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EOG provides more hints it will increase activity in the Powder River Basin

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EOG provides more hints it will increase activity in the Powder River Basin

EOG Resources Inc. has positioned itself well in several major plays, but the independent producer may be in the process of shifting much of its focus to the Powder River Basin of Wyoming.

Unlike some of its competitors, EOG has remained diversified and holds acreage not only in the Delaware Basin and Eagle Ford Shale of Texas, but the Louisiana portion of the Austin Chalk. But its position in the Powder River Basin, which includes access to the Mowry and Niobrara shales, is taking on increasing importance.

During a recent discussion with analysts, EOG Executive Vice President of Exploration and Production Ezra Yacob said his company was after the "best rock," where it could drill and make a considerable profit at an oil price of $40 per barrel.

"When you think about how tight overall the rock is and how little you're actually draining out of the reservoir, it's really important to make sure whatever rock is surrounding your wellbore is in contact with … is really the best that there is," he said.

Yacob said some of the company's top places to drill are now found in the Powder River Basin, where the company has improved its drilling and completion efficiencies significantly. He described the basin as "exceptionally premium," which has led the company to expand its position in the play while directing more capital its way.

The potential of EOG's position in the Powder is significant. During the company's second-quarter earnings call, Executive Vice President of Exploration and Production David Trice said EOG's position in the Mowry Shale could hold as much as 1.2 billion barrels of oil equivalent from 875 drilling locations, while its Niobrara holdings could add another 640 million Boe from 555 drilling locations.

"The Powder River Basin is now ready to become a meaningful contributor to EOG's future growth," he said.

That stance has not changed, as the company described its plans to Bernstein Research analyst Bob Brackett during his recent visit to Denver. Brackett learned that EOG believes 20% of its premium locations across its asset base are now in the Powder, and the economics of those locations are "potentially superior" to its acreage in the Eagle Ford and Permian Basin. Instead of running the risk of angering investors by increasing its capital expenditures to cover expanded operations the basin, EOG will cut its operations elsewhere.

"It plans to grow the asset in line with basin takeaway and 'force' the area to compete for capital with the rest of the portfolio," Brackett said.

EOG may not be done expanding its holdings in the Powder. Bernstein reported that the company has already been active getting permits for its holdings in Converse and Campbell counties of Wyoming but has also assembled a "significant block" in the northeast portion of neighboring Johnson County.

Brackett gave EOG an "outperform" rating and a target price of $155 per share, but company stock was trading at $122.95 on the New York Stock Exchange late on the afternoon of Oct. 15.