EOG says oil economics favorable at $55/bl

OREANDA-NEWS. September 09, 2015. EOG Resources said that returns on its key acreage is favorable even at \\$55/bl oil, another sign of the resilience of the US shale industry amid falling costs and improving technology.

At its Delaware basin operations in west Texas, the company enjoys a 50pc after-tax rate of return today at \\$55/bl versus 35pc in 2012 at \\$95/bl. In its western Eagle Ford acreage, the return is 45pc at \\$55/bl compared with 60pc in 2012 at \\$95/bl, chief executive Bill Thomas said at the Barclays CEO Energy-Power Conference.

US independents have reacted swiftly to crude prices dropping to six-and-a-half-year lows by improving extraction technology and focusing operations only on areas that offer the best returns. In addition, costs of services such as rigs and crew have declined, all helping producers sustain output even after sharply lowering their spending.

Giving an example of the fall in costs, Thomas said per well costs at its operations in the Second Bone Spring formation in the Delaware basin are currently \\$6mn compared with the 2014 average of \\$7.7mn. The company is targeting to lower the number further to \\$5.7mn.

In the Eagle Ford, completed well costs have fallen to \\$5.5mn per well from \\$6.1mn in 2014 and it expects that to fall to \\$5.3mn. In the Bakken in North Dakota, the company is aiming to lower the number down to \\$6.5mn from \\$7.1mn now and \\$8.8mn in 2014.

EOG has raised its target of 320 drilled but not completed wells by the end of the year from 285 earlier. Keeping a higher inventory of drilled but uncompleted wells allows producers to quickly ramp up output once the market turns.

EOG is aiming to drill 570 net wells by the end of the year from an earlier target of 450, Thomas said.

EOG stood out from its peers including Hess, Anadarko and Occidental during the second-quarter earnings season, by ruling out a production boost despite falling costs on grounds that there is little reason to grow in an oversupplied market.

It plans to reduce its 2015 capital expenditure (capex) guidance by \\$200mn. The producer, which had set a capex budget of \\$4.9bn-\\$5.1bn for the year, saw its capex drop by 40pc in the second quarter compared with a year earlier.