The Energy Information Administration’s (EIA) recent downward production revision probably wasn’t steep enough, according to EOG Resources Inc., which on Tuesday reported a 4.8% decline in its own first quarter natural gas production.

“Regarding North American gas, we are short-term moderately bullish and long-term rather bearish,” CEO Mark G. Papa said during a conference call with analysts. “We think last week’s EIA-914 downward revision was only about one third of what we calculate, so we continue to believe the market is tighter than common perception. We will be watching the storage builds this summer to confirm or disprove our thesis. We currently have only a very small 2010 gas hedge position and don’t think this is a time to be adding gas hedges.”

The long-awaited release by the EIA of U.S. production revisions revealed that the previous report of 63.43 Bcf/d being produced from the Lower 48 during January 2010 was actually 0.9%, or 0.6 Bcf/d, too high (see Daily GPI, April 30). Under the administration’s new 914 reporting methodology, the EIA revised its previous number for January to 62.85 Bcf/d, noting that nearly all of the 0.6 Bcf/d downward revision came from the federal Gulf of Mexico, Louisiana and Texas. The EIA said February 2010 production data for the Lower 48 of 63.85 Bcf/d grew by 1.6%, or 1 Bcf/d, over the revised January number, with the largest increase seen in Texas with roughly a 0.35 Bcf/d (1.7%) increase. The government agency found that Louisiana, sparked by the continued development of the Haynesville Shale, displayed the largest percentage increase at 5.7%, or about 0.3 Bcf/d.

EOG has said for some time that EIA 914 data is “consistently overstating” U.S. natural gas production (see Daily GPI, Feb. 11).

Last month EOG said its potential natural reserves in the Haynesville/Bossier Shale play now are estimated at 10 Tcf — three times the initial assessment of 3 Tcf — and its holdings in British Columbia’s Horn River Basin may hold 9 Tcf, well above an initial estimate of 6 Tcf (see Daily GPI, April 8). The new reserves numbers were based on 128-acre well spacing, with five wells/section per reservoir. At the same time EOG detailed several new onshore crude oil discoveries in South Texas, North Dakota and Colorado. Potential reserves were increased on its Bakken/Three Forks and the Barnett Shale combo crude oil and liquids-rich acreage.

Well results since then, particularly at the Settle B1H well in the eastern portion of the Barnett combo play, which EOG expects will yield reserves considerably higher than its model horizontal well, reinforce the theme of the company’s April analyst conference, Papa said. EOG’s three big horizontal plays — the Barnett combo, Eagle Ford and Bakken shales — are all performing as well or better than expected.

“The bottom line is that everything is on track, consistent with the information we provided at the conference. We still expect to grow total production 13% this year, with year-over-year liquids growth of 47%,” he said. “Our projected capex [capital expenditure] level is unchanged [at about $5.1 billion for 2010] and we still expect to sell $1 billion to $1.5 billion of North American gas properties by year-end. Also, we are investigating joint venture (JV) possibilities for our Marcellus and Horn River shale gas acreage.” EOG would retain a significant interest and continue to operate in the Marcellus and Horn River, Papa said.

“It is not at all certain that we will implement a JV, but at least we will investigate it.”

While EOG’s gas production declined in the first quarter, the average price increased 25%. EOG reported net income of $118 million (46 cents/share) in 1Q2010, a 26% decrease compared with $158.7 million (63 cents) in 1Q2009. Marketing, transportation and other costs drove the earnings decline.

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