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EOG to continue selling certain natural gas assets

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Nov. 5 -- Houston independent EOG Resources Inc. plans to continue its strategy of selling certain natural gas assets going into 2011 after a comparison of its inventory of liquids-rich drilling opportunities against depressed gas prices, said Mark G. Papa, chairman and chief executive officer.

Papa’s comments came during a third-quarter earnings call in which EOG reported a $70.9 million loss compared with third-quarter 2009 net income of $4.2 million. EOG will use proceeds from the sale of gas assets to fill any gap between estimated cash flows and capital spending.

The company plans to close on $600 million to $1 billion in asset sales by yearend 2010 and plans another $1 billion or more in sales in 2011. Most of this is expected to be gas acreage or producing gas assets.

“EOG does not intend to sell down or joint venture any of its crude oil resource plays as we continue our strategic shift from natural gas to liquids,” Papa said. “We will be selling more gas in the next 18 months than we are developing new gas.”

Papa declined to identify which assets will be put up for sale. EOG already has sold some shallow gas assets in Canada and plans to sell some more during the next 16 months, Papa said.

Beginning in 2011, EOG will be predominantly an oil company, Papa said, noting he expects 67% of EOG’s US and Canadian revenue will come from crude, condensate, and natural gas liquids compared with 77% coming from gas during 2007.

“Obviously in this price environment, we’re not incented to grow gas volumes,” Papa told analysts during a conference call on Nov. 3. Low gas prices reflect a slow economy, Papa said, adding that the costs of hydraulic fracturing have increased substantially and that frac equipment is in tight supply.

EOG reduced its 2010 production-growth outlook to 9% from 13%. The company expects 10% production growth during 2011 and 12% growth during 2012.

EOG operating highlights
In the Eagle Ford play in south Texas, EOG has drilled 77 wells across its 505,000-net acreage position. Papa said drilling and completion operations there reinforced confidence in the company’s estimated 900 million boe net of which 77% of oil.

Papa said he expects “significant production increases in 2011 as numerous clusters of wells are turned to production.” EOG operates a 10-rig drilling program in the Eagle Ford and plans to add another rig by yearend. The company plans to average 14 rigs there in 2011.

EOG operates a 16-rig drilling program in the North Texas Barnett play, which Papa called “a key EOG asset in full development mode.” The company is focusing on multi-well development patterns in Montague and western Cooke counties. EOG has both Barnett liquids and gas production. It expects its current “strong crude oil production momentum” will carry beyond 2011.

The North Dakota Bakken play is EOG’s largest crude producing asset, and it resumed well completions during the second quarter following a winter 2009-10 drilling program. Numerous horizontal Mandaree wells have been brought on stream on 18,000 net acres in McKenzie County southwest of Parshall, ND.

EOG operates a 10-rig Bakken drilling program in North Dakota and Montana. The company also reported continued drilling success on the New Mexico Leonard shale.

Contact Paula Dittrick at paulad@ogjonline.com.


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