EOG Reports Three Nice Wells (Bakken, ND, USA)

In its third quarter 2010 results EOG reports three nice Bakken wells:

• 18464, 1,659, EOG, Mandaree 1-10H 
  
• 18927, 1,358, EOG, Mandaree 2-9H
  
• 18697, 1,490, EOG, Mandaree 4-15H

Having said that, EOG reported a third quarter 2010 net loss of $71 million (28 cents/share), compared to a third quarter 2009 net income of $4 million (2 cents/share).

The report states that the North Dakota Bakken is EOG's largest crude oil producing asset. The report noted that well completion operations resumed during the second quarter following the winter 2009-2010 drilling program. Remember: it is EOG's policy to not frack during the winter. It took a number of months for those drilled wells to be completed, and brought on line.

EOG said it is in its sixth year of development in the Bakken and is operating a 10-rig drilling program in North Dakota and Montana.

EOG said it will continue to sell off natural gas assets in 2010, but made a pointed statement that it will not sell-down or joint venture any of its crude oil resource plays as they continue its strategic shift from natural gas to liquids.

Maybe I'm reading to much into that last statement, but in view of the third quarter loss of $71 million, it is a reminder that drilling in the Bakken is very, very expensive, and EOG, as big as it is, is feeling that pressure.

It supports my view that we will see huge changes in the make-up of the companies operating in the Bakken in 2011. I expect lots of mergers, acquisitions, acreage swaps/deals, etc., in 2011. The Bakken is getting just too expensive / too difficult for the smaller companies. The canary in this coal mine was American Energy (AEZ).

2011: The Year of Tectonic Shifts in the Bakken?

A couple of days ago I posted a comment in which I stated that I felt that 2011 will be a year of mergers, acquisitions, and major acreage deals in the Bakken.

Within a day or two of posting that comment, a well-researched analysis posted on the Bakken Shale Discussion Group board added weight to my earlier comment.

It is simply becoming more and more difficult for the smaller operators to keep competing with the bigger operators in the Bakken.

Bigger cap companies are able to out-bid on top leases; smaller operators are losing their leases because they have neither the money nor the rigs to drill a well to hold the lease by production; they are unable to compete for the little spare takeaway capacity; and, they don't have the cash necessary to build their own infrastructure for gathering and shipping their oil to regional pipelines. Larger operators have dedicated fracking crews and are less subject to delays in well completion due to lack of fracking crews. I would assume larger operators have better access to capital markets and/or folks experienced in working with Wall Street venture capitalists.

(Let me digress for a moment: it is said that there is more than enough takeaway capacity for the Bakken production, but in the same breath it is said that 10 percent is still shipped by rail and 10 percent is trucked to Canada, both more expensive modes than pipeline. When Enbridge shut down pipelines for repair recently, my hunch is that there were temporary hiccups in moving oil out of the Bakken, and the bigger operators were able to nudge out the smaller operators if push came to shove for access to the pipelines.)

Although the reasons were said to be related to changes in tax law, it is also possible that Anschutz saw the writing on the wall and was one of the first relatively large operators to get out while the getting out was good. Just an opinion, but the comments on the discussion board certainly make one wonder.