EOG Resources Inc. reported second-quarter net income to common shares of $329.6 million, ($1.34/share), up substantially from $247.6 million, ($1.02/share), in the year-ago period. Strong results in the Barnett Shale were a big part of the improvement. Gas production was up modestly overall and gas liquids prices were up sharply.

For the first half of 2006, EOG’s U.S. natural gas and natural gas liquids production increased 10.6% over the same period last year, driven in part by success from the Barnett Shale play in Central Texas. Favorable results from EOG’s Rocky Mountain, East Texas and North Louisiana drilling programs also bolstered performance.

U.S. and Canadian wellhead gas volumes totaled 1,001 MMcf/d in the second quarter, up from 934 MMcf/d in the year-ago period. For the first half, production was 994 MMcf/d, up from 929 MMcf/d a year ago. Prices tended to be stronger in the United States than in Canada. Composite prices for U.S. and Canadian production were $6.32/Mcf in the second quarter, down from $6.49/Mcf a year ago. In the first half they averaged $7.04/Mcf, up from $6.20/Mcf a year ago. Natural gas liquids U.S. and Canadian volumes were 9.6 thousand bbl/d in the second quarter, up from 9.1 thousand bbl/d in the year-ago period. For the first half volume was 8.8 thousand bbl/d, up from 8.0 thousand bbl/d in the year-ago period. U.S. and Canadian liquids prices averaged $41.38/bbl in the second quarter, up from $30.51/bbl in the year-ago period. For the first half prices averaged $39.72/bbl, up from $29.81/bbl in the year-ago period.

“Production from the Barnett Shale continues to surpass our internal forecast. We recently achieved net natural gas production of over 140 MMcf/d, which exceeds our original plan and is also approaching our original year-end target,” said CEO Mark G. Papa. “The organic growth rate and operational success of the Barnett have been tremendous considering that this time last year, we were producing about 36 million a day from the play.”

Another area recording strong performance during the second quarter was South Texas. EOG reported successful drilling results from the Frio Formation in San Patricio County. The Kirk Gas Unit No. 4, in which EOG has an 87% working interest, was drilled to a depth of more than 12,000 feet. After fracture stimulation, the well tested at a gross rate of 13 MMcf/d of gas and approximately 800 bbl of condensate per day. Several offset well locations are planned for later in the year. Also in South Texas, EOG reported success from the Lobo formation. EOG has an 88% working interest in both the Slator Ranch V No. 1 and the Slator Ranch W No. 1 that were each drilled to depths of approximately 11,000 feet. The V No. 1 is producing at a gross rate of 13 MMcf/d and the W No. 1 at 18 MMcf/d of natural gas.

Financial results for the second quarter 2006 included a tax benefit of $18.6 million, 8 cents/share, related to a Canadian federal tax rate reduction, a tax benefit of $13.4 million, 5 cents/share, related to a provincial tax rate reduction in Alberta, Canada, a tax expense of $5.2 million, 2 cents/share, related to a revision of the Texas franchise tax law and a previously disclosed $91.0 million ($58.6 million after tax, or 24 cents/share) gain on the mark-to-market of financial commodity price transactions.

During the quarter, the net cash realized related to financial commodity contracts was $63.9 million ($41.1 million after tax, 17 cents/share). Reflecting these items, second-quarter 2006 adjusted non GAAP net income available to common was $285.3 million, $1.16/share. Last year’s second-quarter results included a positive adjustment to revenue of $19.3 million ($8.7 million after tax, 4 cents/share) related to an amended gas sales agreement. Reflecting this item, second-quarter 2005 adjusted non GAAP net income available to common shares was $238.9 million, 98 cents/share.

EOG reduced long-term debt outstanding to $893 million at June 30. At quarter-end, cash on the balance sheet was $759 million for non GAAP net debt of $134 million. The company’s debt-to-total capitalization ratio was 15% at June 30, down from 19% at Dec. 31, 2005.

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