EOG Resources Inc. (EOG)

[OilStockReport]

Mark Papa on EOG's Eagle Ford properties.

I'll now discuss several of our key plays, beginning with the Eagle Ford. I'll start with an editorial comment. I believe Wall Street continues to undervalue our Eagle Ford oil position. Perhaps the undervaluation is disbelief at the sheer size of this onshore position. Not many people can believe the fact that we've captured a 900 million barrel oil equivalent net after royalty position, consisting of 77% oil and 11% NGLs, with very high reinvestment rates of return. I can't think of a single company, independent or major, who has captured this size net oil accumulation in the onshore lower 48 in the past 40 years. We're in the first inning of developing this asset and just like the Bakken, this is becoming one of the hottest plays in North America. EOG, by moving early, has captured the largest acreage position in the crude oil window. We're the biggest producer from the oil window, with net production of 23,000 barrels of oil equivalent at the end of the first quarter. Our press release contains multiple individual well results, so rather than providing a well-by-well recitation, I'll provide some context regarding the overall play. There are three key points: First, we are currently drilling with 18 rigs. Simply put, we continue to have 100% success with our drilling results. We've now drilled enough wells throughout our 520,000 net acre spread to feel very comfortable that all the acreage is good. Our most recent success is in a new fault block identified on 3D seismic at the north easternmost end of our acreage, where the Hill Unit #2 well tested at 1,233 barrel oil per day initial rate. The results from the wells were drilled across our entire acreage position are very consistent. The wells in the northeast and center portions of our acreage IP at between 800 and 1,500 barrels of oil per day, plus rich gas, while the southwest wells IP at 600 to 800 barrels of oil per day, plus rich gas. As with any resource play, the wells exhibit a steep decline the first few years and ultimately level out at 100 to 200 barrels of oil per day over the long term.

Our per well reserve estimates are unchanged from our previous estimate between 430,000 and 460,000 barrels of oil equivalent, net after royalty. Second, project economics have improved with oil prices and our ongoing focus on cost efficiencies. Last quarter, I quoted 65% to 110% direct after-tax unlevered reinvestment rates of return, using current well cost. Using the current NYMEX oil strip, the per well economics are 95% to 140% direct after tax. Additionally, we still expect to further improve these economics by decreasing well cost from the current $6 million target to our goal of $5 million by 2012 with our self-sourced fracs. When combined with the size of the prize, this bodes huge for EOG's future profitability. Over time, we'll invest between $10 billion and $15 billion developing this asset."