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EOG Adds 'Premium' Assets, Plans to Complete 25 More Wells in 2017

EOG Resources Inc. added two new "premium" oil plays and 800 potential well locations to its stable during 3Q2017, with a combined estimated net resource potential of 750 million boe, as it looks to complete an additional 25 wells before the end of the year.

Houston-based EOG expanded its premium inventory to approximately 8,000 net drilling locations, up from 7,200. Specifically, it added 50,000 net acres in the oil window of the Woodford Shale, in the eastern Anadarko Basin, with an estimated net resource potential of 210 million boe and 260 potential well locations, primarily in McClain County, OK.

The company also added 540 remaining potential well locations targeting the First Bone Spring formation -- in the Delaware sub-basin, part of the Permian Basin -- with an estimated net resource potential of 540 million boe. EOG classifies its premium inventory as well locations capable of generating a minimum 30% direct after-tax rate of return, assuming a crude oil price of $40/bbl.

During an earnings call Friday to discuss the third quarter, EOG executives defended the timing of the reveal, with CEO William Thomas leading off stating that the company "has a lot of confidence" in the Woodford.

"We took all the petrophysical models and compared it against [other plays], particularly the Eagle Ford, and compared the completions versus the reservoir response," said David Trice, vice president for exploration and production (E&P). "Going into it, we felt very confident that we could make premium wells here in the Woodford.

"We were able to confirm that with the well results that we've had, so we feel confident about the premium status of this. And then just the timing of it, it's pretty tightly held acreage in this part of the world so we felt comfortable going ahead and releasing the results on it."

Billy Helms, another vice president for E&P, added that EOG has been testing the First Bone Spring for the last several years. The company completed 15 net wells targeting the First Bone Spring over the last three years.

"Most of our activity in the past year or two has been focused on the Wolfcamp, which is highly prolific and we've got multiple zones there," Helms said. But development of the First Bone Spring represents "the next step in the evolution" of the Delaware.

"The First Bone Spring is a highly prolific and very competitive zone...and we've now delineated the program with about 15 wells over a fairly extensive area and had confidence enough to come out and delineate the resource potential on our acreage there."

Later in the call, Thomas said EOG was not looking to monetize any assets in the Woodford or the Bakken Shale, despite the plays holding just 3% and 4% of its drilling locations, respectively.

"Those would not be ones that we would think about monetizing at this point because, obviously, the Woodford has got tremendous upside to it and is on the high end of our quality of the premium inventory," Thomas said. "We also believe the Bakken has, too. It's still got a lot of upside. We have, as I said in the opening, captured the 'sweet spot' there, and continue to think that there is quite a bit of additional premium drilling to go on both of those [plays]."

Elsewhere, EOG completed 20 gross (19 net) wells in the Powder River Basin during 3Q2017. The company also completed seven gross (two net) wells targeting the Codell formation in the Denver-Julesburg Basin; 44 gross (39 net) wells in the Eagle Ford; and eight gross (eight net) wells in the South Texas Austin Chalk.

The company said it expects to complete approximately 505 net wells in 2017, an increase from its original outlook of 480 net wells. But the company is maintaining its full-year capital expenditure guidance of $3.7-4.1 billion for 2017.

"Due to the timing of the additional 25 wells late in the year, there will be a limited impact on our volumes for the full year," COO Gary Thomas said. "We now have 28 rigs working and we have the best performing services EOG has ever assembled.

"We do not want to release any of these top-tier service providers. The additional rigs and crews give us a head start as we plan for 2018."

EOG reported total production of 55 million boe/d in 3Q2017, a 7.6% increase from the year-ago quarter (51.1 million boe/d). Production of crude oil and condensate increased 16% during that time frame (to 327,000 b/d, up from 282,600 b/d), as did production of natural gas liquids (6.7%, to 87,400 b/d, up from 81,900 b/d), but natural gas production declined 4.2% (to 1.1 Bcf/d, down from 1.14 Bcf/d).

The company reported net income of $100.5 million (17 cents/share) in 3Q2017, compared to a net loss of $190 million (minus 35 cents/share) in the year-ago quarter. EOG reported net operating revenue of $2.64 billion in 3Q2017, a 24.8% from 3Q2016 ($2.12 billion).

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