High commodity prices have been a blessing for EOG Resources,which posted record results during the third quarter after itsfirst full year after being separated from Enron Corp. EOG,formerly Enron Oil and Gas, posted a 250% increase in third quarternet income to $113.7 million, or $0.98 per share, compared to $32.5million, or $0.27 per share, for the comparable period a year ago.

“We remain totally unhedged on gas going forward and are stillbullish long term on the commodity,” said CEO Mark Papa during aconference call. “We will continue to closely watch the natural gasmarket and will communicate openly if we should layer in some gashedges. We are closely monitoring supply indicators on a monthlybasis from Texas, Louisiana, Oklahoma and Alberta. These indicatorsrefer to a flattening of declines but not a deliverability uptickso far. I continue to feel that the supply response from the higherrig count will be more muted than most people expect because theprospects being drilled with the incremental rigs frankly have lessbang for the buck.”

“The key drivers for the quarter were volume growth, combinedwith our unhedged natural gas position,” said Papa. “Mostimportantly, EOG’s increase in North American production has beenfrom the drillbit, an increasingly difficult challenge for ourindustry.”

EOG’s U.S. gas production rose to 652 MMcf/d from 642 MMcf/d in3Q99. Its Canadian gas production grew 7% to 125 MMcf/d. Realizedgas prices in the U.S. were up 73% to $4.14/Mcf.

EOG’s own gas production is expected to end the year flat todown slightly, averaging between 900 and 910 MMcf/d, compared toabout 938 MMcf/d in 1999. U.S. gas production is expected toaverage between 650 and 655 MMcf/d, which is dead even with lastyear. Canadian production is expected to average 130 MMcf/d, or upabout 15 MMcf/d from 1999, and gas production in Trinidad isexpected to average between 120 and 125 MMcf/d, flat with 1999production averages. However, Papa said he expects to company toreach its target of 7% growth in total production for the year.

The company will have plenty of cash on hand for the job. Duringthe third quarter, EOG’s cash flow rose 79% to $283 million.

“The excellent operational results and record earnings and cashflow are reflective of our continued drilling success and focus oncosts,” said Papa. “We have taken advantage of the currentcommodity environment to position EOG for the future by expandingour exploration staff and activities, increasing capitalexpenditures and strengthening our balance sheet by paying downdebt.”

The company’s crude production for the full year 2000 isexpected to average 27.5 thousand barrels per day (Mbld) comparedto 23.5 thousand b/d in 1999. Natural gas liquids production isexpected to average 4.5 Mbld compared to 3.4 Mbld in 1999.

Rocco Canonica

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