EOG Hedges Steel Costs as Murphy Evaluates Asset Sales
US Midwest hot-rolled steel prices have surged 40 percent year to date. EOG Resources is buying inventory through 2027 to mitigate rising service costs. Murphy Oil is considering selling its Kaybob Duvernay assets to fund offshore growth.
The price of US Midwest domestic hot-rolled steel has risen 40 percent since the start of the year. EOG Resources is purchasing steel inventory through 2027 to protect its margins. This move comes as service costs for oil producers begin to climb. Jeffrey Leitzell, COO of EOG, stated that the company has started buying well into 2027 to insulate itself from further increases. He noted that while general inflation is slight, steel is a specific area of concern. EOG typically holds six to twelve months of inventory. The company is extending this period to capture lower prices before they rise further. This strategy aims to neutralize the impact of higher input costs on operational efficiency.
The US Bureau of Labor Statistics reports that producer prices for steel pipes and tubes have increased at least 7.8 percent year over year since August. Leitzell emphasized that EOG maintains strategic partnerships with service firms. These partners do not raise prices to the maximum during market upturns. In exchange, EOG does not squeeze them to the lowest cost during downturns. This reciprocal approach helps stabilize long-term costs. However, the sharp rise in steel prices threatens to erode these savings. The company’s early purchasing strategy is a direct response to this specific commodity trend. It allows EOG to lock in costs while market prices remain elevated.
Murphy Oil weighs divestiture options
Murphy Oil is prioritizing its offshore portfolio for capital allocation. The company added $300 million to its 2026 capital expenditure plans earlier this summer. Exploration work will focus on Côte d'Ivoire, Vietnam, and the Gulf of Mexico. Eric Hambly, CEO of Murphy, discussed the role of Canadian assets in this shift. He identified the Kaybob Duvernay shale oil play as a potential candidate for sale. This asset produced about 7,000 barrels of oil equivalent per day this spring. Hambly described it as an appraised but not fully developed play. It was originally intended to follow operations in the Eagle Ford basin. The timeline for development has been pushed back due to current capital needs.
Hambly stated that Kaybob is the most likely asset to be transacted in the near term. It does not currently support a significant portion of the company's free cash flow. Selling the asset would provide liquidity to fund higher-priority offshore projects. In contrast, the Tupper Montney natural gas operations remain a core part of the portfolio. These assets produced 347 million cubic feet per day in the second quarter. Hambly called them among the most capital-efficient dry gas assets in North America. He rejected the idea of divesting these assets despite lower current cash flow. He argued that they offer significant long-term optionality for the company.
Capital allocation strategies diverge
The strategic priorities of EOG and Murphy reflect different approaches to market conditions. EOG is focused on mitigating immediate cost pressures through inventory management. This is a defensive move against rising input costs. Murphy is taking a more active approach to portfolio restructuring. It is reallocating capital from mature onshore assets to new offshore opportunities. This shift requires immediate liquidity, making divestiture a logical step. The decisions highlight how different producers manage capital in a volatile market. Both companies are making specific moves to protect their long-term financial positions. These strategies were detailed at the Barclays 40th Annual Energy-Power Conference in New York.
The conference also featured commentary from Chevron and ExxonMobil on similar themes. Executives discussed how inflation pressures are reshaping investment decisions. The rise in steel prices is a key factor in these discussions. It affects both drilling costs and infrastructure development. Producers are adjusting their capital plans in response to these trends. The actions of EOG and Murphy provide concrete examples of these adjustments. Their strategies serve as a benchmark for the broader industry. The market is watching how these moves impact overall production and profitability. The focus remains on maintaining efficiency while navigating higher costs. These developments were reported by GN markets/inflation (en-US).
