EOG Resources (NYSE:EOG) is seeing improving results from wells in the Eagle Ford Shale, as the company continues to work on improving the well design and becoming more efficient in this play. The company is also seeing positive results from its down spacing program here and will most likely raise its resource estimate from this play in 2012. (To know more about oil and gas, read Oil And Gas Industry Primer.)
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Summary
EOG Resources has 610,000 net acres under lease that is prospective for the Eagle Ford Shale, with approximately 92% of the acreage in the crude oil and wet gas windows of the play. The company exited the third quarter of 2011 with production of 53,000 barrels of oil equivalent (BOE) per day, up from about 5,000 BOE per day in the same quarter a year earlier.

Another operator active in the Eagle Ford Shale is Plains Exploration (NYSE:PXP). The company has 58,700 net acres under lease and is currently producing 10,000 BOE per day.

Better Results
EOG Resources has seen an improvement in the initial production rates of wells as it gains more experience in the play. During the third quarter of 2011, the average well in the Eagle Ford Shale had an initial production rate of 1,342 BOE per day, compared to 800 BOE per day in the third quarter of 2010.

EOG Resources attributes this progress to the placement of the lateral in the optimal part of the Eagle Ford Shale interval, along with an improvement in the fracturing design.

Downspacing
EOG Resources estimates that the company's Eagle Ford Shale acreage has potential reserves of 900 million BOE. This estimate is based on a future development program incorporating 130 acre spacing and a 4% recovery rate.

EOG Resources has started to test denser drilling in the Eagle Ford Shale and seen positive results from the the first test wells in its down spacing program. The company is testing this down spacing concept at six other drilling pads in the Eagle Ford Shale and is encouraged by early results here.

Cost Reduction
EOG Resources is also seeing a decline in costs in the Eagle Ford Shale, despite the increased industry activity in this area in south Texas. The company attributes this lower cost to a number of factors. EOG Resources is drilling wells quicker as it gains experience in the play, with one recent well drilled in 13 days.

EOG Resources has also reduced well costs through the company's improved fracturing design and expects to continue to cut costs in the Eagle Ford Shale in 2012, through sourcing sand proppant next year from a company-owned mine in the area. This will reduce well costs by an additional $500,000 and result in an average well cost of $5.5 million in 2012.

Other operators active in the Eagle Ford Shale have higher wells costs. Newfield Exploration (NYSE:NFX) reported that the company's average well cost during the third quarter of 2011 was $6.6 million.

Pioneer Natural Resources (NYSE:PXD) spent $120 million on the company's Eagle Ford Shale properties in 2011, and estimates that wells here will cost from $7 million to $8 million.

Swift Energy (NYSE:SWY) has 80,000 net acres of exposure to the Eagle Ford Shale and estimates that dry gas wells here will cost from $8.5 million to $9.5 million to drill and complete. (Find out how to invest and protect your investments in this slippery sector. For more, see What Determines Oil Prices?)

The Bottom Line
EOG Resources is one of the leaders in developing the Eagle Ford Shale and is seeing improved results from wells here, as it gains experience in the development of this play. These trends will lead the company to increase its estimate of the oil and gas potential of its properties in 2012. (For additional reading, check out A Guide To Investing In Oil Markets.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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