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.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

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.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Options & Futures

    Analyzing The 5 Most Liquid Commodity Futures

    Crude oil leads the pack as the most liquid commodity futures market, followed by corn and natural gas.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Savings

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  4. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  9. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  10. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!