EOG Reports Dip in 2Q07 Net Income
EOG Resources (NYSE: EOG) reported second quarter 2007 net income of $306.1 million, or $1.24 per share. This compares to second quarter 2006 net income of $329.6 million, or $1.34 per share.
The results for the second quarter 2007 included a previously disclosed $44.1 million ($28.4 million after tax, or $0.12 per share) net gain on the mark-to-market of financial commodity price transactions. During the quarter, the net cash realized related to financial commodity contracts was $18.6 million ($12.0 million after tax, or $0.05 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 $289.7 million, or $1.17 per share. Adjusted non-GAAP net income available to common for the second quarter 2006 was $285.3 million, or $1.16 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.)
2007 Production Growth Target Increased
"Based on the increased momentum of our production growth, we are raising our full year 2007 total company growth target from 10 to 11.5 percent," said Mark G. Papa, Chairman and Chief Executive Officer. "One hundred percent of this growth is organic, which is significant for a company our size."
The increased 2007 production growth target is primarily driven by higher than anticipated United States crude oil and natural gas liquids (NGL) production for the second half of the year. Outstanding results from recent horizontal oil wells drilled in the North Dakota Bakken Play have boosted EOG's confidence in increasing oil production targets. In the western counties of the Fort Worth Basin Barnett Shale, recent wells have produced natural gas yielding stronger than anticipated NGL production.
EOG's natural gas production in the United States increased approximately 24 percent for the second quarter over the same period a year ago with particularly robust growth from the Fort Worth Basin Barnett Shale, East Texas, Rocky Mountain and Mid Continent areas.
In the Barnett Shale, EOG continues to make improvements in the application of well completion technology that has led to higher initial production rates and potentially higher recovery efficiencies, particularly in Johnson County. In East Texas, a new natural gas processing facility has provided additional capacity for EOG's natural gas production from the Branton Field where eight wells are producing approximately 14 million cubic feet per day (MMcfd), net.
Outside of the Barnett Shale, total production in the United States and Canada increased approximately 7 percent for the first six months of 2007 as compared to the same period a year ago, in part due to a 12 percent increase in United States crude oil and condensate production driven by drilling programs in North Dakota, Texas and Kansas. EOG is applying horizontal drilling technology to oil plays in both North Dakota and the Mid Continent. Currently operating a four-rig drilling program in the North Dakota Bakken, EOG plans to add an additional rig in the fourth quarter. In the Mid Continent area, recent success has set up several offset drilling locations for the second half of 2007.
While maintaining an active exploration effort in the pursuit of shale gas opportunities in Appalachia, EOG announced its intention to sell its shallow gas assets and associated 18 MMcfd of current natural gas production in the area. The sale is expected to close in either late 2007 or early 2008. Proceeds from the sale will be used to fund EOG's core portfolio and resource plays that have greater potential for production and reserve growth. Following the divestiture, EOG will continue to target an average of 9 percent total company production growth for 2008.
Well Highlights North Dakota Bakken -- Zacher 1-24H - EOG has a 75 percent working interest in the Zacher 1-24H that was completed in June with a peak production rate of 1,774 barrels of oil per day (Bopd), gross. -- Hoff 1-10H - EOG has a 75 percent working interest in the Hoff 1-10H, which began flowing to sales in June at a peak rate of 2,034 Bopd, gross. -- N&D 1-05H - EOG holds a 67 percent working interest in the N&D 1-05H, which was completed in July at an initial peak production rate of 1,610 Bopd, gross. Fort Worth Basin Barnett Shale - Johnson, Palo Pinto and Hood Counties -- Hughes Unit #1H - EOG completed the Hughes Unit #1H during the second quarter. The well, located in central Johnson County, flowed to sales at a peak production rate of 12 MMcfd, gross. EOG has an 86 percent working interest in the well. -- Eagle Ford C Unit #4H and #5H - Drilled in the eastern part of Johnson County, the two wells were completed in June with initial production rates of 6.7 and 7.7 MMcfd, respectively. EOG has a 100 percent working interest in both wells. -- Maples Unit #1H, #2H and #3H - EOG completed the three Maples Unit wells during July in eastern Johnson County. EOG has a 54 percent working interest in these three wells that began flowing to sales at initial production rates ranging from 5.8 to 9.9 MMcfd, gross. -- McInroe A Unit #1H - EOG has a 100 percent working interest in this western extension well in Palo Pinto County. The McInroe A Unit #1H, which tested at a rate of 2.6 MMcfd, will be connected to sales during the third quarter. -- Mabery A and B Unit #1H - Drilled in EOG's western extension acreage in Hood County, the wells began initial production in July at 1.8 and 2.1 MMcfd, gross, respectively. EOG has a 78 percent working interest in both the Mabery A and B Unit #1H. Mid Continent -- Willis 23 #1 - EOG's second oil discovery from the St. Louis Formation in Kansas, the Willis 23 #1, began flowing to sales at a rate of 800 Bopd. EOG has a 100 percent working interest in the well. -- Cooper 358 #1H - A horizontal Cleveland well in the Texas Panhandle, the Cooper 358 #1H tested at 3.0 MMcfd and 700 Bopd. EOG has a 100 percent working interest in the well.
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