EOG Resources to Sell Shale Acreage

HOUSTON (Dow Jones Newswires), Aug. 6, 2010

EOG Resources plans to sell some of its natural gas assets to accelerate its transformation into an oil producer.

This move by EOG underscores the push by many big natural gas producers to diversify their output and take advantage of higher oil prices while natural gas prices languish. Both Chesapeake Energy and Devon Energy said this week that they would allocate more money to oil exploration.

However, shares of EOG came under pressure Thursday after the company missed earnings estimates and said it would increase spending this year. Shares of the Houston oil and gas producer were recently off 4.6% at $97.82.

EOG is looking to sell 180,000 acres of natural gas shale leases in the Haynesville, Marcellus and Eagle Ford shales, as well as some Canadian natural gas production, Chief Executive Mark Pappa said Friday.

The Canadian assets were put up for sale two weeks ago. The sale of the Haynesville, Marcellus and Eagle Ford properties is expected to occur by year's end. The Haynesville shale is in Texas and Louisiana, the Marcellus shale is in the northeastern U.S., and the Eagle Ford shale is in South Texas.

The sales won't diminish EOG Resources' profile as the company has more acreage "than we can logically develop," Pappa said. But it will help fund the company's shift from being mainly a natural gas producer to being primarily an oil producer, and bring its debt-to-capitalization ratio below 25%. As of June 30, the ratio stood at 27%.

The company reported a second-quarter profit on Thursday of $59.9 million, or 24 cents a share, compared with a year-earlier loss of $16.7 million, or 7 cents a share. Excluding hedging and other items, earnings fell to 18 cents from 73 cents as revenue climbed 58% to $1.36 billion.

Analysts estimated earnings of 25 cents on revenue of $1.24 billion, according to a poll by Thomson Reuters.

EOG reported strong well results in many of its operating areas, analysts said. However, it also increased its capital spending by $500 million, or by about 10%, in 2010 to deal with the higher costs associated with developing its oil projects.

"Overall, strong well results will not be enough to overcome EOG's slew of missteps" in the quarter, analysts with Simmons & Co. wrote in a note to clients, citing the company's earnings miss and higher spending.

Copyright (c) 2010 Dow Jones & Company, Inc.