How Has EOG’s Drilling Strategy Helped Its Production Volumes?
EOG Resources’ 2Q17 production
In 2Q17, EOG Resources (EOG) reported production of ~604 Mboed (thousand barrels of oil equivalent per day). In 2Q16, production was at 551 Mboed, an increase of 9.6%. In 1Q17, production was at 570.7 Mboed, an increase of 5.8%.
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EOG noted that the increase in production was primarily due to increases in its Permian Basin, Rocky Mountain, and Eagle Ford operations and also from the 2016 merger with Yates Petroleum.
To know more, read How EOG Resources Will Benefit from Yates Acquisition.
Oil as a percent of EOG’s total production
EOG’s oil production as a percent of total production has increased from 49.5% in 2Q15 to 55.4% in 2Q17. Oil volumes rose from 267.7 Mbbl/d in 2Q16 to 334.7 Mbbl/d (thousand barrels per day) in 2Q17. Since 1Q16, EOG’s total production volumes have mostly been rising, as we can see in the image above. This could likely have been achieved as a result of the Yates merger in late 2016.
Read How EOG Resources Will Benefit from Yates Acquisition to know more. As we can see in the image above, oil as a percentage of EOG’s total production has also risen, which can be explained by EOG’s strategy of focusing only on its “premium drilling” inventory, a strategy it adopted in 2016. EOG defines premium inventory as wells whose direct after-tax rate of return hurdle rates exceed 30% at $40 crude oil prices. Because EOG’s premium drilling locations typically have a higher percentage of crude oil, EOG’s oil production has also been rising since 2Q16.
EOG’s 3Q17 and 2017 production expectations
In 3Q17, EOG anticipates a production range of 581.7 Mboed–613.7 Mboed, or 597.7 at the midpoint. The lower production guidance compared to 2Q17 levels likely reflects lower estimates of realized crude oil prices. At the end of 2Q17, crude oil prices were averaging $48.20 per barrel compared to $51.86 at the end of 1Q17. Average crude oil prices fell further by the end of 3Q17 to $47.40 per barrel. The expectation of lower prices dissuades oil and gas producers from producing higher volumes.
EOG’s fiscal 2017 production guidance range is 587.8 Mboed–605.5 Mboed, or 596.65 at the midpoint.