EOG Resources: Increasing Production Is a Good Idea

Though there is weakness in the oil market, EOG Resources (EOG) is taking steps to improve production. This could look like a surprising move in an oversupplied oil market, but I think that this is the right move since oil demand is increasing.

EOG’s steps to increasing production

EOG’s large drilling inventory, along with technologically-advanced drilling methodologies implemented by the company, is forecasted to generate solid top line growth for the company as the global commodity pricing environment recovers gradually.

EOG successfully grew its total resource potential in three key Forks plays and the Bakken during the second quarter of 2015 to 1 billion barrels of oil equivalent (BnBoe) from nearly 400 million barrels of oil equivalent (MMBoe) during the same period last year and increased total net drillable locations to 1,540 from 580.

During the second quarter of 2015, EOG concluded the key Bakken well by utilizing superior improved-density drilling techniques.
It also started operations at the Riverview 102-32H, producing approximately 6.0 million cubic feet of rich natural gas per day (MMcfd) and 3,395 barrels of oil per day (Bopd).

EOG is continuously recording solid rates of return and impressive capital efficiencies for its largest the Eagle Ford play. Improved-density closures strengthened the company’s focus to develop wellbore and reduced conclusion well costs are significantly enhancing the production results of EOG all through the complete Eagle Ford oil basin.

In the Delaware Basin, EOG is focused on actively testing and developing its positions in the Leonard, which includes the upper Wolfcamp and the Second Bone Spring Sand, coupled with notably reducing the operating costs and completed well costs.

Moving ahead, EOG is seen to be playing very safely by continuously growing its oil and natural gas productions at the key drilling locations while strategically hedging the production from these wells through long-term price contracts to avoid further losses in the undeterminable declining global commodity pricing environment.

Hedges will act as a mitigating factor

EOG has strategically hedged its crude oil and natural gas prices by preserving the crude oil financial price swap deals for the period August 1 till December 31, 2015 for 10,000 Bopd at a weighted average price of $89.98 per barrel. Considering the period September 1 till December 31, 2015, EOG has successfully preserved the natural gas financial price swap deals for 175,000 million British thermal units per day at a weighted average price of $4.51 per million British thermal units.

Hence, investors can buy EOG Resources shares considering its profit margin of 14.18% and positive moves being implemented by the company, while controlling non-strategic expenditures. The company is focusing on areas with strong returns, so it will be a good idea to go long EOG Resources.
Published on Oct 15, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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