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EOG Estimates 400 Bcf Potential in Atoka Formation Discovery

May 5, 2008
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EOG Resources Inc. delivered another solid quarter, with domestic natural gas production up 19% from the same period a year ago, driven by continuing success in the Barnett Shale and along the Upper Gulf Coast. The Houston-based producer is on track to deliver 15% total production growth in 2008, and yet another gas discovery -- this one in the Atoka Formation in the Midcontinent -- may hold 400 Bcf of potential.

Net income in the first three months rose to $240.5 million (96 cents/share) from $216.8 million (88 cents) in 1Q2007. Results included a gain on the sale of $130 million worth of assets in the Appalachian Basin and a previously disclosed $470 million loss on financial hedges. Total oil and gas volumes were up 38% from a year ago, led by a 27% increase to its oil volumes from the North Dakota Bakken Shale and in the Midcontinent region. Natural gas liquids volumes jumped 67% from 1Q2007, with most of the rise attributed to the Barnett Shale.

"This was a very strong quarter for EOG," said CEO Mark Papa. "Not only were our operational results excellent, but our growing expertise in the application of horizontal drilling and completion technology has helped us identify another natural gas resource play. Our success in the Atoka Formation demonstrates that there are still untapped reservoirs in the United States for companies like EOG that have the skill to find and develop them."

A lack of infrastructure could delay volumes from some of EOG's emerging development areas, Papa noted. The Bakken oil production likely will not ramp up before 2009, and the Horn River Basin gas play in northeast British Columbia is not expected to add to volumes before 2011. However, EOG still plans to deliver double-digit production gains from its current assets, the CEO said.

High on the list of gas plays that EOG plans to develop is the Atoka Formation, where EOG has accumulated 60,000 net acres.

"We've been testing this play and acquiring acreage for two years," Papa said, and plans are to continue to accumulate more land and conduct more tests over the coming months.

The Atoka Formation, which extends from the Texas Panhandle into northeast New Mexico, has produced oil and gas for more than 50 years. However, horizontal drilling techniques now have made the area more economical in which to operate, said Papa. To date, EOG has drilled 17 horizontal wells in its leasehold. The most recent well, the Paul 536 #2H, in April began producing at a rate of 6.5 MMcf/d; the Price Trust 604 #2H went on production at a rate of 7 MMcf/d in 4Q2007. EOG has a 100% working interest in both wells, and all the wells cost on average $3.4 million to complete.

EOG will use the "rest of the year to optimize" its ongoing developments, he said. "We have a plethora of plays...from the Uinta [basin] to South Texas, and they obviously are contributing their part." However, EOG has a "high focus on identifying new acreage and accumulation," which are evenly divided between oil and gas plays.

Papa said he is optimistic about the overall North American gas production picture in the near term.

"It's kind of my sense that clearly, domestic gas production is rising," he said, but not as much as the Energy Information Administration estimates. "Primarily because of horizontal resource plays," he said EOG is projecting that U.S. gas production should rise 2.3-3% in 2009 and 2010.

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