Houston-based EOG Resources Inc.’s total North American natural gas production rose 2.6% in the first quarter compared with a year ago, as Canadian production jumped 8.1% to 158 MMcf/d on favorable results from its shallow drilling program and U.S. gas production rose 1.1% to 642 MMcf/d. The company also enjoyed a 163% increase in domestic natural gas prices during the quarter compared with 1Q2002.

Earrnings also were up during the quarter to stand at $126.7 million ($1.09 a share), compared with losses of $27 million (minus 23 cents) a year ago. First quarter results included a one-time charge of $7.1 million (6 cents) from accounting changes and a previously disclosed $45.2 million ($29.1 million after tax, or 25 cents a share) loss on the mark-to-market of commodity price transactions. In addition, EOG reduced its debt ratio to 36% by March 31, down from 41% at the end of 2002.

“EOG’s first quarter 2003 net income exceeded that of the full year 2002,” said CEO Mark Papa. “With such strong cash flow, we already have accomplished several of our key 2003 goals. The common stock dividend has been increased for the third time in four years, allowing us to share the benefits of higher commodity prices with our shareholders, and during the first quarter we reduced debt by $101 million, further improving our financial position. We are off to a very strong start this year.”

Reiterating what he’s said in recent months, Papa cautioned that he expects North American gas prices to remain at high levels ($4.70 and above) at least through 2007 because of three factors: continued high exports to Mexico for at least the next few years; continued lower production rates from Canada; and continued low storage levels. “I don’t see anything changing the deliverability picture in ’04, 05 and ’06 and nothing fundamentally changing until 2007” when he said new liquefied natural gas terminals will be completed.

While some companies are ramping up their exploration and production to take advantage of the higher gas prices, Papa said EOG will remain more conservative in its growth, testing drilling sites thoroughly before proceeding and remaining on a path of 3-5% growth a year.

And despite what he sees as a decline in overall North American production, EOG’s future remains focused on North American gas, said Papa. However, EOG also plans to build its already strong foothold in Trinidad, where the company has seen “tremendous” growth in the past year — with more to come.

EOG plans to build gas sales growth in the Trinidad region 11% between 2001 and 2006, and Papa said he hopes to announce more contracts by October. EOG’s Trinidad net gas sales in 2001 were about 110 MMcf/d, all from its existing SECC block reserves. EOG added ammonia sales under a contract with Trinidad in the third quarter of 2002 (see Daily GPI, May 2, 2002).

On the production side, however, the rise is even more dramatic. With its gas sales contracts and new discoveries, EOG expects to increase production in the Trinidad region to 210 MMcf/d by 2006, nearly double its current production level.

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