EOG's Eagle Ford Shale Investment Paying Off

EOG is reaping the benefits from being an early mover in the Eagle Ford Shale. The company was able to build an over 500,000 acre position for $450 per acre, while industry deals are now trading above $20,000 per acre. After assembling its acreage position, EOG drilling operations commenced and the company has gone for 0 to 23,000 barrels of oil per day in just 18 months. The company did a recent interview on its Shale Oil operation with CNN and you get a taste for how early the company began moving into liquids plays.

This "wall of disbelief" -- Papa's term -- did have one benefit. It allowed EOG to acquire mineral rights at bargain-basement prices, even after the cloak of secrecy surrounding the Parshall discovery had lifted. EOG holds 600,000 acres in North Dakota, leased at an average cost of $190 an acre, and another 595,000 acres in Texas's Eagle Ford Shale at a cost of around $450 an acre. Similar properties in the Bakken are now leasing for anywhere from $800 to $6,000, according to Papa, while Eagle Ford acreage goes for as much as $20,000.

Papa believes Bakken and Eagle Ford will wind up as the fifth- and sixth-largest oilfields ever discovered in the U.S., each with about 4 billion barrels in recoverable reserves. To put that into perspective, the largest offshore oilfield, Gulf of Mexico's Thunder Horse, is expected to produce 1.2 billion barrels, and drilling offshore is more expensive. "It was pretty darn uncanny for them to sneak in and carpet-bomb all that acreage," says Parker.

The challenge for EOG going forward will be replicating its North Dakota success elsewhere. Papa maintains that 70% of what his crews learned in the Bakken can be applied to the Eagle Ford and other shale oilfields where EOG has acquired land, such as New Mexico's Leonard Shale, West Texas's Wolfcamp, and Colorado and Wyoming's Niobrara. "Our learning curve is now months rather than years," he says.

Analysts seem impressed. EOG's Eagle Ford operation has grown "from zero to 23,000 [barrels per day] of oil in less than 18 months," gushes Wunderlich Securities oil analyst Irene Hass in a recent report. She thinks Eagle Ford will surpass Bakken as EOG's top oilfield by 2013. One obstacle is the high cost of drilling. Rigs are scarce, and workers are in such demand that North Dakota roughnecks are earning $60,000 a couple of years out of high school, according to Frank Mosely, an energy economics professor at Minot State University. Another bottleneck is transportation. The cost of accessing existing pipelines is so high that EOG is able to save in the range of $5 to $10 a barrel by moving oil by rail rather than by pipeline.

Read the full news release at CNNMoney.com