Thursday, May 10, 2012

Highlights of the EOG 1Q11 Conference Call Transcript -- SeekingAlpha

Before reading the rest of this post highlighting EOG's 1Q12 earnings conference call, you might want to re-read the earnings report itself. It was a very good report from what I could tell.

Now the conference call --

EOG's strong liquids revenue and volume growth comes from four large horizontal domestic plays: Eagle Ford, Bakken, Permian, Barnett Combo

Some interesting quotes:
  • "As you know by now, we believe that total company production per debt adjusted share is a useless metric, given the current 42:1 oil to gas price ratio."
  • "The Eagle Ford continues to be our 800-pound gorilla in terms of crude oil growth, and we still believe our position is the largest domestic net oil discovery in 40 years ..."
  • "So why rush to drill wells that may not be technically optimum?"
  • "In summary, we're much more excited than we were a year ago about our remaining Bakken and Three Forks potential."
  • "The Bakken/Three Forks is our upside surprise to the quarter, and we're considerably more optimistic about the next 10 years of this play than we were a year ago." -- fifth of six summary comments
  • "Some of our technical people that are optimistic about the waterflood have a theory that the reason we've doubled the production in the older wells is that we've in fact done a mini waterflood with the frac. So that's one theory anyway." -- this is one of the most interesting things to come out of this conference call
Some highlights:
  • total crude and condensate production up almost 50% yoy
  • North American natural gas volumes declined almost 10% (good)
  • unlike some other Bakken companies, EOG is not changing its full year CAPEX 
  • IPs are not based on "wide open chokes"; IPs based on normal production equipment with a normal choke
Eagle Ford
  • EOG increased Eagle Ford's net recoverable reserve estimate from 900 million to 1.6 billion boes
  • higher estimates --> testing tighter spacing, down to 40 acres (rather than current 65 to 90 acres)
  • wells are better: better fracking and better placement of laterals
  • will reduce number of rigs from 26 to 23 (Eagle Ford)
  • identified at least 3,200 additional locations to drill; 11-year inventory 
  • business-as-usual tone in conference calls belies how big the Bakken is for EOG
  • EOG: #1 Bakken producer 
  • core Bakken: downspacing to 320-acre; 640-acre spacing suggests 320 will work
  • Bakken lite: downspacing from 320-acre to 160-acre
  • both the middle Bakken and the Three Forks productive in the Antelope Extension
  • high quality wells in far eastern Montana and western North Dakota; identified over 200 drilling locations
  • waterflooding trial; two wells
Discussion regarding crude-by-rail posted elsewhere

Quarries own fracking sand (Wisconsin); saves $500K/well x 600 wells --> $300 million/year

Supply and demand; pricing
  • global demand is tight
  • fundamentals dictate an average $105 WTI price in 2012
  • the downside risk is a second global recession
Go to the link for EOG's six summary points

From Q&A:
  • recovery from the Bakken is about 8%; goal -- 12%
  • if I recall correctly, when the boom began, folks talked about a 2 - 4% recovery rate in the Bakken
  • long discussion on 640-acre vs 320-acre spacing in the Bakken -- go to the link
  • Bakken production in 2012 may be flat but in 2013 may be on an incline
  • a most interesting point: new fracs affecting (positively) geographically close off-set wells

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