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It has been a challenging quarter for oil producers operating in the Williston Basin. Differentials pulled back significantly in the Bakken, and this was only made worse by a pullback in the price of natural gas liquids. Most companies do not hedge natural gas liquids, so the 20% decrease in price went straight to the balance sheet. Marathon Oil Corporation (NYSE:MRO) experienced this, which I covered in this article. Newfield Exploration Co. (NYSE:NFX) shared this experience, and like Whiting Petroleum Corporation (NYSE:WLL) guided production upward. All of these companies saw margins shrink, so it was a surprise when EOG Resources, Inc. (NYSE:EOG) had a blow out quarter. But the quarter wasn't unusual for EOG in itself, as it has continually beat estimates. Watching this company over the past few years is an example of how an oil company can make the most from its business.

EOG continues to increase liquids production quickly. It continues to surpass its own estimates in this regard. As it did after the first quarter, EOG again raised its full year liquids production estimates. This is important as the current imbalance between oil and natural gas is 33 to 1.

Over the past few quarters, EOG has become more bullish with respect to the Bakken. It continues to test tighter densities in Parshall Field with good results. Its Liberty and Fertile wells all had IP rates around 1000 Bo/d plus natural gas. EOG is continuing its waterflood pilot project, and will have results by year-end. Its well results in the Antelope Extension (northeast McKenzie County) have had better IP rates in the 1800 Bo/d range plus natural gas. Its Stateline Prospect results may be the most important with respect to growth. Stateline is located in western Williams and across into Montana, and has been characterized by a shallower depth and lower pressure. Its most recent well completion in this prospect IP'd at 1260 Bo/d.

There are two important variables controlled by EOG that create positives. Like Hess Corporation (NYSE:HES), EOG is utilizing a crude by rail system. By railing oil to St. James, it is able to get LLS differentials. Currently, there is a $20 differential between Clearbrook and St. James. Since its Eagle Ford pipeline is completed, EOG was able to move more rail cars to the Bakken. EOG currently is transporting 50,000 Bo/d, and by year-end, this number will increase to 80,000. The second variable is its Wisconsin frac sand system. By producing its own frac sand, EOG is able to save a half-million dollars per well.

EOG has seen a drop in service costs across all of its United States plays. Drilling rig and tubulars are both down 10%. This company will not realize the costs savings of other smaller producers, as EOG is locked into long-term contracts. It also provides its own frac sand and acid gel. EOG has seen oil service tightness in the Permian, although it reports little difficulty in getting work done. The Permian is followed by the Eagle Ford, with the Bakken third. This is important as there could be increased cost reductions ahead in North Dakota, especially for smaller companies.

I have received quite a few emails asking about EOG's results in the Eagle Ford. Because of this, I will make a few comments on this play, and why EOG's results show this is the best play on land, in the lower 48. There is something special in Gonzales County, as Magnum (NYSE:MHR) and Penn Virginia (NYSE:PVA) have also had very good results. Penn Virginia's top three wells had IP rates of approximately 1900 Boe/d. Magnum has two wells with IP rates north of 2000 Boe/d. EOG's results have been much better, with recent results better than expected. Its Boothe wells, produced 4820 and 3708 Bo/d. Remember these results include oil only. Its Dreyer produced 3703 and 2650 Bo/d. These results reflect how good this area is, but also how EOG has separated itself from the competition.

In summary, EOG had a great quarter. It continues to produce better completions in the Eagle Ford, Bakken, and Permian. Its most recent Eagle Ford wells are some of the best in the United States, and infill drilling in the Bakken is increasing reserves. It is important to remember, not that long ago EOG was a natural gas dominant producer. Since it was a first mover, it now has some of the best acreage in all the best plays in the U.S. EOG also continues to maximize the price received for its crude by transporting to better markets. Costs are kept in check by producing its own frac sand, and other chemicals. At this point, it is hard to bet against this company as it is firing on all cylinders. EOG is one of my top large-cap companies.

Source: Bakken Update: EOG Resources Maximized Crude Differentials In The Second Quarter

Additional disclosure: This is not a buy recommendation