EOG Resources Inc. is forecasting its natural gas production will continue to build through “at least 2010” through its Barnett Shale and Uinta Basin reserves — and maybe some stealth projects still unmentioned — but don’t expect CEO Mark Papa to change his view of Energy Information Administration (EIA) data that indicates there’s overall gas growth across the United States. The numbers just aren’t there, he said Friday.

Papa held sway over a conference call with energy analysts and investors Friday morning to discuss EOG’s year-end and 4Q2007 results, which were impressive on every level. Net income in the quarter rose to $358 million ($1.44/share), compared with $237.2 million (96 cents) in 4Q2006. Excluding one-time items, adjusted income was $1.29/share, EOG said. Revenue jumped to $1.25 billion from $931.4 million. Wall Street analysts on average had expected EOG’s profit to reach $1.10/share on revenue of $1.16 billion.

“Despite volatile natural gas prices, 2007 was an excellent year for EOG,” said Papa. “Total company production grew 11% and total reserves increased 14% at an attractive replacement cost.” He credited EOG’s ability to “continue to be at the forefront of emerging technology for first-mover results” in the Barnett, East Texas and Rocky Mountains. Besides EOG’s strong gas output in the Uinta play, it also is building strong crude oil reserves from the Bakken field in North Dakota and expects to see a 40% hike in natural gas liquids growth this year from the Barnett Shale.

EOG’s gas production rose 19% overall in the United States last year, with 10% total growth from domestic, Canadian, UK and Trinidad holdings. EOG’s Barnett Shale gas output rose around 15%.

“Based on the current North American natural gas market, in which we expect 2008 Henry Hub gas prices will average at least $7.50, we are targeting approximately 15% total company production growth in 2008, the mid-point of our previously stated range,” said Papa. “Essentially all of our projected production growth will emanate from our U.S. operations, since we expect production from Canada, Trinidad and the United Kingdom to be relatively flat with 2007 levels. Although we have a strong hedge position in place, by closely monitoring natural gas fundamentals and staying flexible, we are positioned to adjust our 2008 drilling activity in response to a higher or lower gas price environment while maintaining a conservative balance sheet.”

Papa told analysts he was not as optimistic as federal officials about overall North American gas growth.

“We expect North America gas to grow about 2% this year, and Canadian gas to decline by about 1%, and because of start-up delays, year-over-year LNG [liquefied natural gas] will be flat,” Papa said. “This provides a flat year-over-year supply picture,” which leads EOG to forecast a more bullish outlook for gas prices. “Demand in the last seven weeks has exerted a major influence on prices. In my view, we see a $7.50-8.50 [per MMBtu] Henry Hub for 2008.”

Papa said the “storage withdrawals this year indicate to me a system that is tighter than a year ago, which flies in the face of [EIA] 914 data. We reject the 914 data.” In December EIA reported that new deepwater supply infrastructure in the Gulf of Mexico and ongoing efforts to develop unconventional reserves would lead to a rise in total U.S. marketed natural gas production of about 1.6% this year (see NGI, Dec. 17, 2007).

“On the macro side, we continue to believe that total North American decline rates will continue to jump…higher than 3.6% a year. We believe that you’re going to see these unconventional plays level out. The decline rates [by EIA] are not particularly valid, and we’re going to replace the Gulf of Mexico production with what?…As I’ve discussed, the EIA 914 data does not have a lot of credibility with me. It consistently overstates production growth in the United States. The EIA forecast of 1.6 production growth…and how they get reconciled with 914, I’m not sure.

“What I’d say is that it’s very difficult for me to believe that gas production is growing at the rate that 914 indicates when we are drawing down storage that looks to be 1 to 2 Bcf/d tighter than last year…and that’s adjusting for LNG imports.”

EOG has about 33% of its North American gas hedged at a $8.51/MMBtu average price for 2008. It also has 14% of its total company oil hedged at an average price of $90.78/bbl this year. Another 200 MMBtu of production has been hedged in 2009 at a price of $8.50/MMBtu. Papa said more hedges may be added “over the next few months, depending on the market.” EOG’s hedges mirror ones announced last week by Anadarko Petroleum Corp. and Devon Energy Corp. (see related stories).

At year-end 2007 total company reserves were 7.7 Tcfe, an increase of 944 Bcfe from year-end 2006. Last year total reserve replacement from all sources, which included the ratio of net reserve additions from drilling, acquisitions, revisions and dispositions to total production, was 248% at a total reserve replacement cost of $2.24/Mcfe. The costs excluded gathering systems, processing plant and other expenditures. From drilling alone EOG added 1,534 Bcfe of reserves on capital spending of $3.55 billion.

In the United States, EOG added 1,580 Bcfe of reserves from drilling and acquisitions, net of revisions with capital expenditures of $3 billion, excluding gathering systems, processing plant and other expenditures, at a reserve replacement cost of $1.90/Mcfe.

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