EOG Resources Inc. shut in about 50 MMcf/d of its net natural gas output in the Rocky Mountains through September and possibly October because of "extremely low prices," the CEO said last week.

EOG currently is earning on average around $3.50/Mcf on its Rockies gas production, but CEO Mark Papa noted that some gas has gone for "a buck, a buck and a half."

"Our response to the whole messy gas situation, if you will, has been one that we're not going to sell any gas at any absurdly low prices," Papa told investors at the Bank of America's 37th Annual Investment Conference in San Francisco. EOG suspended some gas well completions and has "actually slowed down drilling in the Rockies from our previous plans...We're down several rigs in the Rockies."

EOG is not the only producer to shut in gas wells in the region because of basis differentials, but few have publicly admitted it (see NGI, Sept. 10).

EOG has not disclosed the location of the shut-in wells, but in the Rockies, the Houston-based independent explores for gas and oil in the Uinta, Greater Green River, Powder River and Williston basins.

"You can assume right now that we'll be shut in for the whole month of September, and in October, it's certainly conceivable that we'll be shut in for all of October, too," Papa said. "Third quarter gas production will be affected; there will be a little less."

Even though it's unconfirmed, Papa said other producers may be shutting in gas in the Barnett Shale, one of the busiest gas production areas of the country. Chesapeake Energy Corp., which is a top producer in the Barnett, earlier this month reduced its total domestic gas output by about 125 MMcf/d, or about 6% of its net output, in response to low prices (see NGI, Sept. 10).

"What we've heard anecdotally is that in the Barnett Shale, some of the producers are actually laying down drilling rigs. I'll be interested in seeing what happens to the gas-directed rig count over the next three or four weeks. We may finally be seeing a slowdown on the gas-directed rig count because of [low prices]..."

EOG is one of the Barnett's top producers, but Papa said there are no plans to shut in any gas from its leasehold.

"In terms of the Barnett, we're currently getting first-of-month prices of around $5.50 or so," he said. "At that price, we're certainly not happy, but it's considerably above the Rockies."

EOG's gas price and production analyses are often used by its peers and energy analysts, and the company expects to see a rebound in prices going into 2008.

"Our production forecast for 2008 is for the U.S. production to grow 1.5% and for Canada to fall 4%," said Papa. Net North American supply growth would be around 0.1 Bcf/d, the EOG chief believes.

"There may be a difference of opinion; some see the U.S. up as much as 2.5%, so there's probably a 1% swing in there between us and some others."

Energy Information Administration data indicates "very sharp increases" in gas production over the last three or four months on a 12-month basis. However, next year's gas prices depend on this winter season.

"If the winter turns out to be cold, we'll probably have an aggressive production growth forecast" for 2008, Papa said. "If not...we won't be chasing $7 gas...We'll have a more constrained growth outlook...

"The game plan for 2007 and 2008 has been to not run up debt. Don't look for us to have highly aggressive gas production growth if gas prices are below $7. We'll have a pretty open plan until winter ends, and then we'll make some real hard decisions about where to go going forward and how aggressive we'll be with gas."

If next year's gas prices "disappoint us, we're not going to blow our brains out," Papa said. "If the gas price is $7 [per Mcf] at Henry Hub, we'll focus more on our oil-directed drilling. But we don't believe long-term gas prices can remain at $7. I will say our supply/demand analysis for 2008 leads us to believe prices will be more at an $8 to $8.50 [level]."

If EOG has to curtail its production plans in the coming year, it "likely" would slow down in the Uinta Basin, said Papa.

"We've got 10 to 12 rigs in the Uinta Basin planned, assuming $8 to $8.50 gas prices. If prices are $7, we might drop to four or five rigs. The Rockies we might curtail the most sharply, and in some of our other gas-directed drilling. But not in the Barnett because it's got the highest rate of reinvestment return, and it's the one area least likely to be curtailed," said the CEO.

"The trump card in 2008," he added, "is winter in 2007."

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