EOG Resources' strategy of the last year to edge away from natural gas exploration and production in order to focus on the more economically viable production of crude oil appears to be paying off as the Houston-based producer posted a 38% increase in second quarter earnings over the previous year's quarter. The company attributed much of its strong earnings to successful programs on acreage in the South Texas Eagle Ford Shale and North Dakota Bakken Shale.
EOG reported 2Q2012 net income of $395.8 million ($1.47/share), up from $295.6 million ($1.10/share) during 2Q2011. Looking at the company's adjusted non-GAAP (generally accepted accounting principles) net income, which excludes one-time items, 2Q2012 net income was $312.4 million ($1.16/share), compared to $299.2 million ($1.11/share) during 2Q2011.
CEO Mark Papa said EOG's results "get better and better," noting that the company achieved a 52% crude oil and condensate production increase and a 49% increase in total liquids production over 2Q2011.
"We are achieving this consistent string of home runs because EOG has captured the finest inventory of onshore crude oil assets in the entire United States and has the technical acumen to maximize reserve recoveries," Papa said. "EOG is the largest crude oil producer in the South Texas Eagle Ford and North Dakota Bakken with the sweet spot positions in both plays.
"In addition, we are uniquely positioned to market a significant portion of this crude oil at robust Brent-type pricing through our own rail offloading facility at St. James, LA, and to reach the Houston Gulf Coast market via the recently completed Enterprise Eagle Ford pipeline."
Grouping its Eagle Ford and Bakken results together with contributions from its West Texas Wolfcamp and New Mexico Leonard horizontal shale plays, EOG said it has increased its 2012 total company crude oil and condensate production growth target to 37% from 33% and its total liquids production growth target to 35% from 33%. Overall, EOG said it has increased its total company full year 2012 production growth target to 9% from 7% with no changes to its capital expenditure budget.
EOG said it drilled its "best well to date" in the Eagle Ford during the quarter. The Boothe Unit #10H in Gonzales County began initial production at 4,820 b/d of oil while an offset well, the Boothe Unit #9H, had an initial production rate of 3,708 B/d. The Boothe wells produced 972 and 527 b/d of natural gas liquids (NGL) and 4.5 and 2.4 MMcf/d of associated natural gas production, respectively.
"We continually focus on making better wells and with an initial flow rate in excess of 4,800 b/d, EOG's Boothe Unit #10H is clearly the top producing oil well in the entire Eagle Ford play to date," Papa said.
During the 2Q2012 conference call, Papa expanded on EOG's Eagle Ford progress. "We're the largest crude oil producer in the [Eagle Ford] with 103,000 Boe/d net production for June, 76% of which was oil and 14% was NGLs. This has been our strongest quarter for completion of what I'll call monster oil wells, which I'll define as wells having initial production rates of 2,500 b/d of oil plus gas and NGLs. By my count we had 16 wells with initial production rates between 2,500-4,800 b/d of oil plus gas and NGLs this quarter, all of which EOG has 100% working interest. The 16 monster wells in one quarter is particularly startling when we haven't seen any announcement by other Eagle Ford operators of even one such monster well to date."
Papa said the company's rate of learning on optimizing oil recovery from the Eagle Ford continues to progress. "We plan to drill 330 net wells this year, up form the 300 we had previously indicated because our drilling time per well has declined from 21 days in 2009 to the current 14 days, but dropped from 23 rigs to 21 rigs during the second half of the year," he said during the call.
Papa said the company's dry natural gas program is essentially idled until the proper economics return. "Due to the ongoing weakness in natural gas pricing, EOG plans to further decrease drilling activity on its dry gas resource plays in the second half of 2012," the company said. "Through active drilling programs in prior years and 2012 to date, EOG has captured strategic natural gas acreage in the Uinta, Horn River, Barnett, Haynesville and Marcellus plays. When natural gas prices rebound, EOG will hold an attractive portfolio of natural gas resources for future development."
As for crude, it's full speed ahead, according to Papa. "We increased EOG's 2012 crude oil production growth target to 37% based on the strength of our drilling results for the first half of the year," he said. "This new goal sets EOG up to achieve an all-organic, five-year compounded annual crude oil production growth rate of 38% through year-end 2012. Looking ahead, we expect EOG's resource-rich portfolio will continue to generate high crude oil production growth rates for a long time."
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