EOG to Double Capex for Trinidad to US$80mn-100mn in 2004

US oil company EOG Resources plans to double its investment in Trinidad to about US$80mn-100mn in 2004 from US$44mn in 2003 to drill development and exploration wells, CEO Mark Papa said in a conference call to discuss the company's 2003 results.

EOG drilled an exploration well in 2003 on its Lower Reserve 'L' block off the southeast coast of Trinidad but the well was unsuccessful. However, the company plans to finish analyzing 3D seismic studies of the block in 2-3 weeks and will have better-defined drilling targets, Papa said.

In 2004, EOG plans to drill development wells on its SECC block, contiguous to Lower Reserve 'L', during the next six months and then resume its exploration program mid-year, Papa said. The development wells will be drilled on the Parula natural gas discovery in the SECC block, he said.

The exploration program will be in two stages. The first for EOG's 100-300 billion cubic feet (bcf) prospects in SECC and other blocks and the second for the B52 prospect in 20,000 feet of water, EOG's exploration and development executive VP Loren Leiker said during the conference call. "We hope to spud [B52] this year and we think it has excellent upside potential for the country and for us," Leiker said.

EOG increased its Trinidadian natural gas production 13% to 152 million cubic feet a day (mcf/d) in 2003, up from 135mcf/d in 2002, mainly due to sales to the CNC ammonia plant, the company said in its 2003 earnings report.

Average natural gas prices in Trinidad rose to US$1.35 per thousand cubic feet in 2003 from US$1.20 the year before.

Going forward, EOG expects to finalize an agreement to supply 30mcf/d of gas to Trinidad's Atlantic LNG train 4 in the second half of 2004, Papa said. EOG recently signed a heads of agreement with Atlantic LNG, Papa said. The wellhead price will be linked to the Henry Hub price.

The US$1.2bn train 4 will require 800mcf/d of natural gas and produce some 5.2 million tons a year of liquefied natural gas (LNG). Train 4 is scheduled to start up in 2006. In addition to its Atlantic LNG contract, EOG's 2005-2008 growth will be driven by its 15-year contract, signed in 2003, to supply natural gas to the M5000 methanol plant, Papa said.

Methanol Holdings Trinidad (MHTL) is building the US$500mn project, which will produce about 5,400 tons of methanol a day. The plant should start up in mid-2005 and based on current prices, EOG expects to supply an average 67mcf/d net during the first four years and 87mcf/d net during the remaining eleven years. The wellhead price will be linked to Caribbean methanol prices, but at current prices EOG would obtain US$1.70 per thousand cubic feet, Papa said.

Meanwhile, EOG's growth this year will be driven by its 15-year contract to supply 47mcf/d net to the Nitro 2000 ammonia plant scheduled to start up in mid-2004. Prices are linked to Caribbean ammonia prices, and at current levels this translates to a US$1.85 per thousand cubic feet, Papa said.

Globally, EOG Resources reported 2003 net income of US$419mn compared to US$76.1mn in 2002.

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