US shale leader EOG Resources confidence no match for cheap oil
WILLISTON -- One of the strongest leaders of the U.S. shale revolution has been humbled by plunging oil prices. EOG Resources Inc. slashed its 2015 budget on Wednesday amid cheap crude prices and said its output will not grow this year, mere mont...
WILLISTON -- One of the strongest leaders of the U.S. shale revolution has been humbled by plunging oil prices.
EOG Resources Inc. slashed its 2015 budget on Wednesday amid cheap crude prices and said its output will not grow this year, mere months after confidently saying it was strong enough to weather the downturn without cutbacks. Its shares tumbled more than 7 percent late Wednesday.
The move offers the clearest example to date of how the roughly 50 percent drop in oil prices since last June is roiling the U.S. energy industry, forcing once-confident players to make choices unimaginable just 12 months ago.
EOG's scaled-back outlook would mark the first time in years its crude and natural gas output does not jump more than 10 percent.
EOG is not alone. Last week Apache Corp. posted a multibillion-dollar net loss and slashed its 2015 budget while saying its output would be flat from last year. On Thursday, the number of rigs drilling in North Dakota fell below 130 for the first time in years, a level the state's top official said is necessary to prevent output from falling.
ConocoPhillips and Occidental Petroleum, among many others, have taken similar steps.
Many oil industry and market analysts have been waiting anxiously for the update from EOG, regarded as a bellwether for the shale patch. The company's stock, for instance, is down only 10 percent the past six months, versus a 33 percent drop for Apache and 19 percent for Occidental.
If even EOG -- a firm renowned for its strong balance sheet, prime holdings in the sweetest shale spots, efficient drilling and good hedges -- is brought low, output across the sector could stall more quickly than expected.
Houston-based EOG stressed its primary goal is to survive the price doldrums and that it has no interest in boosting production while oil is relatively cheap.
It was a remarkable about-face for EOG, which last November said there were no plans to curtail operations, even with cheap crude.
Chief Executive Bill Thomas on Wednesday said the goal is now to "exit this downturn in better shape than we entered it."
The company has long been favored by Wall Street - only one of the 39 analysts covering the stock recommends selling with 32 encouraging buying. But even the most conservative estimates for fourth-quarter profit and the 2015 budget were off.
EOG slashed its 2015 capital budget by 40 percent, planning to spend $4.9 billion to $5.1 billion.
RBC Capital Markets had expected spending of at least $6.1 billion, betting the spending would fuel at least double-digit production growth for the foreseeable future.
Yet with plans to not add drilling rigs this year and hydraulically fracture 45 percent fewer wells, the company expects 2015 production to be flat with 2014, an average of roughly 288,900 barrels per day.
EAGLE FORD REMAINS FOCUS
For now, EOG said its core focus will remain its Eagle Ford acreage in eastern Texas, where executives estimate more than 3 billion barrels of oil could be locked inside.
The area has so far been prolific. EOG said in November that output of new fracked wells in the Eagle Ford rose 39 percent compared with wells sunk at the start of 2014. It plans to bring 345 wells online there this year, down from 534 in 2014.
The Permian shale in western Texas, an area dominated by Chevron, is where EOG plans its one area of increase, planning to bring 95 wells this year, up 53 percent from last year.
For the company's holdings in North Dakota and Wyoming, most of which are far from traditional transportation like pipelines, EOG plans sharp reductions, partially an acknowledgment that cheap oil makes the remote plays far less economical.
For its largest projects, EOG would make a 100 percent rate of return with crude prices of at least $80 per barrel, Thomas said last fall. Even if prices fall to $40, EOG would at least have a 10 percent rate of return, or a profit on its investment, on wells in Texas and North Dakota.