Anyone who doubts the growing importance of onshore unconventional natural gas basins should take a look at second quarter results from EOG Resources Inc. and Southwestern Energy Co. Both companies credit prolific shale production — EOG’s in the Barnett and Southwestern’s in the Fayetteville — for strong results last quarter.

EOG 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.

Southwestern

Southwestern said gross production from its Fayetteville Shale wells in Arkansas has reached about 50 MMcf/d, up from about 20 MMcf/d May 1. The increase was due to the increased pace of development as additional drilling rigs were placed in service and improved fracture stimulation techniques. Southwestern said it expects continued improvement as development proceeds.

“Our activities in the Fayetteville Shale play are accelerating,” said CEO Harold Korell. “We are continuing to move up the learning curve and have seen marked improvements during the quarter in both our drilling and completion of our horizontal wells. As a result, our production volumes from the Fayetteville Shale have increased dramatically.”

Southwestern invested a total of $344.2 million in its exploration and development program during the first half of 2006, compared to $179.6 million in the first half of 2005. During the first six months of 2006, the company participated in 170 wells, 68 of which were successful, 98 were still in progress and four were dry at June 30. The company’s drilling program continues to be highly effective, with a 94% success rate through the first half of 2006.

In the first six months of 2006, Southwestern invested $119.7 million in its Fayetteville play, which includes $88.6 million to spud 86 wells, $17 million for leasehold and $14.1 million for seismic expenditures, office equipment and capitalized expenses. Through July 31, Southwestern has drilled and completed a total of 105 wells in the Fayetteville, of which 54 are designated as horizontal. The wells are in 21 separate pilot areas in eight counties in Arkansas. Of the 54 horizontal wells, 50 were currently producing. Seventy-three wells were in the drilling or completion phase at July 31, including 42 wells that had been drilled through the vertical section with a smaller rig and will be re-entered with a larger rig capable of drilling the horizontal section.

During the second quarter, the company moved away from completing wells using nitrogen foam fracture stimulations in favor of larger slickwater and cross-linked gel stimulations, based upon the improved well performance experienced with those treatments (see Daily GPI, June 28). Through July 31, the company had performed 29 slickwater or cross-linked gel fracture stimulation treatments on horizontal wells currently on production. The average initial production test rate for these 29 wells was 1.7 MMcf/d, 20 of which had been on production for more than one month. The average rate for these 20 wells after 30 days was 1.6 MMcf/d.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.