EOG gains comfort with Leonard-Avalon shale

EOG Resources Inc., Houston, estimated likely recovery potential at 65 million bbl of oil equivalent from the Permian Leonard shale on 31,000 of the 120,000 net acres the company holds in the Red Hills area of Lea and Eddy counties, New Mexico.

Aug. 10, 2010

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By OGJ editors
HOUSTON, Aug. 10--EOG Resources Inc., Houston, estimated likely recovery potential at 65 million bbl of oil equivalent from the Permian Leonard shale on 31,000 of the 120,000 net acres the company holds in the Red Hills area of Lea and Eddy counties, New Mexico.

The estimate is based on the seven horizontal and four vertical wells the company has drilled. Typical horizontal recovery potential is estimated at 400,000 net boe for $6.5 million/well, or a 40% direct after-tax reinvestment rate of return, EOG said.

The Leonard production stream is roughly one third each of crude oil, natural gas liquids, and gas. EOG noted that because of nomenclature variations, the Leonard formation is variously called Upper Bone Spring or Avalon shale. The Leonard appears to range in depth from 6,500 to 9,000 ft in various parts of the Permian basin.

The company has been working the play for more than 1 year and has production history of more than 300 days from one well. It is drilling in other parts of its acreage and hopes to have more results by the end of 2010 but expects no substantial production contribution until late 2011.

Typical horizontal wells, such as Lomas Rojas 26-1H and 2H, have flowed 710 b/d of oil with 1.7 MMcfd of rich gas and 800 b/d of oil with 1.5 MMcfd of gas. EOG has 100% working interest in the wells.

Other operators have assembled and begun to test large acreage blocks in New Mexico and in Culberson, Reeves, and Loving counties, Texas (OGJ Online, June 9, 2010).