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EOG Resources Shares Rise After Production Forecast
>> what's significant here... another major NG producer moving towards oil AND they are finding it in shale plays... re: watch CHK

By Jim Polson and David Wethe

April 7 (Bloomberg) -- EOG Resources Inc., the Houston- based oil and gas producer that has gained 68 percent in the past year, rose 6.5 percent after it said output will grow 19 percent in 2011 and 21 percent in 2012 as it exploits new onshore crude discoveries and sheds some natural-gas holdings.

EOG rose $6.36 to $103.74 as of 4:01 p.m. in New York Stock Exchange composite trading. It jumped as much as 8.1 percent earlier today. The stock, which has 14 buy ratings from analysts, 10 holds and 2 sells, has climbed 6.6 percent this year.

Asset sales of as much as $1.5 billion will help fund increased drilling, the company said in a statement released before an analyst meeting today. Capital spending will be $5.1 billion this year, compared with a 2009 budget of $3.3 billion.

Production of oil and other petroleum liquids will rise 47 percent this year and 60 percent next year as the company benefits from discoveries in Texas and North Dakota, EOG said. It announced estimated potential reserves equivalent to 900 million barrels of oil in the Eagle Ford region of South Texas after drilling 16 wells, with first “significant” production planned for next year.

“The South Texas Eagle Ford horizontal crude oil play will prove to be one of the most significant U.S. oil discoveries of the past 40 years,” Chief Executive Officer Mark G. Papa said in the statement. “By 2011, the majority of our projected cash flow will emanate from liquids instead of natural gas.”

Reserve Estimate Boosted

The company also raised its potential reserve estimate fivefold for North Dakota’s Bakken Shale to 420 million barrels of oil equivalent. It estimated 20 million barrels of oil equivalent reserves in Spearfish, another North Dakota field, after drilling two wells there in the first quarter.

The production targets include the sale of “non-core” natural-gas holdings late this year and in early 2011, EOG said.

The properties are expected to go on the market by June, Papa told analysts today at a meeting in Houston. The company could sell additional natural-gas properties by around 2012, Chief Financial Officer Tim Driggers told the analysts.

Hard Rock

The company is adapting techniques used to tap hard rock such as shale to extract oil and natural gas rich with liquids that can substitute for petroleum products more valuable than gas in today’s markets. Producers are drilling horizontally to expose thousands of feet of rock and fracturing it with a mix of chemically treated water and sand to liberate resources.

“There’s a paradigm shift among the operators,” Biju Perincheril, a New York-based analyst for Jefferies & Co. who rates the shares “buy” and owns none, said in a telephone interview. “There’s still skepticism that horizontal oil-shale plays can work.”

The company said its first well in the oil-bearing Niobrara formation of Northern Colorado produced 50,000 barrels of oil in the first 10 days. Complex natural fractures in the rock require more mapping before a development plan is drawn, the company said.

EOG estimated potential reserves equivalent to 370 million barrels of oil from the so-called “combo” area of the Barnett Shale in Texas, an area where it was an early producer of gas from horizontally drilled wells. The combo area yields gas rich in liquids that can be sold as fuel and chemical feedstock.

“What works is finding these hybrids,” Perincheril said. “The method of finding those and developing them is evolving.”

http://www.businessweek.com/news/2010-04-07/eog-resources-shares-rise-after-production-forecast-update4-.html