Papa Shifts EOG Focus to Stay Ahead of the Trend
EOG had an excellent 2011 thanks to a 64 percent rise in U.S. crude oil and condensate production. Under the careful guidance of CEO Mark Papa, EOG reported a third quarter net income of $540.9 million, compared to a second quarter 2010 net loss of $70.9 million, which EOG attributes to its 54 percent increase in crude oil and condensate production.
Looking at the first nine months of 2011, the company said in its third quarter earnings statement, year-over-year crude oil and condensate production increased 51 percent. The South Texas Eagle Ford led the surge in crude oil production growth followed by the Fort Worth Barnett Shale.
Nearly five years ago Papa had the foresight to focus on extracting oil from shale before his competition did. According to an article in the Houston Business Journal (HBJ) Energy magazine, Papa realized that natural gas was going to move from scarce to surplus as the rush to develop shale skyrocketed.
"Four years ago we realized being a natural gas producer, that's not going to be worth much if gas isn't worth much," Papa explained in HBJ. So he shifted EOG's focus to oil instead of gas.
EOG, under Papa's leadership, started acquiring significant Eagle Ford acreage in 2007 before it was a hot commodity. Papa got a deal at $450/acre. EOG holds about 595,000 acres today.
Papa told HBJ in August 2011 that EOG "basically made a $250 million investment. If we were to sell our position today it would probably be worth between $12 billion to $18 billion."
Papa announced EOG's Eagle Ford Shale was a major discovery in an April 7, 2010 press release. EOG's Eagle Ford acreage spans six counties. At the time of the announcement, EOG had drilled 16 delineation wells over 120 miles. Papa estimated reserve potential on EOG's 505,000 net acre position in the oil window was approximately 900 MMboe, net after royalty (NAR), which ranked it the sixth largest oil field in the U.S. after the Bakken Shale. Prudhoe Bay leads the pack.
"We believe the South Texas Eagle Ford horizontal crude oil play will prove to be one of the most significant U.S. oil discoveries in the past 40 years," Papa said in the announcement.
The Eagle Ford Shale Blog noted that EOG estimated 2,840 potential well locations in the 505,000 acres it held in second quarter 2010, of which 75 percent is drillable. EOG based this estimate on well spacing of 125 to 140 acres per well.
However, in a conference call with investors on Nov. 2, 2011, Papa said the company had been experimenting with reduced well spacing at its King Fehner Unit lease for more than 150 days, and reported favorable results. Papa also pointed to EOG's success in the Barnett Shale, where recoveries had reached 40 percent. If applied to the Eagle Ford Shale, reduced well spacing could increase dramatically the amount of recoverable oil in EOG's acreage. Papa said the company was testing six additional multi-well plots of varying densities, but he refused to estimate future recovery factors regarding well spacing at Eagle Ford.
"As we apply what we've learned about the Eagle Ford across our extensive operations, EOG's production results just get better and better," Papa said in the earnings report. "We are also seeing early positive results from each of our seven down spacing pilot programs. Drilling wells more tightly spaced than our original 130-acre patterns provides even more development opportunities for EOG."
Success in Leadership
Many credit EOG's success in the field to Papa's management style.
"I don't allow the company to get tied up in process, procedures, ground rules or multiple levels of organizational hierarchy," Papa told Barons' in October 2011.
Papa grew up in Monroeville, PA, a suburb of Pittsburg, and studied engineering at the University of Pittsburgh. He worked for Conoco in the summer between his freshman and sophomore years as a roustabout in Hobbs, NM, which served him well. In 1968 after graduation, Conoco offered Papa a full-time position in Corpus Christi, TX. In 1972, Papa then moved to Dubai with the company. Upon his return to the U.S. Papa left Conoco to work at smaller companies, which were acquired several times until they became Enron in 1985.
Papa has managed EOG since before it spun out of Enron in 1999 (Enron imploded in late 2001). In 1999, EOG was a pipeline firm with 700 employees working under Papa. But Papa had the foresight to shift the company focus to horizontal drilling and fracking. EOG made several big gas discoveries in 2004 and 2005 in the Barnett Shale.
But when Papa shifted focus again in 2007 and transformed his once average independent gas company into a leading domestic oil producer with total net proven reserves of 2 Bboe, he made a name for himself and EOG.
The CEO was compensated about $36.54 million last year; however after 14 years at the helm, Papa plans to retire in mid-2013. Current company president, William R. Thomas, is in line to succeed Papa.
With a deep history in relatively young technology of the oil and gas industry, Papa sees fracking as a key to the U.S. exploration and production future.
Papa is aware of the critics of fracking, but quickly disputes their claims that fracking is hazardous to the environment. He has also addressed complaints that fracking wastes a lot of water. He told HBJ that "EOG is recycling the water from one well to use on the next."
Looking ahead, Papa sees the need for new oil extraction technology to improve recovery rates. Papa told HBJ, "the 1 Bbbl of oil produced in the Eagle Ford only represents 4 percent of the oil that is actually in the ground. So, the next breakthrough, he said, is going to be improving that 4 percent recovery rate to 8 percent."
Papa also said to look for horizontal drilling to branch out in other countries as well.
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