CEO: EOG Can Post 'Strong Returns' at $40 Oil

Reuters

HOUSTON, May 6 (Reuters) - EOG Resources Inc has the ability to post strong returns with oil prices around $40 a barrel, and would post triple-digit returns should prices spike to $60, Chairman and Chief Executive Bill Thomas told investors on Friday.

Houston-based EOG, considered one of the most efficient U.S. drillers, has a $15-$20 per barrel cost advantage over the rest of the industry, which needs a "sustained $60-$65 oil price and 12 months of lead time" to deliver modest growth, Thomas said on a call to discuss first quarter results.

Thomas said the company was focusing on "premium drilling," which he defined as wells that can generate a return of at least 30 percent after taxes at $40 oil.

The company also said its efforts at "enhanced oil recovery," or getting more output from existing wells with relatively low investments, had been successful, particularly in the Eagle Ford shale play in South Texas.

"It will get more efficient as we move forward, and lower-cost," Thomas said.

After falling 70 percent between mid-2014 and early 2016 amid a global glut, U.S. oil prices have recovered to trade above $45 per barrel on Friday, as a huge wildfire in Canada prompted substantial production cuts.

The rout had prompted sharp declines in drilling and output in the United States, as prices fell below heavily indebted shale drillers' breakeven costs.

Prices will likely continue their rebound, Thomas said, as those declines in U.S. production along with strong gasoline demand help the market rebalance.

But continuing cost reductions by U.S. horizontal drillers like EOG have fueled speculation that substantial U.S. production could come back online even without a sharp uptick in prices.

Rival drillers, as well as service companies, have indicated that a price rise above $50 a barrel could fuel a resurgence in the U.S. shale industry.

EOG posted a net loss of 83 cents per share in the quarter, beating Wall Street estimates for an 84 cent-per-share loss. EOG shares were down 2.7 percent at $79.04 on Friday morning.

(Reporting By Luc Cohen; Editing by Chizu Nomiyama and Phil Berlowitz)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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