"EOG is raising its previously announced 2004 total company production growth target from 6.5 to 8 percent. With this increase, our three-year total growth target is now 27 percent -- 8 percent in 2004, 10 percent in 2005 and 7 percent in 2006. In addition, based on our early drilling success and to- date 2004 actual results and commodity prices, EOG has reduced its 2004 full year unit cost guidance as outlined in our most recent 8-K filing," said Mark G. Papa, Chairman and Chief Executive Officer.
The results for first quarter 2004 included a previously disclosed $44.5 million ($28.6 million after tax, or $0.24 per share) loss on the mark- to-market of commodity price transactions. During the quarter, net cash outflows from the settlement of commodity price transactions were $2.3 million ($1.5 million after tax, or $0.01 per share). Consistent with some analysts' practice of matching realizations to settlement months, adjusted non-GAAP net income available to common for the quarter was $125.2 million, or $1.06 per share. Similarly, EOG's first quarter 2003 results included a $45.2 million ($29.1 million after tax, or $0.25 per share) loss on mark-to-market commodity price transactions, net cash outflows from the settlement of commodity price transactions of $27.9 million ($18.0 million after tax, or $0.15 per share) and a one-time cumulative after-tax charge of $7.1 million ($0.06 per share) from a change in accounting principle to adopt Statement of Financial Accounting Standards No. 143 relating to asset retirement obligations of oil and gas properties. Reflecting these items, first quarter 2003 adjusted non- GAAP net income available to common was $144.9 million, or $1.25 per share.
"Results from our U.S. and Canada singles and doubles drilling programs have surpassed original expectations and we are pleased to announce success with our horizontal Barnett Shale program in Johnson County, Texas. Additionally, our Trinidad and U.K. North Sea programs continue to be on track," said Papa.
In the Barnett Shale Play, EOG has acquired approximately 175,000 acres at essentially 100 percent working interest over the last three years. To date, EOG has drilled nine horizontal wells, focusing on optimizing drilling and completion methodologies. Since completing its initial horizontal well in the play, EOG has decreased drilling time from 30 to 10 days and reduced total well costs by over 50 percent. The Evans Unit #1H and the River Hills #2H wells recently came on-line and are producing around 2.6 and 3.2 million cubic feet per day (MMcfd), respectively. With 400 to 800 potential net well locations, EOG expects to increase drilling activity in the play beginning mid-2004.
"This play is expected to have a very significant impact on EOG's U.S. natural gas production growth, reserve additions and reinvestment rate of return," said Papa.
Results from EOG's South Texas drilling program in the Roleta, Frio and Wilcox Plays continue to be strong. In the Roleta formation, EOG drilled two key vertical wells during the first quarter. The Marshall State #5 and #6 are currently being completed and initial production is expected to be 10 to 15 MMcfd from each well. EOG has 50 percent working interest in these wells.
In Trinidad, the Parula #2 and #3 development wells were successfully drilled on the SECC Block. Combined with the Parula #1 discovery, the three wells are expected to have total deliverability of 300 MMcfd. Natural gas production from these wells and other sources will supply existing gas contracts including new ammonia and methanol plants that are scheduled to commence operations in mid-2004 and 2005, respectively.
During the quarter, EOG generated $114 million of free cash flow that was used to decrease debt by $23 million and increase cash and cash equivalents by $91 million.
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