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EOG Resources boosts capital spending Independent launches aggressive drilling program; sees largest production increase to come from Western Canada Petroleum News-Houston
U.S. natural gas producer EOG Resources says it’s going to boost its capital spending and increase drilling dramatically in the second half of the year.
“We anticipate that organic growth … gas volumes will ramp up both in the third and, more substantially, in the fourth quarter,” Mark Papa, EOG’s chief executive officer, said Aug. 6.
The Houston-based independent said it would increase its rig count to around 50 during the second half from an average 32 during the first six months of the year, a 56 percent increase. To help pay for the additional rigs, the company said it would budget another $75 million, putting planned expenditures for the year between $925 million and $1 billion.
“It is our view that natural gas fundamentals will remain relatively tight during the second half of 2003, reflecting the industry’s inability to significantly address declining production levels,” Papa said. He predicts 2003 gas output in the United States to decline by 2 percent from 2002.
The company now projects that its 2003 gas production will average between 935,000 and 990,000 million cubic feet per day, compared to 924,000 million cubic feet per day for 2002, a 7 percent increase on the high side of the production range.
The largest production increase during the second half of the year will come from onshore western Canada, where EOG said it already has doubled drilling activity over the first quarter. The company is running six rigs and expects to drill roughly 1,000 wells in western Canada, “with almost all of them completed by Sept. 30,” Papa said. Most of the production increase will come during the fourth quarter when wells are tied in.
Additional production increases will come from the company’s Devonian play in West Texas, the Big Piney field in Wyoming and EOG’s South Timbalier discovery on the Gulf of Mexico’s continental shelf. Rocky Mountain platform Papa said the company recently entered into a 70,000 acre farm-in deal with a major in Wyoming, which he did not name, and will continue to pursue similar agreements.
“We’ll start out with a 30 well program which, if technically successful, we’ll expand to 160 wells. This provides us a new Rocky Mountain production platform,” Papa said.
He said the majors are “under a lot of pressure to maintain North American production but are under cost constraints.” Farm-out deals allow them to “grow properties without having to commit capital.”
Pursuing more international opportunities
EOG is also increasing its exploration efforts in Trinidad, where “the gas market supply demand dynamics have changed during the past year,” Papa said, transitioning from a market “long on gas supply and short on demand” to a market “that has equaled out with LNG commitments.”
EOG, which conducted 3-D seismic on its Trinidad acreage in the first half of the year and will drill two wells this fall, still expects to have a sales contract in hand by Oct. 1, Papa said. The company continues to view Trinidad as a key part of its portfolio.
EOG plans “to continue to cautiously drill our way into new areas rather than to pursue the M&A approach,” Papa said. “We continue to be interested in the UK North Sea and will likely drill one or two more farm-in wells before the year end.”
EOG posted 2003 second-quarter net income of $106 million or 91 cents per share, compared to $35.4 million or 30 cents per share for the same period last year.
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