EOG Resources Inc. (NYSE: EOG) has grown its estimated resource potential in Wyoming’s Powder River Basin to more than 2 billion barrels of oil equivalent (Bboe), having added the Mowry and Niobrara shale plays to the mix.
The Houston-headquartered company said it added 1,560 net premium drilling locations to its inventory with the two shale plays in Powder River Basin, which is now EOG’s third largest asset. The premium drilling locations equate to more than 30 years of inventory.
“Oil cuts in the Mowry range from 20% to 60% depending on location. We completed two Mowry wells during the second quarter, and the 30-day initial production averaged almost 2,200 boe/d,” David Trice, executive vice president of E&P for EOG, said during an earnings call Aug. 3. “Our Niobrara Shale resource estimate is 640 million barrels of oil equivalent from 555 net premium locations also on 660-ft spacing. We expect about half of our estimated Niobrara resources is crude oil.”
Resource estimates for both plays were based on 660-ft spacing and nearly 2-mile lateral lengths with well costs for both around $6 million, executives said.
The Powder River Basin, which is also known for its plentiful coal supply, has been gaining more attention in recent years as oil and gas companies turned to the basin’s Turner, Parkman and Niobrara-Codell formations in search of hydrocarbon resources. Although the basin lies partly in southeast Montana, the Wyoming section has dominated activity.
Several players have been having similar success in the basin. For example, Chesapeake Energy Corp. (NYSE: CHK) on Aug. 1 said its growing Powder River Basin production hit a record daily rate of 32,000 boe/d in July. Meanwhile, others, such as Anadarko Petroleum Corp. (NYSE: APC), have stepped up action in the basin.
Trice said EOG began drilling in the Powder River Basin in 2008 and knew “for quite some time” that there was a lot of resource potential beneath its Mowry and Niobrara acreage. He said that through the years the company has built on publicly available data—the industry has already drilled more than 200 Niobrara wells and about 30 Mowry wells—while collecting its own, having drilled nine wells each in both plays since then, to gain knowledge.
EOG’s work through the years enabled the company to build 1,700 full petrophysical models across the basin, Trice said. He noted this helps the company find the best targets, identify resources in place and devise completion designs—all critical to the play’s success.
Also critical to future success is bringing down costs—something he said EOG has been able to do. In the Turner play, Trice said the company routinely drills 2-mile wells in six to seven days. Here, zipper frack operations enable the company to complete up to 10 stages per day, driving down finding costs, he said.
Target well costs for the three plays range from $4.5 million to $6.1 million per well, EOG said in its latest earnings release.
“In addition, we identified another 80 net undrilled locations in the Turner play,” Trice said. “The Powder River Basin is now ready to become a meaningful contributor to EOG’s future growth.”
Plans for the rest of the year include drilling the remaining Turner wells and conducting spacing tests in the Mowry and Niobrara, he added. Activity is expected to ramp up across the basin in 2019 as EOG adds infrastructure to facilitate takeaway and moves into full development mode.
“Pretty much 100% of our Niobrara will be co-developed with the Mowry,” Trice said, noting the Mowry footprint is slightly bigger than the Niobrara’s. “We’re always testing new zones, trying to find better targets. Currently in both the Niobrara and Mowry we’re focused predominately on single zones, but we’re also looking at the potential to stack or stagger in either of those. That’s an ongoing process as we collect more data and get more tests in the ground.”
EOG has a 400,000 net acre position in the Powder River Basin, where it is running a two-rig program with expectations to complete about 45 net wells this year, the company said.
CEO Bill Thomas said the second-quarter resource additions in the basin “demonstrates once again the value of our exploration focus” and adds to the company’s options. EOG has acreage in 11 plays spanning six basins with its largest assets in the Permian Basin, Eagle Ford and Powder River Basin.
The company on Aug. 2 reported its total oil production grew by 15% during the second quarter to 384,000 bbl/d, compared to a year earlier. Thomas said EOG’s 2018 production growth is “a result of investing in high-return premium drilling across nine plays in six different basins.”
He pointed out how the company is adding premium locations faster than drilling as resource potential grows, moving from 2 Bboe February 2016 (about 3,200 premium locations) to 9.2 Bboe in August 2018 (about 9,500 premium locations).
“EOG’s ability to organically generate new prospects coupled with our proven ability to execute on our premium drilling program demonstrates EOG is a high-return growth machine with the ability to sustainably generate long-term shareholder value,” Thomas said. “We’re not relying on any one basin to drive our company’s success, which means we are in a position to grow production without straining the return on our capital investment or the underlying assets. In other words, we can grow each asset at a pace that maximizes returns and NPV per acre.”
The production growth, aided by higher oil prices and improved market conditions, propelled EOG’s quarterly profit to $696.7 million from $23.1 million a year earlier.
Velda Addison can be reached at firstname.lastname@example.org.
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