered well costs 7 percent. Individual well performance increased, and our diversified marketing strategy drove peer-leading price realizations. Key environmental, social and governance metrics also improved, including the company's methane emissions percentage, wellhead gas capture, water reuse, and employee safety. And we continue to get better by remaining focused on the matters that consistently create value, starting with returns.

## Returns

Six years ago, EOG took its first step to decouple the company's returns from commodity price cycles. We established a minimum hurdle rate using fixed prices to drive our capital allocation decisions. Investments must earn a minimum well-level return of 30 percent \( ^{3} \)  using 40 oil and 2.50 natural gas, our premium price deck, for the life of the well.

While our premium strategy ensures high well-level returns and quick payouts in any given year, the more significant and durable impact is realized over time. Our prior earnings record was set in 2014, before we established our premium strategy. Last year, we shattered that record, earning 50 percent higher earnings with a 27 percent lower oil price. \( ^{4} \)  Making investment decisions using fixed, low commodity prices steadily improves corporate level operating and cash margins by driving down full cycle development costs over time.

We have organically grown our premium inventory by more than 3.5 times \( ^{5} \)  over the last six years, which enabled our next step to further decouple returns from commodity prices. Last year we doubled our minimum hurdle rate from 30 percent to 60 percent using the same premium price deck. Double-premium now positions EOG for another step-change to future corporate level returns. The potential impact on free cash flow is even more remarkable.

## Our financial performance last year is highlighted by our record cash return to shareholders of $2.7 billion.

## Free Cash Flow (FCF)

In recent years, the E&P industry became FCF positive. EOG led the way six years ago. Since the transition to premium, \( ^{6} \)  we have reinvested less than 70 percent of discretionary cash flow, \( ^{2} \)  generating 11.8 billion in FCF \( ^{2} \)  used to reduce net debt 6 billion \( ^{2} \)  and support 5.3 billion in cash return to shareholders.

EOG has grown the regular dividend an average of 21 percent a year, \( ^{7} \)  and never cut or suspended it in its 23-year history. Double-premium promises to further improve FCF to support our sustainable growing dividend in the years ahead. We expect to look back on 2021 like we do on 2016 – as the year we made a permanent increase to our return hurdle that drove another step-change in EOG's financial performance.

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## Capital Discipline

Investing for returns and free cash flow are at the core of good capital discipline. At EOG, capital discipline means far more. It means optimizing our reinvestment rate for each individual play according to its stage of development, incorporating data and technology to drive the innovation that improves each asset year after year. Capital discipline means maintaining a strong balance sheet to position EOG for counter-cyclical opportunities. It means keeping an eye on costs and mitigating inflation even when oil is $100 and our returns reach into the triple digits. It means not growing production into an oversupplied market, recognizing that price is only one of many investment factors to consider. Disciplined capital management throughout cycles continues to position EOG to create significant shareholder value in the years ahead.

## Sustainability

To be part of the long-term energy solution, we not only have to produce low cost, high return barrels, we have to do it with one of the lowest environmental footprints. 2021 was a big year for our emissions management efforts. We announced our 2040 net-zero ambition, and added our goal to eliminate routine flaring by 2025 to our near-term targets for greenhouse gas and methane emissions rates.

We believe oil and natural gas will remain an essential source of long-term global energy supply with demand gravitating toward the most efficient producers - the most efficient from a capital perspective and the most efficient from an emissions perspective. At EOG, we are focused on differentiating ourselves as among the most efficient on both counts.

## Culture

Of all the matters that consistently create long term value, none of them matter without the commitment, resiliency, and execution of our employees. We never lose sight that value is created at the asset level every day by our front-line employees. Our decentralized approach means decisions are made where the work is done in collaborative, multi-disciplinary teams. By remaining humble and intellectually honest, we sustain the cycle of constant improvement through innovation that drives our technology leadership. Our culture is the number one value driver of EOG's success.

## 2022

Looking towards 2022, oil market supply and demand fundamentals are improving, but remain dynamic. Under any scenario, we remain focused on the matters that create value through the cycle - returns, free cash flow, capital discipline, sustainability, and culture.

With such significant momentum from our progress over the past six years, I'm convinced we are only just getting started at being one of the lowest cost, highest return, and lowest emissions energy suppliers, playing a significant role in the long-term future of energy.

Sincerely,

![](images/2_0.jpg)

Ezra Y. Yacob
Chief Executive Officer
February 24, 2022

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