EOG Resources surprises on the bullish side
In this series, we’ve looked at energy upstream companies’ capital expenditure and production plans for 2014 and 2015. In the previous section, we saw that ConocoPhillips (COP) has reduced its capex plans. In this article, we’ll see why EOG Resources (EOG) has revised its production plans up, even when the price of oil is falling.
Houston-based EOG Resources Inc. (EOG), an upstream energy producer operating in a number of unconventional shales, recently indicated that it can produce a 10% rate of return after taxes even if oil drops to $40 a barrel. EOG Resources has increased its 2014 production estimates. This may bring some investor confidence back to crude oil producers. Crude oil price has been going through a bearish phase in the past six months.
If the price stays around $80, EOG said it could fully fund the drilling it has planned for the Eagle Ford, North Dakota Bakken Shale, and parts of the Permian Basin in West Texas and New Mexico. The company has not yet disclosed its 2015 capex and production plans. However, in November, it revised its 2014 crude oil production estimate up from the previous estimate.
The Bakken and the Permian are the two most prolific unconventional shale-oil plays in North America. They are also the energy resources of some of the large energy corporations such as Whiting Petroleum Corporation (WLL), Hess Corporation (HES), and Chevron Corporation (CVX). Some of these are components of the Energy Select Sector SPDR ETF (XLE).
Why EOG is bullish on crude oil production
EOG Resources (EOG) has shifted 48% of its asset portfolio to crude oil. In comparison, it was 42% at the end of 3Q13. The company has confirmed that its Wolfcamp shale in the Delaware Basin consists of 90,000 acres of crude oil acreage, which has increased the company’s reinvestment rate of return. In 3Q14, EOG Resources drilled two Wolfcamp wells that have a 50% crude oil mix. In North Dakota Bakken, the company has started to turn a number of wells into production.
Read the following section to know about Encana Corporation’s (ECA) revised 2015 plan.