What do you do when the Fort Worth Barnett Shale is your company's largest play with estimated reserve potential of 1.9-2.5 Tcfe net in Johnson County alone? Why, you expand your acreage position to the south and west, picking up acreage in Hill County to the south and Palo Pinto County to the West and growing potential reserves to 4.5-6.7 Tcfe net.

EOG Resources' expanded acreage position in the Barnett now accounts for more than 610,000 acres, Loren Leiker, senior executive vice president for exploration, told attendees at Bear Stearns Global Oil & Gas Conference in New York City Wednesday.

"The Barnett is performing at least as well if not better than our expectations on all fronts," Leiker said. "From a standing start in 2004, we exited 2006 at 208 MMcf/d [production]."

EOG likes unconventional resource plays and has gotten good at making the most of them. While the Barnett may be the company's largest play, North American activity outside the Barnett is the biggest portion of the company. EOG is projecting production growth this year of about 6% in all North American areas outside of the Barnett Shale.

"In 2006 we drilled 2,300-2,400 wells; about 1,200 of those were in the U.S. and of that about 35% were horizontal," Leiker said. "In 2007 in the United States we'll drill about 47% of our wells horizontally; that compares to an industry number of about 10%, which we hit in 2002. We also have a lot of new horizontal plays in the pipeline...

"We're a specialist resource play kind of company and resource plays only work if you're able to drive your costs down. I would say that there are some out there that consider resource plays to be high-cost plays. I personally don't believe that's true at all. Some resource plays are high-cost; some resource plays are quite low-cost. It all depends on how you work your costs down. The good thing about resource plays is if you find them in the right place, there are usually hundreds of wells or thousands of wells to exploit it. So you have many opportunities to work those costs down and work that completion efficiency up."

EOG is hoping to repeat its Barnett success elsewhere in the country, but Leiker is reticent about revealing exactly where because competition for acreage is hot, he said. Among areas of activity in the coming years will be the Uinta Basin in the Rocky Mountains; the Cotton Valley, Mississippi, Driscoll Mountain/Branton plays in East Texas; shallow gas, Wapiti and Twining coalbed methane plays in Canada; Lobo and Roleta horizontal, Reklaw, Wilcox and Frio plays in South Texas; the deep Hugoton and horizontal Cleveland plays in the Midcontinent; and the horizontal Wolfcamp play in West Texas, he said.

Leiker said EOG is the first to drill horizontally in the high-pressure, high-temperature sands in South Texas. EOG has three rigs running there. In the Uinta Basin Leiker said there is 250 Bcf of gas in place for every section in EOG's acreage. If the company can go to 10-acre spacing from 20 acres it would mean 1.2 Tcf of unbooked reserves as of today, Leiker said. EOG has 12 rigs running in the Uinta and is planning to drill 300 wells this year. The company has 2,400 drilling locations making for an eight-year inventory.

Leiker said EOG has about $3.4 billion for capital spending this year. "We are currently exploring in a number of basins in North America, and we have large-scale projects on the books," he said. "If they work, we think we will need that balance sheet to fund that development going forward."

Leiker also is bullish on gas prices. "We believe that North American supply is not growing as fast as maybe some others believe," he said. "By our metrics we see U.S. gas supply growing at about 1.4% year on year, Canadian gas supply dropping at 2 1/2% year on year. So by our models we see gas prices starting to escalate this spring, April-May, and averaging between $8 and $8.50 for the year."

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