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EOG sees Rocky Mountains as next hot American oil field

BRADLEY OLSON

HOUSTON (Bloomberg) -- EOG Resources Inc. has identified the Rocky Mountains as the next great opportunity in North American oil. Known for quietly building up positions in areas before their potential is widely recognized, the Houston-based company said in a statement that its land in Colorado and Wyoming may hold the equivalent of 400 MMbbl of oil.

EOG rose 3.2% to $102.46 at 1:14 p.m. in New York, leading the Standard & Poor’s 500 Index. Anadarko Petroleum Corp. added 2.8%.

EOG’s decision to identify the region as one of four central elements of its portfolio is significant because the company is among the most conservative in describing the potential of new developments. In an industry full of wildcatters talking up their own wells, EOG has been far more cautious, said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. So when they commit to an area, others follow.

“They are always, always, always leading the pack,” said Gheit, who rates the company a buy and doesn’t own shares. “They tend to sniff things out a lot sooner than competitors.”

EOG reported first-quarter profit that surpassed analysts’ estimates as the company boosted oil production by 42% and raised forecasts for crude output growth. First-quarter net income rose to $661 million, or $1.21 a share, from $495 million, or $0.91, a year earlier, the company said in a statement. Adjusted for settlement costs and other one-time items, Anadarko’s per-share earnings of $1.26 beat analyst estimates by 11 cents.

New drilling techniques involving hydraulic fracturing have sparked a U.S. energy renaissance that helped the country surpass Saudi Arabia and Russia as the world’s largest producer of oil and natural gas, according to estimates by the U.S. Energy Information Administration.

As the drilling boom matures, the stakes are high for explorers to continue making new finds. About half the growth in U.S. oil production last year came from just two areas: North Dakota’s Bakken shale and South Texas’s Eagle Ford formations.

EOG joins Anadarko, Noble Energy Corp. and ConocoPhillips in recognizing the Rocky Mountains as a major emerging opportunity in the U.S. Oil production in Colorado and Wyoming surged to almost 20% to 349,000 bpd last year, according to data compiled by Bloomberg.

Anadarko is among the largest operators there and produces the equivalent of more than 320,000 bpd in the Rockies. Noble is operating 10 rigs across the basin, and ConocoPhillips plans to drill 18 horizontal wells there in 2014.

EOG’s reserve base in the region is small compared with the 3.2 billion bbl that lie beneath its acreage in the Eagle Ford. The company announced reserves of 900 MMbbl there when it unveiled its position in the Texas formation, Chairman and CEO Bill Thomas said in a conference call with investors.

Geologists have long known that oil was plentiful in the Rocky Mountains. Advances in engineering and fracing techniques tailored specifically to the rocks have allowed operators such as EOG to make extraction profitable, said Ed Hirs, a professor of energy economics at the University of Houston.

“What EOG has done here is remarkable,” said Hirs, who runs a production company and has drilled in the region. “They assembled a position and took time to do the science correctly. They play this like a masterful chess game.”

05/06/2014

 

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