EOG seeks to acquire smaller assets

OREANDA-NEWS. September 18, 2015. EOG Resources is seeking to make "smaller and more tactical" acquisitions to boost its existing portfolio of oil and gas acreage on the back of the plunge in crude prices.

With the plunge in oil from last year, EOG had expected a lot of distress sales offering "unique opportunities" at the start of this year, executive vice president for exploration and production Lloyd Helms said at the UBS energy conference. "We looked at all the opportunities that were out there, but the acreages were really of less quality that what we already have."

That prompted EOG to not look at big M&As and instead focus on purchasing acreage that will help shore up its existing assets.

Given the current downturn, the independent remains focused of further lowering costs at its key shale basins. Its acreage in the Eagle Ford in Texas, the core of its Bakken/Three Forks acreage in North Dakota, the Wolfcamp, the Second Bone Spring and Leonard area, all in the Delaware basin in Texas, are currently posting more than 35pc after tax rate of return at \\$50/bl.

Merger and acquisition (M&A) activity in the US shale industry has remained muted despite a plunge in oil to six-and-a-half year lows as access to capital from equity markets, investments by private equity companies and sale of midstream assets have helped producers shore up their balance sheets. But that is set to change in the later part of this year and into next amid growing expectations of a prolonged weakness in the market, Deloitte said.

"The longer the price downturn lasts, and, perhaps more importantly, the longer market participants think it will last, the more pressure builds from lenders for highly leveraged operators to shore up balance sheets with asset sales," Deloitte said. "The acceptance of the reality of the lower price environment will likely lead to more deal-making through the end of 2015 and into 2016, particularly in the upstream and oilfield service sectors since they are most exposed to lower crude oil prices."

For 2016, EOG said it will keep spending within its cash flow and it has flexibility to alter its spending plans because it lacks large capital commitments for next year. It plans to exit the year with 15 rigs from 50 at the start of the year. It plans to run down its inventory of drilled but uncompleted wells as it heads into 2016 to keep output steady and wait out the downturn.

On hedging, the independent will still lock in fresh positions in 2016 in keeping with the company's policy to have about half of its expected output hedged at any given time. "We like to be in a situation where we would like to put some hedges on, but we just have to wait and see where the prices are," Helms said.