EOG Resources (NYSE:EOG) reported a large year over year increase in oil and liquids production in the third quarter of 2010, as it continues toward its goal of becoming less of a natural gas company. The company also reduced its guidance for production growth for the current year due to a cutback in natural gas development.

IN PICTURES: 5 Tips To Reading The Balance Sheet

Third Quarter of 2010
EOG Resources reported a GAAP loss of $70.9 million, or $0.28 per share in the third quarter of 2010. This loss was impacted by several charges during the quarter, the largest of which was an impairment charge of $208.3 million, or $0.82 per share related to natural gas assets in Canada.

The company reported average production of 109,300 barrels of oil, condensate and natural gas liquids per day in the third quarter, up 30% from the 83,600 barrels per day reported in the third quarter of 2009.

EOG Resources also cut its estimates for organic production growth for 2010, from 13% to 9%. The company blamed a decrease in North American natural gas drilling activity for 70% of the volume reduction. EOG Resources also said that production growth for 2011 and 2012 would be 10% and 12%, respectively. Both these numbers represent decreases from previous guidance.

Several years ago, EOG set out a goal to become more focused on oil and liquids, and the company is well on its way to achieving this goal by developing some popular oil and wet gas plays in the United States. Chesapeake Energy (NYSE:CHK) is also pursuing what has become a popular strategy among exploration and production companies in recent years.

Drilling Areas
EOG Resources has acreage in the oil window of the Eagle Ford Shale in Texas. The company is currently operating 10 rigs in the play and expects to increase this to 14 rigs in 2011. One well put to sales here during the quarter produced 902 barrels per day of oil, and 1.1 million cubic feet per day of wet natural gas.

In the Barnett Shale Combo, an area north of the traditional Barnett Shale development area, EOG can also be found, Wells in the Barnett Shale Combo area also produce a high percentage of oil and liquids. The company reported that recent successful drilling in the area has increased the company's core acreage by 10,000 net acres during the third quarter of 2010.

EOG Resources' largest oil producing area is in the Williston Basin, where the company is developing the Bakken and Three Forks formations. The company operated 10 rigs across North Dakota and Montana during the third quarter of 2010, and reported one well in this area with a production rate over 2,000 barrels of oil per day.

The company is also working to develop the Leonard Shale, an emerging shale play in New Mexico. It holds 120,000 net acres here and reported the completion of two wells during the quarter. Both wells produced a high amount of oil and wet natural gas.

New Plays
The Leonard Shale is also known as the Bone Spring formation, and other operators are also involved here. Energen (NYSE:EGN), has five horizontal wells online, and Anadarko Petroleum (NYSE:APC) has 550,000 gross acres prospective for this play.

The Bottom Line
EOG Resources is not wasting any time carrying out its goal of increasing it's the percentage of oil and liquids in its production base. The company sees fertile ground to do this in many domestic unconventional resource basins in the United States. (To learn more, see our Oil And Gas Industry Primer.)

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