EOG's Gas Growth Play: Capturing the Data Center Power Surge

EOG Resources is making a deliberate shift in its capital allocation, reducing its 2025 spending to $5.8-6.2 billion as a move of capital discipline. This pullback is a direct response to what management sees as a potentially oversupplied oil market in the near term. The company is protecting shareholder returns by cutting back on oil projects where it has the most flexibility, even as it maintains oil production at first-quarter levels through the year.

The pivot is clear in the output guidance. While oil stays flat, EOG plans a 12% natural gas output increase at the midpoint of its 2025 forecast. This is not a minor adjustment; it's a strategic reallocation of capital to a sector with a more favorable long-term outlook. The CEO emphasized that the company is continuing to invest in pretty significant gas growth, focusing on foundational assets and international exploration.

This disciplined approach sets the stage for a similar plan in 2026. Management now expects to spend roughly $6.5 billion, maintaining a low-to-flat oil production profile. The capital will continue to fund gas investment and foundational assets, all while supporting a growing dividend and buybacks that aim to return roughly 90-100% of free cash flow to shareholders. The company's view is that persistent oil oversupply will pressure prices for several more quarters, making this focus on gas and capital efficiency a prudent, forward-looking strategy.

The Data Center Tailwind: A Scalable Market Opportunity

The external growth driver for EOG's gas strategy is a powerful, accelerating trend: the data center boom. Power demand from these facilities in the U.S. is projected to surge from 61.8 GW in 2025 to 108 GW by 2028 and 134.4 GW by 2030. This isn't just incremental growth; it's a fundamental shift in the energy landscape. The scale is staggering. The capacity added in 2025 alone, likely over 10 GW, is comparable to the peak daily electric demand of New York City.

Translating this electricity demand into natural gas terms reveals the core opportunity. Enverus Intelligence projects that the growth in data center power demand from 2023 to 2030 is equivalent to 2 Bcf/d of natural gas power if fully serviced by gas-fired generation. This is a massive, scalable total addressable market that aligns directly with EOG's production profile. The company is not chasing a niche; it is positioning to supply a foundational fuel for a sector that is reshaping the grid.

The pace of this growth is accelerating rapidly. Construction rates have tripled in recent years, and the five-year load-growth forecast for data centers has increased nearly fivefold in just two years. This creates a clear window for EOG to scale its gas output. By focusing capital on gas now, the company is betting that its production profile will be in high demand for years to come, as data centers consume a growing share of the nation's power.

Financial Impact and Valuation Implications

The strategic pivot to gas is already translating into tangible production growth and robust cash generation. Natural gas output climbed to 2.08 Bcf/d in the first quarter, a solid 12% increase from the year-ago period. This expansion is being funded by the company's strong operational performance. In the third quarter, EOG generated $3.1 billion in cash from operations, a figure that supports both its capital-intensive gas growth plans and its aggressive shareholder return program.

The financial model is clear: the cash flow from existing operations is the engine for future growth. This allows EOG to maintain its capital discipline while funding the necessary capex. The company plans to spend roughly $6.5 billion in 2026, with the capital directed toward gas projects and foundational assets. Crucially, this spending is fully supported by cash flow, enabling EOG to continue returning roughly 90-100% of free cash flow to shareholders through dividends and buybacks. This dual focus on scaling production and rewarding investors is a hallmark of a company with a durable cash-generating business.

The investment case hinges on execution within a massive, scalable market. The total addressable market for natural gas to power data centers is enormous, with Enverus Intelligence projecting a need for 2 Bcf/d of natural gas power by 2030. The scale of the demand is staggering, with data center capacity additions in 2025 alone comparable to the peak daily electric demand of New York City. For EOG, the path to capturing market share is defined by its ability to reliably and efficiently bring its gas production online at these volumes. The company's focus on foundational assets and its existing infrastructure, like the Verde pipeline, are key execution levers.

The bottom line is that EOG is positioning itself to be a primary supplier for a foundational fuel in a sector that is reshaping the energy grid. The financial metrics show the company has the cash flow to fund this growth while rewarding shareholders. The valuation will ultimately depend on whether EOG can execute its production ramp and secure the long-term contracts needed to capture a meaningful portion of that multi-billion-cubic-foot-per-day market.

Catalysts, Risks, and What to Watch

The path to capturing the data center power surge is clear, but execution will be tested by specific catalysts and significant uncertainties. The first major forward-looking event is the earnings call scheduled for February 25, 2026. This will be the primary catalyst for updated 2026 guidance, offering a critical check on whether the company's capital plan and production targets remain on track. Investors will scrutinize management's confidence in its ~15% lower Delaware Basin well costs and the pace of its international exploration progress, both key to maintaining strong economics.

The broader market catalyst is the actual pace of data center construction and the resulting gas demand commitments. The latest forecast shows demand rising to 75.8 GW in 2026, with a projected surge to 108 GW by 2028. This acceleration is the fuel for EOG's growth story. However, the speculative nature of these projections is a primary risk. Some analysts warn that an artificial intelligence bubble or speculative data center proposals could be inflating load growth estimates. A report from Grid Strategies, for instance, suggests utility forecasts of 90 GW of additional data center load by 2030 are likely overstated, with actual growth closer to 65 GW.

Beyond demand uncertainty, EOG faces competitive and infrastructure risks. The company's gas-fired generation advantage could be challenged by onsite renewables or nuclear at data centers seeking to meet sustainability goals. While natural gas provides the reliability these facilities need, the push for 100% renewable power through PPAs or on-site solar and wind could limit gas demand in some cases. Furthermore, the sheer scale of the build-out may strain grid interconnection capacity, creating bottlenecks that delay or increase the cost of bringing new power online.

The bottom line for the growth investor is one of high-stakes timing. EOG is betting that its disciplined capital allocation and cost leadership will allow it to scale gas production faster than the market's speculative demand projections can deflate. The February earnings call will be the first real test of that bet.