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Testing Helps EOG Boost Eagle Ford Oil Reserves to 2.2 Billion Boe

EOG Resources Inc. said it now holds 2.2 billion boe of potential recoverable crude oil reserves in the Eagle Ford Shale -- reportedly the largest share net to one company in the last 40 years -- and plans to continue focusing on oil production in 2013, after posting large increases in oil, condensate and natural gas liquids (NGL) production the year before.

The Houston-based company -- the largest crude oil producer in the Eagle Ford and the Bakken Shale -- also announced encouraging results from one of its first two horizontal wells targeting the Wolfcamp Shale in West Texas, and raised its common stock dividend by 10%.

In a statement Wednesday, EOG said year/year (y/y) production of crude oil and condensate had grown 39% between 2011 and 2012 (from 113.4 million b/d to 157.9 million b/d), while NGL production increased 32% (from 42.4 million b/d to 55.9 million b/d) during the same time frame, and total liquids were up 37%.

During a 4Q2012 earnings call Thursday, CEO Mark Papa said that although EOG's production in the Eagle Ford declined in 4Q2012, the company would ramp up production from the play -- which Papa said held the company's "flagship oil assets" -- during 1Q2013. He added that EOG had just completed its Burrow Unit No. 2H well in January. The well tested at 6,330 b/d of oil, 713 b/d of NGL and 4.1 MMcf/d of natural gas, making it the company's highest initial production well in the Eagle Ford to date.

"Our Eagle Ford potential reserve increase gives [us] a domestic shale oil inventory unsurpassed in the industry," Papa said. "We expect industry-wide Eagle Ford oil production to surpass the Bakken over the next two years, and EOG indisputably has a premier Eagle Ford oil position in addition to our strong Bakken position... Remember that EOG's 569,000 net oil acres constitute the largest and highest quality oil position in the entire play."

EOG said it drilled and completed 305 net wells in the Eagle Ford in 2012, operating an average of 23 drilling rigs. By comparison, the company drilled and completed a total of 630 net wells in all plays during 2012. EOG said it tested a variety of drilling densities and completion practices to increase its estimated recoverable potential reserves in the Eagle Ford by 38%, from 1.6 billion boe to 2.2 billion boe.

"Our 2.2 billion boe net Eagle Ford position is not theoretical," Papa said. "The production results are visible on both an EOG and industry scale. When we add in our Permian [Basin] and Barnett [Shale] combo assets, we have an unsurpassed inventory of proven reinvestment opportunities."

EOG President William Thomas said the company's Harrison Ranch No. 56-1002H well -- located in the Reeves County, TX -- tested at a rate of 635 b/d of oil, 480 b/d of NGL and 3.1 MMcf/d of natural gas in the Upper Wolfcamp, and then tested at 377 b/d of oil, 602 b/d of NGL and 3.9 MMcf/d of natural gas in the Middle Wolfcamp.

"We estimate the reserve potential to be 800 million boe net to EOG," Thomas said "This is another substantial addition to our growing opportunities of higher rate of return drilling inventory.

"As a cautionary note, because we have such a large inventory of opportunities across the company, significant production growth on the [Wolfcamp] should not be expected until the 2015 time frame...[but] with improved [hydraulic fracturing techniques], the wells are getting better and showing a higher percentage of oil production than previously reported."

Papa said EOG plans to spend between $7.0 billion and $7.2 billion on capital expenditures (capex) in 2013, a $400 million decline from 2012. He said the company would devote $1.2 billion to facilities, gathering systems and other infrastructure, but only about $25 million would be spent on dry gas in North America, and that would be just to hold acreage.

"We have already invested the drilling capital in previous years to hold the remainder of our dry gas acreage that we want to retain," Papa said, adding that EOG forecasts its 2013 natural gas production will decrease 14% in the United States, 24% in Canada and 4% in Trinidad. "Since North American gas continues to be a money loser, we have zero interest in growing gas volumes and expect decreasing production for the fifth consecutive year regarding gas."

Although Papa conceded that it would be "a tall order for a company our size," EOG is planning to grow its crude oil and NGL production by 28% and 23%, respectively, in 2013.

EOG reported a net loss of $505.0 million ($1.88/share) during 4Q2012, compared with net income of $120.7 million (45 cents/share) for the preceding fourth quarter. The loss included a large write-down of $849.4 million for Canadian properties. It resulted in full-year 2012 net income of $570.3 million ($2.11/share), down considerably from $1.09 billion ($4.10/share) for the full-year 2011.

EOG's adjusted non-GAAP net income for the full year 2012 was $1,535.6 million, or $5.67 per share, and for the full year 2011 was $1,008.5 million, or $3.79 per share. Adjusted non-GAAP net income for the fourth quarter 2012 was $437.0 million, or $1.61 per share,

For the 14th consecutive year, EOG's board of directors voted to increase the cash dividend on common stock. Effective April 30, stockholders of record as of April 16 will receive a quarterly dividend of 18.75 cents/common share (75 cents/share annually), a 10% increase from the previous annual rate.

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