El Paso Corporation (NYSE:EP) will aggressively develop the Eagle Ford Shale as it seeks to exploit the superior returns inherent in various oil opportunities in its portfolio. The company also raised its earnings guidance and capital expenditures for 2011 due to increased activity in this area.

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Eagle Ford Shale
El Paso has 170,000 net acres prospective for the Eagle Ford Shale, with approximately 62% exposed to the oil or liquids portion of the play. Currently focused on what the company calls the Central portion of its acreage, located in La Salle County, Texas, El Paso is operating four rigs in this area. The company has drilled 34 wells here since entering the play.

Initial production rates on wells completed in the Central area averaged 793 barrels of oil equivalent (BOE) per day to date, with approximately 80% of this production composed of oil.

El Paso is currently constrained on production from the Eagle Ford shale due to infrastructure issues but hopes to solve this problem during 2011 and reach production of approximately 15,000 BOE per day by the final quarter of 2011.

Other Players
La Salle County is an active area for many exploration and production companies that are developing the Eagle Ford Shale. PetroQuest (NYSE:PQ) has a small position here and recently spud the company's second operated well on its acreage in La Salle County.

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Carrizo Oil and Gas (Nasdaq:CRZO) has 20,000 net acres under lease and has drilled and completed five wells in La Salle County through April 2011. The company plans to spend $130 million in capital one its entire Eagle Ford Shale acreage in 2011.

EOG Resources (NYSE:EOG) has 595,000 net acres under lease in La Salle and several other counties in Texas, and reported production of 23,000 BOE per day from the Eagle Ford Shale in the first quarter of 2011.

Numbers Go Up
El Paso raised its earnings guidance for 2011 and now expects adjusted diluted earnings per share to range between $1.00 and $1.10 for the year. This was an increase from the previous range of $0.90 to $1.05. The company cited higher realized oil prices and greater volumes for the increase.

The company also raised its capital budget for 2011 and now expects to spend $3.6 billion in 2011, up from the previous guidance of $3.2 billion. El Paso will use most of the additional funds for development of the Eagle Ford Shale.

This increase in capital spending in 2011 will lead to more production and El Paso raised its guidance for 2011 production to a range of 830 million to 860 million cubic feet of natural gas equivalents (mmcfe) per day, up from the previous guidance of 790 to 840 mmcfe per day.

The Bottom Line
El Paso is bullish on the Eagle Ford Shale and is directing much of its current development on leasehold that has oil and other liquids. The company recently raised its capital budget with most of the extra funds allocated to this formation.

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