Strongly Placed in the US Unconventional Shale Market; Pioneer in the Development of Oil Play

Friday 27 July 2012, Amsterdam

Pioneer in Oil Play Development; Switching from Natural Gas Development to Oil Focused Development; Eagle Ford Shale to be the Major Contributor

EOG has traditionally been one of the major natural gas producers in the US. Its natural gas production contribution was 10.2% during 2004–2010. However, the disparity between natural gas and crude oil prices has increased drastically in recent years, which has forced EOG to shift its focus towards the development of unconventional oil to boost its revenues and profitability.

EOG’s first mover advantage in developing oil plays has been helping the company to maintain a competitive edge over its peers in the development of these plays. The company’s shift to develop unconventional oil plays has helped it to diversify its upstream operational mix and allowed it to take an initial step toward oil plays. EOG has gained technological expertise in exploring oil plays, which benefits the company in terms of improved operational performance.

Since the commencement of horizontal oil play development the company has been adding crude oil inventory, which is continuously boosting its reserve base. EOG has been developing oil plays, primarily in the Eagle Ford shale, the Bakken shale, the Wolfcamp and Leonard shale and the DJ Niobrara shale. Apart from its oil plays, the company has been exploring unconventional gas assets in the Haynesville/Bossier shale, the Marcellus shale and the Uinta basin.

In line with its plan to develop unconventional oil plays, EOG has targeted the Eagle Ford shale to increase the liquid content of its total production. EOG had an oil window of 572,000 net acres in its 647,000 acreage in Eagle Ford as of 2011. The Eagle Ford shale has emerged as one of the major unconventional resources due to the liquid-rich content of the play. With the current disparity between natural gas and crude oil prices, this shale is expected to boost the company’s overall profitability. EOG has around 1,600 MMboe of resources in the Eagle Ford shale, of which 71.0% is crude oil as of March 2012. The company has been focusing on the further exploration and development of the Eagle Ford shale by drilling approximately 280 net wells in 2012. The company reported net daily production of approximately 34.1 Mbbl/d of crude oil and 21.0 MMcf/d of natural gas from the Eagle Ford shale during 2011. With the development of the Eagle Ford shale, EOG expects its oil production to receive a significant boost to further improve its profitability. The company’s crude oil and NGLs contributed 36.8% during 2011, up from 27.2% in 2010. GlobalData expects crude oil and NGLs to contribute around 45.1% during 2012 and increase to 79.7% by 2016.

Apart from its Eagle Ford shale exposure, EOG has been exploring the Bakken shale to further substantiate its plans to develop unconventional oil plays. The company was the top oil producer from the Bakken Shale in North Dakota as of December 2010. EOG has continued the expansion program in the shale by increasing development activities in the Williston basin and Three Forks formation.

The company increased its activity in the Barnett Shale play of the Fort Worth Basin during 2011-2012. It has completed 184 net Barnett wells, and increased its drilling potential area from approximately 90,000 net acres to 175,000 net acres in combo wells. During 2012, EOG plans to complete approximately 200 net wells. EOG has continued its expansion program by increasing development activities in the Williston Basin and the Bakken and Three Forks plays.

Apart from holding good position in Eagle, Barnett and Bakken Shale, the company also marks a strong footprint in the Wolfcamp and Leonard Shale and the DJ Basin Niobrara Shale. The company is also well established in emerging plays such as the Leonard-Avalon Shale and Bone Spring plays in the Delaware Basin and the Wolfcamp Shale play in the Midland Basin. The company drilled 34 net wells in the Permian Basin to explore the Leonard-Avalon Shale, Bone Spring, Wolfcamp and Wolfberry formations during 2010. EOG also holds 220,000 net acres in Niobrara Shale (Rocky Mountain area).

EOG has a substantial inventory of captured assets in other plays including Haynesville/Bossier, Marcellus, Barnett Shale and Uinta Basin. The company’s major growth driver for 2011 has been the Haynesville/Bossier Shale, located near the Texas-Louisiana border. The company drilled 40 net wells in 2011 compared to 13 net wells in 2009. EOG also has a presence in other shale assets such as Marcellus, Barnett and Uinta Basin. The company has a large inventory of reserve potential in these assets. The report expects EOG will continue to add further production with its large reserves base.

The current natural gas price scenario is leading the majority of companies to seek opportunities to develop crude oil resources. However, EOG has had a strong, long-standing presence in the development of oil plays. This report expects the company’s plans to explore the US unconventional horizontal oil plays will bring upside to its long term production