EOG Resources Inc. topped the list of the biggest percentage price gainers on the New York Stock Exchange last Thursday after it boosted its 2009 and 2010 organic production growth estimates and announced four new natural gas and crude oil discoveries.

Wall Street’s enthusiasm followed EOG’s news that it now expects production in 2009 and 2010 to grow 13-15%, compared with a previous forecast of 10%. The company also reported that its total crude and natural gas liquids (NGL) volumes are expected to jump at “a disproportionately higher rate than its natural gas production.” Even with the oil and NGL gains, EOG, which currently is 86% weighted to gas, would be 77% gas-weighted in 2010.

“By applying our expertise in horizontal drilling and completion techniques, EOG is positioned to replicate its success in the Fort Worth Basin Barnett Shale and North Dakota Bakken with several newly identified onshore North American plays that show substantial promise,” said CEO Mark G. Papa. “Although some of these discoveries are in the very early stages of delineation, they are expected to impact EOG’s reserves and production in the coming years.”

Papa and his management team led financial analysts and investors through the company’s production profile and forecast at a conference Thursday.

“In my opinion, we are currently in the very early stages of a major, major sea change in the oil and natural gas business,” Papa said. “That sea change is being caused by the technical improvements in horizontal drilling and associated well completions…This is a really, really big deal, and the magnitude of this is underestimated by Wall Street and perhaps other E&Ps [exploration and production companies]…Horizontal drilling was first in the United States, then it moved to Canada, and ultimately, it will be in all onshore areas in the entire world.

“If you really just step back and look at the big changes onshore in the United States in the last several years, and look obviously at the Barnett Shale and horizontal drilling, perhaps other shale plays, Woodford, Fayetteville…oil plays like the Bakken, a significant amount of the major movers of this whole industry in the onshore United States were caused by horizontal drilling.”

Through horizontal drilling techniques EOG increased its potential reserve recovery from the Barnett Shale and Uinta Basin, and the company has four promising new discoveries “that could contribute to future reserve and production growth,” Papa said. Crude oil discoveries include regions of Montague, Clay and Archer counties, north of Fort Worth, TX, which is also part of the Barnett Shale, as well as a crude oil discovery in North Park Basin, CO, which is near Steamboat Springs.

Natural gas discoveries were reported from three vertical and horizontal wells in northeastern Horn River Basin, BC, where EOG has accumulated about 140,000 net acres. Last year EOG drilled the Trail a-26-G horizontal well, which tested at 5 MMcf/d. Two other recent EOG wells tested at 3.5 MMcf/d and 4.2 MMcf/d, each from only partially completed laterals. A fourth horizontal well is currently being drilled.

“Although the play is still in the very early stages of delineation, based on core data, technical analysis and flow tests to date, EOG’s acreage may have potential net reserves of approximately 6 Tcf of natural gas,” Papa said. “EOG is planning additional development wells in 2008 to further refine the drilling and completion processes in this resource play. First production is expected to start in June, with more significant volumes coming online in 2010 and beyond.”

Because the BC play is still in preliminary stages, its potential production increase had not been considered in the 2009 and 2010 forecasts, Papa noted.

The Houston-based producer also is in the early stages of testing three horizontal wells in the Mississippi Chalk play in Jefferson Davis County, MS. The preliminary net reserve potential of the play, in which EOG has accumulated 14,000 net acres, is estimated to be about 200 Bcf. Papa said “the first significant production” from the horizontal development of the field is expected to begin in 2009.

“We now produce about half a billion a day [0.5 Bcf/d] from horizontal wells, and it’s moved up to be 25% of total company production,” said Papa. About 30% of EOG’s total North American production is from horizontal drilling, he added. “The horizontal wave is a big, big deal to us.”

EOG’s strategy remains consistent, said the CEO. “We will focus on organic growth through the drillbit to continue to deliver high rates of return while maintaining a very low debt level.”

Based on improvements in its horizontal drilling and recovery techniques, EOG expects to deliver higher per-well reserve recoveries in certain areas of Johnson County, TX, in the Barnett Shale — the company raised its estimated reserve potential there by 500 Bcfe. The total net reserve potential for EOG’s 650,000 net acres in the Barnett Shale play is in the range of 5 to 7.2 Tcfe net. EOG’s proved reserves in the Barnett Shale at the end of 2007 totaled 1.4 Tcfe.

EOG also increased the potential unbooked gas reserves in Utah’s Uinta Basin acreage based on results from a detailed technical study of data from three Mesaverde wells that were drilled on 10-acre spacing. Reserves there now are estimated to be about 800 Bcfe higher than earlier estimates. At the end of 2007, EOG had 915 Bcfe of proved reserves in the Uinta with additional net reserve potential of 1,750 Bcfe remaining.

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