HOUSTON (Dow Jones Newswires), Aug. 5, 2011
EOG Resources Chief Executive Mark Pappa said Friday the oil and gas explorer is increasing the amount of cash it hopes to raise by selling assets this year in order to offset rising oilfield service costs.
The assets being sold "are primarily mature long-lived domestic gas properties and other acreage," Pappa told investors during a conference call to discuss EOG's second-quarter results. Those properties are scattered in east Texas, the mid-continent and in the Gulf of Mexico.
Houston-based EOG posted a profit of $295.6 million, or $1.10 a share, up from $59.9 million, or 24 cents a share, a year earlier. Excluding hedging impacts, write-downs and other impacts, per-share earnings rose to $1.11 from 18 cents.
Revenue jumped 89% to $2.57 billion on a 13% increase in output and oil prices that climbed 37%.
Analysts polled by Thomson Reuters expected a per-share profit of 79 cents and revenue of $2.01 billion. Shares rose 6.22% to $97.86 in early Friday trading.
While EOG's oil and natural-gas liquids production rose in the second-quarter, natural-gas output was about 1% lower to an average of 1,615 million cubic feet per day. EOG has stressed its shift to oil production in recent quarters due to an oversupply-induced natural-gas price slump.
"We're not interested in growing North American gas volumes at current prices unlike most other companies," Pappa said, adding that EOG will drill in natural-gas basins only where necessary to preserve leases.
By mid-year, EOG had completed $944 million worth of gas-asset sales and has another $271 million in deals pending, Pappa said. The divesture target should be reached by the end of the year.
About $400 million of the extra $600 million being raised will be spent on rising oilfield-service costs, Pappa said.
Beyond raising money to cope with oil-patch inflation, Pappa said EOG plans to open a Wisconsin sand mine in the fourth quarter, which will supply sand proppant for "most of our North American resource plays."
Proppant is a crucial component in hydraulic fracturing, a process in which water, sand and chemicals are forced deep underground to crack open energy-bearing rocks, including shales, so that oil and natural gas can seep out. The sand, or proppant, wedges into the resulting fissures to hold them open. Proppant, which comes in grades ranging from raw sand to manufactured ceramic spheres, is in tight supply worldwide.
Supplying much of its own proppant should save EOG some $400 million a year and help reduce the cost of drilling a well in its prolific Eagle Ford wells in south Texas by about $1 million, executives said.
EOG has also signed an agreement for a 70,000-barrel-a-day rail off-loading facility in St. James, La., that will allow it to transport most of its crude oil from the Eagle Ford and North Dakota's Bakken Shale around Cushing, Okla., where congestion has depressed oil prices this year, to the Gulf Coast, where crude oil fetches a premium.
The Louisiana off-loading facility should be able to start taking shipments in the first quarter of 2012 and will enable EOG to take advantage of the difference in regional oil prices, Pappa said.
Pappa, who turns 65 next month, also said Friday that he will remain as CEO for the next 18 months "and, when I do retire, my successor will be a long-tenured EOG employee."
Copyright (c) 2011 Dow Jones & Company, Inc.
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