EOG says Permian Basin assets are responding well to productivity improvements like longer horizontal well laterals
Not many American oil producers are competitive at low prices, but EOG Resources has the technical knowhow and execution to pull it off, says energy economist Ed Hirs.

EOG announced in its last operational update that “premium inventory” (defined as direct after-tax rate of return hurdle rate of at least 30% at $40 prices) had increased from 2.0 to 3.5 billion BOE, and net premium drilling locations had risen from 3,200 to 4,300. According to the update, EOG produced US crude oil volumes of 265,400 b/d in Q2, beating the “midpoint of the company’s guidance by 2 per cent.”
What’s EOG’s secret?
Hirs says the company excels in all the key facets of operating an oil and gas company. EOG buys the best resource, gets in early, and sells the not so great rock at a profit. The company is known for having a first rate science and technical team. And they’re very good at execution in the field.
“They’re extremely sharp. Certainly, I would say, the finest in the oil patch right now,” Hirs said in an interview.
Like other producers, EOG has worked hard to reduced its costs of doing business. The operations update lists exploration and development expenditures (excluding property acquisitions) down 49 per cent.

“The benefits of EOG’s premium drilling strategy are beginning to show in our operating performance,” said CEO Bill Thomas.
“We are committed to focusing capital on our premium assets, which we are confident will increasingly lead to break-out performance as prices improve.”
South Texas Eagle Ford
The Eagle Ford is EOG’s largest high-return play, according to the update. In Q2, the company increased its Eagle Ford premium inventory by 390 net drilling locations to almost 2,000 total, which could be expanded “significantly” if more cost reductions or well productivity improvements are achieved.
For example, EOG estimates that a 10 per cent reduction in completed well costs or a 10 per cent improvement in estimated recoverable reserves per well would more than double EOG’s premium inventory in the Eagle Ford.

During Q2 EOG completed 60 wells in the Eagle Ford with an average treated lateral length of 4,800 feet per well and an average 30-day initial production rate per well of 1,705 boed, 175 b/d of natural gas liquids (NGLs) and 1.1 MMcfd of natural gas.
Delaware Basin
In Q2 EOG expanded its premium inventory in all three of its major formations – the Wolfcamp, the Second Bone Spring, and the Leonard, adding more than 500 net premium drilling locations, and continuing to improve the economics through advances in well and completion designs, including recent breakthroughs that enable higher productivity with longer laterals.
“EOG is well positioned for years of high-return growth in this world-class basin,” according to the update.
The company completed 16 wells during Q2 with an average treated lateral length of 6,500 feet per well, a 44 per cent increase in lateral length from Q1.
The average 30-day initial production rate per well was 2,410 boed, 340 b/d of NGLs, and 2.8 MMcfd of natural gas. In the Second Bone Spring, nine wells were completed with an average treated lateral length of 4,500 feet per well and an average 30-day initial production rate per well of 1,500 boed, 155 b/d of NGLs, and 1.4 MMcfd of natural gas.
Rockies and the Bakken
EOG says it continued to optimize its core Rockies and Bakken plays, adding 200 additional net premium drilling locations to its inventory in the DJ Basin Codell in Wyoming. The Codell is a liquids-rich sandstone formation that now has significant premium potential due to cost reductions and efficiencies.
EOG reported a Q2 net loss of $292.6 million, or $0.53 per share, compared to Q2 2015 net income of $5.3 million, or $0.01 per share, which the company blamed on low oil and natural gas prices.
“A lot of 2012 data pointed to average marginal costs of $50/b [or higher] in fields like the Niobrara. There are lots of companies higher and only a few companies lower,” says Hirs.
“Not surprising that EOG is one of the few that is lower. These guys are a crack technical team.”

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