EOG Resources sells $647 million worth assets in US. Another $400 million worth assets up for sale. Where could it sell?

EOG Chief Executive Officer Mark Papa disclosed that EOG had sold $647 million worth assets in its goal of divesting $1 billion worth of assets this year. He added saying, “In the first quarter, we received $260 million from asset sales. Since March 31, we've received an additional $387 million of proceeds and we're actively working on an incremental $400 million of sales.”

The sale that was subsequent to the first quarter included all mature gas-producing properties in South Texas and New Mexico. The major portion of that was some Cotton Valley production, Cotton Valley/Travis Peak production in the East Texas area.

The M&A activity of EOG in 2011 is captured as follows-

Source: Derrick Petroleum-E&P Transactions Database

Try this free document search tool

Where could the other $400 million sale be focused??

The operations map of EOG is as follows 

• Mark Papa, CEO of EOG resources, in 2010 Earnings Results Conference Call disclosed that the company is considering to sell Niobrara acreage depending on what price is offered. With the oil prices increasing gradually, this would be the best time to reap the benefit by selling Niobrara acreage.

OR

• EOG is growing as an oil focused company by shifting their focus to oil. EOG’s revenue mix in 2008 was 29% to oil and 71% to gas, whereas the forecasted production mix for 2011 is vice versa- 29% to gas and 71% to oil. The recently clinched $647 million sale of gas weighted assets is also in line with EOG’s transition from gas to oil. Therefore, EOG might end up divesting certain non-core gas assets in US and Canada (contribute 90% of EOG’s gas reserves) to stick with its new strategic plan.

Source: EOG Resources 2010 Annual Report

O&G players’ interest towards Niobrara is heating up!! Is Niobrara the next Bakken/Eagle Ford??

Here is the brief discussion about the emerging oil play in the US- The Niobrara Shale!!

The Niobrara shale formation is situated in northeastern Colorado and parts of adjacent Wyoming, Nebraska and Kansas. Samson Oil & Gas is one of the earliest companies to establish a position in the Niobrara. Other operators in Niobrara include EOG Resources, Anadarko, SM Energy, Noble Energy, Chesapeake, Whiting Petroleum, Quicksilver Resources, MDU Resources, and Bill Barrett. Chesapeake and EOG each have about 400,000 net acres in the Niobrara.

Source: Chesapeake Jan 2011- Investor Presentation

Niobrara operators’ 2011 drilling plan

The Niobrara Shale formation was well noticed in 2010 when EOG Resources reported a well here with production of 1,558 barrels of oil per day. With a large number of companies starting their initial exploration programs in the Niobrara shale in 2011, the shale play would witness a significant increase in drilling activities over the next few years.

• Marathon Oil plans to start an exploratory program in the shale play in 2011. Whiting Petroleum and MDU Resources plan to drill their first test well in Niobrara during the first half of 2011.
• PDC Energy plans to drill 14 wells in the Niobrara Shale in 2011. It has budgeted between $205 million to develop the Niobrara play.
• Carrizo Oil and Gas reported its first horizontal completion in the Niobrara in early January 2011. Carrizo has four wells either drilling or being completed. The company hasn't released its capital budget yet for 2011, but has adopted a strategy to increase development of formations that produce oil and liquids. The company spent $60 million in 2010 to acquire leasehold in the Niobrara and another oily play in Texas.
• SM Energy has acreage in the Silo Field in Wyoming that has exposure to the Niobrara Shale. SM Energy has allocated $25 million in capital in 2011 to develop the Niobrara.

The increased interest of the companies in the shale play is also evident from the recent lease sale rounds held by the Wyoming State Lands and Investments Board for area expected to be prospective for Niobrara shale. The overall investments in the state lease sale awards increased from an average of $3.2 million in 2008-2009 rounds to an average of $37.5 million in 2010 lease rounds.

In Wyoming, as per Wyoming Oil and Gas Commission, 202 horizontal well permits targeting Niobrara formation had been issued in the state as of November 24, 2010. In Colorado, during 2009-September 2010, there were 208 approved permits for Niobrara shale formation.

A look at the 2011 Niobrara deals captured by Derrick Petroleum

Why Niobrara Shale??

What makes the Niobrara Shale a prime target is that those companies with experience in the Bakken are looking to expand while companies that missed out on the Bakken Shale and have horizontal drilling expertise in natural gas shales look to take on positions in more profitable oil production.

At the end of 2010, the Japanese company ITOCHU made an entry into Niobrara Shale with an estimated investment of $390 million. This was followed by Chinese in Jan 2011 when CNOOC entered into a $1.3 billion Niobrara JV with Chesapeake. What a good start for Niobrara in 2011! This will be the driving force for the other operators who want to exploit oil plays.

Eagle Ford Shale - the next big thing on the global exploitation map!!!!

Eagleford shale play extends about 400 miles across South Texas in a 50-mile-wide band, from the Mexican border, below San Antanio and up into East Texas. Some of the world’s biggest oil companies – including Shell, BP, Statoil and CNOOC – recently have entered the Eagle Ford and are helping to put it on the global energy map with aggressive exploration drilling planned for coming years. In 2010 in the Eagle ford, about 1,018 drilling permits were issued through November, which means that this area is definitely the next big thing to look out for. Not only the drilling permits issued in number increased but also the number of rigs have increased in number.

EOG, in 2010 averaged seven rigs in the Eagle Ford and drilled 110 wells. This year, it expects to have 14 rigs and drill 256 wells. Chesapeake, the largest leaseholder with 625,000 acres, also expects to double the dozen rigs it has working in the area. Petrohawk Energy also expects to spend more than twice as much as it did in the region in 2010. And ConocoPhillips, another major leaseholder, just leaped from seven to 11 rigs in the region.

Why Eagle Ford ?

What makes this shale play different is that it produces oil, condensate, gas and finally drier gas as drilling proceeds down dip. The carbonate content (up to 70% calcite) of the shale makes it very brittle and easily fractured during stimulation treatments, resulting in impressive production figures of both oil and gas. 

What are others thinking?

• EOG Resources, one of the major players in the Eagle Ford shale, is planning to drill about 250 wells in the area in 2011. 
• Rosetta Resources has allocated 90% of its $360 million budget for its activities in this area.
• Due to lower natural gas prices companies are focusing more on the upper, oil laden section of the Eagle Ford. Since the price of oil is high due to international demand, the upper side of the shale is where much of the new drilling activity in 2011 will take place.

There has been a huge increase in the demand for this acreage , from about $100 to $200 per acre in 2007 to more than $10,000 per acre at present, which signifies that the companies are confident to reap huge profits from this area!

Following the footsteps......

• Like other companies, Anadarko is focusing more on its liquids-rich Eagle ford acreage where it has increased the average estimated ultimate recoveries of its existing wells to more than 450,000 barrels of oil equivalent per well in the liquids-rich Eagle Ford shale.

• The Company plans to double its drilling activity at these assets with more than 200 wells planned for 2011.
• With $5.6 to $6 billion as capex for 2011, about $3.19 billion seems to be allocated to US onshore.
• The Company estimates to spend $5 to $5.5 million per well which totals up to about $1.05 billion to drill 200 wells in the Eagleford.

How Long Will Eagle Ford Shale Oil Wells Last?

What makes Eagle ford shale play the most sort after thing these days is its wide expanse and the ability to drill essentially “risk free”oil wells in a time when bankers are reluctant to lend any oil company money for exploratory drilling.  With the vast amount of infill drilling that will occur as the play is exploited we may see more than a couple of decades worth of production.