EOG Resources Inc. reported fourth quarter and full year 2005 net income double that of 2004, at the same time recording a 16.2% daily production increase. The company's 4Q income was $461.8 million, or $1.88 per share, compared to $204.1 million, or $0.85 per share in 4Q 2004. For the full year 2005, EOG reported net income available to common shareholders of $1,252.1 million or $5.13 per share as compared to $614.0 million, or $2.58 per share, for the full year 2004
"Without a doubt, 2005 was EOG's strongest year to date. Through the consistent, successful execution of our drilling program, we exceeded our goals for total company production growth and increased North American natural gas production beyond our target, while reducing net debt. Even though we are coming off a higher 2005 production base than we had targeted, we have the confidence to increase our 2006 production growth goals from the previously stated 9.5% to 10.5% We expect a disproportionate amount of this 2006 production increase to emanate from our higher margin natural gas activities in the U.S. and Canada where we are targeting 16.5% growth," said Mark G. Papa, Chairman and CEO.
In the United States and Canada EOG posted a natural gas production increase of 12.2%, led by its activities in the Fort Worth Basin Barnett Shale Play, East Texas, North Louisiana, the Mid-Continent and the Rocky Mountains.
EOG holds more than 500,000 total acres in the Barnett Shale where it currently operates 12 rigs. Over the course of 2006, EOG plans to expand its drilling program across the play to a 22-rig program.
In Johnson County, the Raam Unit #1H well began natural gas production in January at an initial rate of 10 MMcf/d. After 10 days of sales, the well, in which EOG has a 100% working interest, is producing 8 MMcf/d. In northeastern Johnson County, the Scottie Dog #2H, in which EOG has an 88% working interest, was completed in late December at an initial gross rate of 7.0 MMcf/d. The well is currently producing 3.9 MMcf/d, gross of natural gas. In western Johnson County, EOG has a 100% working interest in the Brown Unit #1H that began flowing to sales in January and is now producing 3.8 MMcf/d.
"The Raam #1H is one of the best natural gas wells completed by any operator in the entire Barnett Shale Play, not just in Johnson County," Papa said. "With the results of our down spacing tests and the strength of our drilling activity, in 2006 we plan to pursue development in Johnson County on 500-foot spacing."
In the western counties of Jack, Erath and Hood, EOG is doubling its drilling activity to a four-rig program in the first quarter of 2006.
"We believe that the completion techniques that further improved our drilling economics in Johnson County can be applied to our acreage in the western counties where we have seen improved drilling results over the past three months," Papa said. "This provides the assurance to actively pursue development in these areas."
During 2005, total daily production increased 40% from 2004 in the United Kingdom North Sea, where EOG had its first full year of production, and offshore Trinidad.
In Trinidad, total 2005 daily production increased 25% over the previous year. During 2005, EOG commenced natural gas production to supply two new long-term contracts, one for gas used as feedstock for the M5000 Methanol Plant, which began operation in September, and another for Atlantic LNG Train 4, which started taking gas in December prior to plant commissioning. During the fourth quarter 2005, EOG's natural gas deliveries to the two plants exceeded expected volumes.
EOG also reported exploration success from its first well, the 4(a) E-1, drilled on Block 4(a) offshore Trinidad, which encountered 399 feet of net gas pay from multiple sands. EOG has a 90% working interest in the block where it plans to immediately drill a second well, the E-2, into an adjoining fault block.
"Based on the drilling results from the E-1, we expect that together the E-1 and E-2 wells will prove up 200 to 400 net billion cubic feet of gas on Block 4(a). We intend to commence development work by mid-2006 and are targeting mid-2009 for on-line production," said Papa.
At Dec. 31, 2005, total company reserves were approximately 6.2 Tcfe, an increase of 548 Bcfe, or almost 10% higher than 2004. From drilling alone, EOG added 1,046 Bcfe of reserves. For the year, total reserve replacement -- the ratio of net reserve additions from drilling, acquisitions, revisions and dispositions to total production -- was 204%.
"In 2005, we executed a dynamic drilling program, posted a 16.2% daily production increase, achieved a 35.5% return on equity and a 30% return on capital employed, while paying down debt to end the year with a 7% net debt to total capitalization ratio," said Papa.
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