Buoyed by strong growth in the Barnett Shale play in Texas, as well as new exploration in Trinidad and the North Sea, EOG Resources Inc. on Thursday raised its production growth target to 9%, or 1.216 Bcfe/d, up from a previous forecast of 8%, or 1.167 Bcfe/d. For 2005, EOG forecast a 14% rise in production to 1.386 Bcfe/d and it forecast an 8% hike to 1.497 Bcfe/d in 2006 — most of it in North America.

EOG’s management team held sway at an analyst conference in Houston on Thursday, with CEO Mark Papa leading off with an optimistic forecast for the next two years. “We’re a successful explorer on all levels,” said Papa, but he promised that “the best is yet to come.”

Without leverage or dilution, EOG is forecasting “visible production growth” for the next two years. The preliminary estimated capital expenditure budget for 2005 is about $1.4 billion, excluding acquisitions. EOG’s top production area, Barnett, “is real, with high margins and high returns,” and the other gas-rich plays in North America have “momentum.”

The Barnett play, located in the Fort Worth Basin, is the biggest natural gas field in Texas,and EOG’s current production there is 1.1 Bcf/d. The huge play is estimated to hold up to 26 Tcf of reserves, with 4 Tcf already discovered in the core area.

Loren Leiker, EOG’s executive vice president for exploration and development, said EOG’s game plan in the Barnett is to add more acreage, shoot more seismic, drill more wells and increase production over the next two years. The play “will require many wells over a number of years depending on the drilling success,” said Leiker. EOG continues to drill successful wells in the Barnett through the use of 3-D seismic and horizontal drilling techniques, but “significant production growth and reserve additions” are expected to pan out in 2005 “and beyond.”

EOG currently leases 325,000 acres in the Barnett, and the goal is to up the net acreage to 400,000 by the end of this year. This year, EOG expects to drill 30 wells there, and plans to exit 2004 with 30-40 MMcf/d in net production. By the end of 2005, it plans to exceed 100 MMcf/d in net production. Based on the increased acreage, EOG raised its estimate of recoverable reserves from the Barnett to 1.6-3.1 Tcf from 0.5-2.0 Tcf. The lower risk areas of the Barnett could recover 0.8-1.6 Tcf.

Besides its top producer, EOG said it is “opportunity rich,” with a strong base of development locations across North America. In Canada, the company is producing shallow gas targets, while in the Rockies, it holds core properties in the Moxa and Uinta plays. In Texas, the company has assets in Carthage, Sligo, Roleta, Frio and the Devonian shale, while in the Midcontinent region, it is working in the Cleveland/Hugoton region.

For the next two years, said Leiker, EOG’s U.S. and Canadian oil and natural gas volumes will remain at 4Q2004 levels — except for the Barnett play, which “will be 100% additive to previous targets.” Other “big divisions,” defined as Canada, the Rocky Mountains, South and East Texas, will be on a “growth track” through 2006, while internationally, Trinidad and North Sea growth will be defined by project startups.

Lehman Brothers analysts Thomas Driscoll and Sangita Jain said “EOG set the bar high in terms of expectations…and it exceeded those expectations.” They said investors are “likely to react positively to initial takeaways” from the investor meeting, especially the increased recovery estimates in the Barnett play.

“The company raised 2004-2006 production growth estimate from a cumulative 23.5% to 31%,” said the analysts. “Our current estimate is for 30%, so there is modest upside to our estimates. Preliminary guidance for the 2005 capital budget is for $1.4 billion, within the cash flow ($1.4-1.5 billion) they are expected to generate at our $35/$5.50 oil/gas price estimate.”

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.