EOG 's Q3 Income Down for 2006

EOG Resources, Inc. late Monday reported third quarter 2006 net income available to common of $297.3 million, or $1.21 per share. This compares to third quarter 2005 net income available to common of $341.9 million, or $1.40 per share.

The results for the third quarter 2006 included a previously disclosed $104.7 million ($67.4 million after tax, or $0.28 per share) gain on the mark- to-market of financial commodity price transactions. During the quarter, the net cash realized related to financial commodity contracts was $73.0 million ($47.0 million after tax, or $0.19 per share). Reflecting these items, third quarter 2006 adjusted non-GAAP net income available to common was $276.9 million, or $1.12 per share. (Please refer to the attached tables for the reconciliation of adjusted non-GAAP net income available to common to net income available to common.)

Operational Highlights

Continuing its focus on organic growth, EOG reported a 10.9 percent increase in total production during the third quarter 2006 over the third quarter 2005.

"Third quarter operational results reinforce EOG's established track record of delivering consistent, high rates of organic production growth, while maintaining a very low level of net debt and generating high rates of return on equity and capital employed," said Mark G. Papa, Chairman and Chief Executive Officer.

In the United States, natural gas and natural gas liquids production rose 17 percent as compared to the same quarter a year ago. Domestic production increases were driven by continued exploitation success in the Fort Worth Basin Barnett Shale Play and outstanding results from the Rocky Mountain and South Texas operating areas.

In Johnson County, EOG is implementing development drilling in the Barnett Shale Play with reduced well spacing from the original plan of 1,000 feet. Strong results have been reported from both eastern and western Johnson County on wells drilled in these downspaced patterns. In eastern Johnson County, the Casstevens #1H began flowing to sales at an initial rate of over seven million cubic feet per day (MMcfd) of natural gas in September and is producing at a current rate of 4.5 MMcfd. In western Johnson County, the Hardcastle #3H came on-line in August at a rate of eight MMcfd and is now producing over four MMcfd of natural gas. EOG has an 84 percent and 100 percent working interest, respectively, in these wells. In the Fort Worth Basin outside of Johnson County, EOG continues to make operational progress and remains focused on improving well results and reducing well costs.

"EOG's natural gas production from the Fort Worth Basin Barnett Shale averaged 174 MMcfd in September, far in excess of our original year-end 2006 target of 155 MMcfd," said Papa. "During the third quarter, we completed several new 'monster wells' in both eastern and western Johnson County."

In the Rocky Mountain operating area, EOG's successful development drilling program in its Uinta Basin Chapita Wells Unit in northeastern Utah contributed to a 19 percent increase in natural gas production as compared to the same period last year.

In South Texas, EOG holds an 87.5 percent working interest in the Slator Ranch W2, which was drilled to 9,300 feet in the Lobo Formation, tested at a gross rate of 17 MMcfd of natural gas and is currently producing over nine MMcfd.

Mid-Continent operations reported a 9.5 percent sequential increase in natural gas production from the second quarter 2006. In Kansas, EOG has a 100 percent working interest in the GPCU 25#1, a natural gas well that has been flowing to sales at 15 MMcfd since August.

EOG's Trinidad natural gas sales considerably surpassed contract quantities during the first half of the year and slightly exceeded contract amounts during the third quarter. Fourth quarter gas sales in Trinidad are anticipated to be limited to contract levels. Therefore, EOG has revised its total company 2006 production growth forecast to 9 percent.

"EOG's two-year production per share growth for 2005 and 2006 on a debt- adjusted basis is one of the highest in our peer group and we expect very strong production growth in 2007. We have the assets to continue this momentum going forward," noted Papa.

Capital Structure

In the third quarter, EOG reduced long-term debt outstanding to $830 million at September 30, 2006 from $893 million at June 30, 2006. At quarter end, cash on the balance sheet was $596 million for non-GAAP net debt of $234 million. (Please refer to the attached tables for the reconciliation of non- GAAP net debt to current and long-term debt.) The company's debt-to-total capitalization ratio was 13 percent at September 30, 2006, down from 19 percent at December 31, 2005.


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