EOG Resources Sets 2012 Capital Plan

By Eric Fox | February 23, 2012 AAA

EOG Resources (NYSE:EOG) is targeting single digit production growth in 2012, with a continued emphasis on the development of the Eagle Ford Shale and other plays that produce crude oil and liquids. (To know more about oil and gas, read Oil And Gas Industry Primer.)

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2012 Capital Plan
EOG Resources plans to spend between $7.4 billion and $7.6 billion on exploration and production activities this year. The spending will follow the industry trend of focusing on crude oil and other liquids, with 90% of the capital put towards these plays.

The company expects this level of investment to generate production growth of 5.5% in 2012, with 30% growth in the production of crude oil and natural gas liquids over last year.

Eagle Ford Shale
The company made a large investment in its properties in the Eagle Ford Shale last year. It reported production of 66,000 barrels of oil equivalent per day (BOE) from here at the end of 2011.

EOG Resources doubled its rig count in the Eagle Ford Shale last year, moving up from 12 to 26 rigs. The company drilled and completed 244 net wells in 2012.

It tested downspacing on its properties in 2011 and based on the results of 33 test wells, has decided to develop the play on 65 acres to a 90 acre spacing, down from the original spacing of 130 acres. EOG Resources increased its estimate of its potential reserves in the Eagle Ford Shale to 1.6 billion BOE, up from the previous estimate of 900 million BOE.

2012 Eagle Ford Shale
The company plans to continue the aggressive development of the Eagle Ford Shale in 2012. It has 647,000 acres under lease, with 572,000 acres in the crude oil portion of the play.

It estimates that it will drill 280 net wells in 2012, and is targeting an average completed well cost of $5.5 million this year. This estimate assumes a lateral length of approximately 4,000 feet.

Other companies have reported a higher cost for drilling and completing wells into the Eagle Ford Shale. Swift Energy (NYSE:SFY) has 80,000 net acres and estimates that the cost to drill and complete a well with a 6,000 foot lateral will range from $8.5 million to $9.5 million.

Pioneer Natural Resources (NYSE:PXD) is also active in the Eagle Ford Shale and estimates that gross well costs in 2012 will range from $7 million to $8 million per well.

Dividend Increase
EOG Resources increased the company's dividend for 2012, boosting the payout by 6.25% to an annual rate of 68 cents per share. The company has grown its dividend by a compound annual growth rate of 21% since 1999.

Other companies that recently increased dividend payouts include TransCanada (NYSE:TRP), which boosted the company's quarterly payout by 5% to 44 cents per share.

The Bottom Line
EOG Resources has staked out leading positions in the Eagle Ford Shale and various other onshore shale and unconventional resource plays. The company plans to harvest these assets in 2012 to increase oil and natural gas liquids production. (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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