EOG Resources Inc.’s potential natural reserves in the Haynesville/Bossier 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, CEO Mark Papa said last week.

Papa and his management team unveiled the increased reserves numbers for EOG’s onshore gas reserves and detailed a big jump in estimated natural gas liquids and oil reserves at the company’s annual analyst conference on Wednesday.

“The Haynesville/Bossier is the big surprise here,” said Papa. “It’s not so much the increasing reserves, but roughly half of the new reserves are Bossier, half are Haynesville. The Bossier has gotten a little bit of trade press…Based on the results we’ve seen, we believe in both core areas, Louisiana and more important, in Nacogdoches County in East Texas, the Bossier is just as stout as Haynesville.”

The new reserves numbers were based on 128-acre well spacing, with five wells/section per reservoir.

Natural gas prices haven’t made speedy development of the combined gas play a priority, and EOG will be using more of its capital expenditures (capex) in the near term on oilier onshore positions. However, “there are a lot of clocks ticking on the leases in this particular play,” said the CEO. “Natural gas-focused capital to this play is to make sure we keep our lease position,” which means drilling “will likely be intensive from 2010 to 2012.”

Drilling in Bossier and the Haynesville Shale “will devour the drilling capex for all of our gas assets through 2012,” said Papa.

In British Columbia’s Horn River Basin where EOG holds around 157,500 net acres, EOG is “comfortable jumping the reserve estimate from 6 Tcf to 9 [Tcf],” he said. “We’ll be drilling at a moderate pace” under a three-year development plan. “We’re not in any big hurry to develop this.”

EOG wants to link its gas sales from Horn River to an oil-indexed liquefied natural gas (LNG) contract through Kitimat LNG Inc.’s proposed export terminal in Kitimat, BC. Apache Corp.’s Canadian subsidiary, which has partnered with EOG in the Horn River play, holds a controlling stake in the facility (see NGI, Jan. 18).

“Horn River is a powerful asset” that will pay dividends in the years to come, said Papa. “The vast majority of our drilling over the three-year period is to test oil and liquids-rich projects.”

In general, EOG plans only “modest” North American production growth in the near term, he said. The biggest gas-directed spending will be in the Haynesville/Bossier area, “smaller” investments in the Marcellus Shale and Horn River and a “little bit” in the Barnett Shale.

“We will continue to capture more horizontal plays in North America,” Papa told analysts. However, EOG is looking for more liquids and oil resources to complement its big gas plays. Currently the Houston-based independent is weighted half gas and half oil, but the oil and liquids projects will continue to be a growth driver.

“We’re not focused on North American gas growth. We’re really drilling to vest our leases, as opposed to achieving big gas,” said Papa.

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.

“These results reflect EOG’s concerted effort over the last four years to capture early mover positions in new crude oil and liquids-rich plays amenable to horizontal drilling,” said Papa.

The Eagle Ford Shale in South Texas is the latest prize for the company. EOG now holds a total of 580,000 net acres in the play, with around 75,000 acres of wet and dry gas leasehold. The rest of the leasehold is oil-based.

EOG has accumulated acreage across six counties in the Eagle Ford play and to date has drilled 16 delineation wells over a 120-mile trend. Based on initial drilling and production results, as well as technical and core analysis, the estimated reserve potential on EOG’s 505,000 net acre position in the oil window is around 900 million boe net after royalties. The first significant production impact is projected for 2011.

More oily assets are in Canada’s Waskada Field and in Waskada South in North Dakota, which together hold an estimated 47 million boe. In the Denver-Julesburg Basin of northern Colorado and southern Wyoming, EOG has accumulated 400,000 net acres and has completed three successful wells in the Niobrara Play to date. The first well, the Jake 2-01H drilled in Colorado, produced 50,000 bbl of crude oil in the first 90 days.

“The combination of these new assets with the expansion of our existing portfolio positions EOG to become one of the largest domestic onshore Lower 48 liquids producers by 2012,” said Papa. “We believe the South Texas Eagle Ford horizontal crude oil play will prove to be one of the most significant United States oil discoveries in the past 40 years.”

EOG reaffirmed its total company 2010 organic production growth target of 13% and announced 2011 and 2012 total company absolute production growth targets of 19% and 21%, respectively. Total company production growth over the next three years will be driven primarily by increases in crude oil, condensate and natural gas liquids with growth projections of 47%, 60% and 41% respectively.

“EOG’s new discoveries set us up for double-digit high rate-of-return organic growth for several years,” said Papa. “By 2011, the majority of our projected cash flow will emanate from liquids instead of natural gas.”

The producer on Wednesday also announced it would sell $1-1.5 billion of its North American noncore natural gas properties this year or in early 2011. No details were released, but Papa said the sales would help EOG fund its capex through 2011 while maintaining a low debt-to-capitalization ratio. Production targets through 2012 included the effect of these projected asset sales.

EOG’s capex budget for 2010, including gathering and processing expenditures, is projected to be about $5.1 billion.

“Our long-term strategic goals remain consistent,” said Papa. “EOG will focus on returns, be a low-cost operator and maintain a strong balance sheet with low net debt. Our game plan is to continue to organically capture horizontal crude oil and liquids-rich assets, which will position us to deliver strong returns to stockholders.”

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