Tags: EOG | Resources | shale | oil

EOG Refocuses on US Shale Oil for Growth

By    |   Wednesday, 28 March 2012 12:02 PM

EOG Resources (EOG), a big player in North American shale development, is pursuing growth in oil and liquids output as natural gas prices run low.

The company, based in Houston, Texas, is scaling back dry gas drilling in favor of developing oil and natural gas liquids, including ethane and propane, in the United States.

There is a reason for the strategy. A boom in shale gas production has driven gas prices to a near-decade low as output grows faster than demand.

Crude, on the other hand, has shot up from as low as $20 a barrel in the 1990s to $108, its second-highest level in history other than in 2008. This drives up prices for gas liquids because they trail the price of crude.

Indeed, EOG has earmarked 90 percent of its exploration and production expenditures this year to oil and liquids, the rest to gas. It is shooting for a 30 percent annual rise in oil and liquids production, faster than a previous target of 27 percent.

Gas production will drop 11 percent this year to extend a two-year decline.

Promising acreage

The company has promising acreage for development, chiefly in the South Texas Eagle Ford play, where last year it jacked up its potential reserves estimate to 1.6 billion barrels of oil equivalent — gas, crude and liquids – from 900 million, on better-than-expected drilling results.

More could be found. EOG has drilled 375 wells in the play, leaving around 2,800 more sites for drilling.

EOG estimates it will spend up to $7.6 billion this year on development, raising funds in part by selling $1.2 billion in assets. Management said that the strategy will keep a lid on its debt load at less than 30 percent of its total capital.

Another effort is to expand abroad, with 100,000 acres to be explored in Argentina, which is thought to have as much potential for shale output as the United States.

EOG’s revenue rose 66 percent on the year to $10 billion in 2011, while its profit surged to $1.1 billion from $161 million over the same period, helped by rising production and a series of one-time gains.

Morningstar analysts say they are optimistic on EOG’s growth potential in production and reserves, saying that its early entry into the shale industry allowed it to amass low-cost acreage positions while operating flexibility is keeping its books healthy.

Of the 33 analysts followed by Thomson/First Call, nine have strong buy recommendations on EOG and nine have buys, with 14 holds and one underperform.

The company is due to next report on May 7, 2012.

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