EOG Resources, Inc., a Delaware corporation organized in 1985, together with its subsidiaries (collectively, EOG), explores for, develops, produces and markets natural gas and crude oil primarily in major producing basins in the United States of America (United States), Canada, The Republic of Trinidad and Tobago (Trinidad), the United Kingdom, The People's Republic of China (China) and, from time to time, select other international areas.
At December 31, 2009, EOG's total estimated net proved reserves were 10,776 billion cubic feet equivalent (Bcfe), of which 8,898 billion cubic feet (Bcf) were natural gas reserves and 220 million barrels (MMBbl), or 1,317 Bcfe, were crude oil and condensate reserves and 93 MMBbl, or 561 Bcfe, were natural gas liquids reserves (see Supplemental Information to Consolidated Financial Statements). At such date, approximately 75% of EOG's reserves (on a natural gas equivalent basis) were located in the United States, 16% in Canada and 9% in Trinidad. As of December 31, 2009, EOG employed approximately 2,100 persons, including foreign national employees.
EOG's business strategy is to maximize the rate of return on investment of capital by controlling operating and capital costs. This strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost-effective basis. EOG focuses on the cost-effective utilization of advances in technology associated with the gathering, processing and interpretation of three-dimensional (3-D) seismic data, the development of reservoir simulation models, the use of new and/or improved drill bits, mud motors and mud additives, horizontal drilling, formation logging techniques and reservoir stimulation/completion methods. These advanced technologies are used, as appropriate, throughout EOG to reduce the risks associated with all aspects of oil and gas exploration, development and exploitation. EOG implements its strategy by emphasizing the drilling of internally generated prospects in order to find and develop low cost reserves. EOG also makes select strategic acquisitions that result in additional economies of scale or land positions which provide significant additional prospects. Maintaining the lowest possible operating cost structure that is consistent with prudent and safe operations is also an important goal in the implementation of EOG's strategy.
With respect to information on EOG's working interest in wells or acreage, "net" oil and gas wells or acreage are determined by multiplying "gross" oil and gas wells or acreage by EOG's working interest in the wells or acreage.
EOG's operations are all natural gas and crude oil exploration and production related.
Exploration and Production
United States and Canada Operations
EOG's operations are focused on most of the productive basins in the United States and Canada.
At December 31, 2009, 81% of EOG's net proved United States and Canada reserves (on a natural gas equivalent basis) were natural gas and 19% were crude oil and condensate and natural gas liquids. Substantial portions of these reserves are in long-lived fields with well-established production characteristics. EOG believes that opportunities exist to increase production through continued development in and around many of these fields and through the utilization of the applicable technologies described above. EOG also maintains an active exploration program designed to extend fields and add new trends and resource plays to its broad portfolio. The following is a summary of significant developments during 2009 and certain 2010 plans for EOG's United States and Canada operations.
United States. In 2009, EOG completed 116 net gas wells in the Barnett Shale play of the Fort Worth Basin. EOG uses the term Combo wells to refer to wells that derive economic value from crude oil and condensate, natural gas liquids and associated natural gas in relatively equal portions. During 2009, EOG completed 94 net Combo wells in the Barnett Shale play. During the year, EOG's total production from the Barnett Shale play grew to an average net daily rate of 400 million cubic feet per day (MMcfd) of natural gas and 13.1 thousand barrels per day (MBbld) of crude oil and condensate and natural gas liquids. EOG's 2009 liquids production from the Barnett Shale play increased by approximately 97% compared to 2008. For 2010, EOG plans to drill approximately 234 net Barnett Shale Combo wells. Primary 2010 growth for EOG in the Barnett Shale will be provided by crude oil and natural gas liquids. During the third quarter of 2009, EOG acquired certain crude oil and natural gas properties and related assets in the Barnett Shale consisting of proved developed and undeveloped reserves and approximately 33,000 net unproved acres. With a total of approximately 840,000 net acres, EOG is one of the largest leaseholders in the Barnett Shale play, providing EOG with long-term reserve and production growth potential for years to come.
Throughout the Rocky Mountain area, EOG expanded its acreage position with the addition of prospective crude oil acreage in 2009. EOG now holds approximately 1.5 million net acres in the Rocky Mountain area, including over 500,000 net acres throughout the Williston Basin of North Dakota and Montana available for exploration in the Bakken and Three Forks plays. In addition, EOG also holds acreage in the Rocky Mountain area relating to certain potential exploration and development prospects which EOG is currently evaluating. During 2009, EOG drilled 106 net wells in the Uinta Basin, Utah, and 57 net wells in the Williston Basin. Production from the Rocky Mountain area increased 14% primarily through increased liquids production. The net average production for 2009 was 240 MMcfd of natural gas and 34.7 MBbld of crude oil and condensate and natural gas liquids. In December 2009, EOG and a third party exchanged certain natural gas related properties in the Rocky Mountain area. In 2010, EOG intends to increase its activity level in the Bakken and Three Forks plays in the Williston Basin by drilling over 95 net wells. EOG will have limited drilling activity on its core natural gas assets within the Rocky Mountain area and will primarily focus on exploiting and expanding the oil resource plays.
In 2009, EOG continued to expand its activities in the Mid-Continent area with continued growth and extension of the Western Anadarko Basin and Hugoton Deep core areas. For the year, EOG averaged net production of 76 MMcfd of natural gas and 5.3 MBbld of crude oil and condensate and natural gas liquids. Total crude oil and condensate and natural gas liquids volumes increased 15% in 2009 compared to 2008. In Southwest Kansas, EOG continued its active drilling program focused on high potential Morrow and St. Louis targets in a broad area, which is part of the 900,000 gross acres EOG controls in the Hugoton Deep play. In the Western Anadarko Basin, EOG continued its successful horizontal exploitation of the Cleveland sandstone, drilling 13 net wells with per well initial production rates of approximately 500 barrels of oil per day. Since 2002, EOG has drilled over 200 net wells in this play and holds approximately 65,000 acres throughout the trend. EOG significantly expanded its acreage position in the Western Anadarko Basin during 2009 with the addition of over 100,000 net acres focused on the extension of core plays, as well as multiple new liquids-rich plays which will be exploited in 2010 and beyond. EOG holds approximately 580,000 net acres in the Mid-Continent area.
In the South Texas area, EOG experienced continued success in 2009, drilling 54 net wells. During 2009, net production averaged 204 MMcfd of natural gas and 7.5 MBbld of crude oil and condensate and natural gas liquids. EOG's activity was focused in Webb, Zapata, San Patricio, Duval and Matagorda counties, where EOG drilled successful wells in the Lobo, Roleta, Frio and Wilcox trends. EOG continued to focus on horizontal drilling, targeting the Perdido, Wilcox and Lobo sands. EOG also continued directional drilling under Nueces Bay. EOG drilled a deeper pool wildcat discovery under Indian Point, along with additional development drilling, with seven wells drilled yielding over 34 Bcfe net proved reserves. EOG plans to significantly increase drilling activity in the South Texas area in 2010. Approximately 168 net wells are planned during 2010 for South Texas. EOG holds approximately 600,000 net acres in the South Texas area. In addition, EOG holds acreage in the South Texas area relating to certain potential exploration and development prospects which EOG is currently evaluating.
Also during 2009, EOG participated in 25 net wells and implemented five Wolfcamp waterfloods in the Permian Basin area. The wells drilled throughout the Permian Basin tested the Bone Spring, Wolfcamp, Permo-Penn and other objectives. Production for the year averaged approximately 69 MMcfd of natural gas and 7.1 MBbld of crude oil and condensate and natural gas liquids. EOG acquired approximately 230 square miles of 3-D data and added 100,000 net acres during 2009. EOG holds approximately 490,000 net acres throughout the Permian Basin area. In 2010, EOG plans to continue the development of existing Permian Basin plays, acquire acreage positions in new plays and test new play concepts.
In the Upper Gulf Coast area, EOG averaged 144 MMcfd of natural gas and 2.8 MBbld of crude oil and condensate and natural gas liquids production in 2009. EOG drilled 31 net wells with 10 net wells being Travis Peak vertical stacked pays and Cotton Valley horizontal development wells located in East Texas and North Louisiana. A major growth driver for EOG in this area is the expanded Haynesville and Bossier Shale program that has grown from drilling two wells in late 2008 to 13 wells in 2009. EOG expects to drill 48 net Haynesville and Bossier Shale wells in 2010 on the 159,000 net acres held in the play. Mississippi development focused on a combined crude oil and natural gas discovery at Mechanicsburg Field, where EOG drilled eight wells. In the fourth quarter of 2009, EOG acquired 39,500 net unproved acres in Nacogdoches County, Texas, within the Haynesville and Bossier Shale formations and expects to acquire up to an additional 7,500 net acres as part of the same transaction during the first quarter of 2010. EOG holds approximately 370,000 net acres in the Upper Gulf Coast area.
During 2009, EOG continued the development of its Pennsylvania Marcellus Shale acreage, drilling a total of three gross vertical and 17 gross horizontal wells (13 net wells). Nine of the wells have been completed with most of those awaiting final construction of gas gathering system infrastructure to commence sales. The gas gathering systems being constructed by EOG should be completed by the end of the first quarter of 2010. Several wells tested at 24-hour rates in excess of 5 MMcfd. In 2010, EOG will continue to develop the Marcellus Shale, drilling an estimated 25 to 30 net wells. Most of the wells will be in the Seneca Joint Venture area in Clearfield, Elk and McKean Counties, Pennsylvania, where EOG holds a 50% working interest. Several wells are also planned for Bradford County, Pennsylvania, where EOG holds a 100% working interest. EOG currently holds approximately 225,000 net acres in the Pennsylvania Marcellus Shale.
At December 31, 2009, EOG held approximately 4,185,000 net undeveloped acres in the United States.
During 2009, EOG continued the expansion of its gathering and processing activities in the Barnett Shale play of North Texas and the Bakken play of North Dakota. In 2009, EOG placed into operation one 40 MMcfd natural gas processing plant in the Barnett Combo play of North Texas, and began construction of a second 40 MMcfd processing unit which is expected to begin operation during the second quarter of 2010. EOG also expanded its gathering system in the Barnett Combo play to transport production to its processing plant and continued expansion of its gathering system in the Bakken play.
In the North Dakota Bakken play, EOG constructed and placed in service during February 2010 a 76-mile, 12-inch diameter "dense phase" natural gas gathering pipeline connecting its Stanley, North Dakota, gathering system with the Alliance Pipeline, near Upham, North Dakota. The Alliance Pipeline transports natural gas to the Chicago, Illinois, area. EOG also replaced its 20 MMcfd natural gas liquids processing plant, located near Stanley, North Dakota, with an 80 MMcfd refrigeration oil/condensate removal plant. In combination, these projects will allow EOG to more efficiently transport the associated natural gas and natural gas liquids production from its Bakken oil wells. At year-end 2009, the combined throughput of these systems was 15 MMcfd of natural gas.
Additionally, in support of its operations in the Bakken play, EOG constructed a crude oil loading facility near Stanley, North Dakota, designed to load crude oil into 100-car unit trains for transport to Stroud, Oklahoma. At Stroud, Oklahoma, EOG constructed a crude oil offloading facility and a pipeline to transport the crude oil to the Cushing, Oklahoma, trading hub. The first shipment of crude oil through these facilities occurred at year-end 2009. When fully operational, the capacity of these facilities is expected to allow transport of approximately 60,000 barrels per day of Bakken crude oil.
EOG expects to continue expanding its gathering and processing facilities to accommodate the drilling activity in the Barnett Shale and Bakken plays. The North Texas systems total over 70 miles of 8-inch, 10-inch and 20-inch diameter pipe, while the North Dakota system totals 290 miles of 8-inch and 12-inch pipe.
Canada. EOG conducts operations through its subsidiary, EOG Resources Canada Inc. (EOGRC), from offices in Calgary, Alberta. During 2009, EOGRC departed from its historical vertical shallow natural gas drilling program to focus on bigger target horizontal gas growth in the Horn River Basin and horizontal crude oil growth within existing legacy fields, mainly in Waskada, Manitoba and Highvale, Alberta. During 2009, EOGRC drilled or participated in 98 net wells, 60 of which were horizontal wells and 38 of which were vertical wells. Correspondingly, net crude oil and condensate and natural gas liquids production increased by 41% to 5.2 MBbld and natural gas production increased 1% to 224 MMcfd due to this shift in focus. The horizontal production growth strategy will continue in 2010 with 12 net horizontal gas wells planned in the Horn River Basin and 120 net horizontal oil wells planned in Waskada and other projects. EOGRC acquired 530,000 net acres during the economic downturn in 2009 which will set up numerous exploration and development opportunities in 2010 and beyond.
At December 31, 2009, EOGRC held approximately 1,660,000 net undeveloped acres in Canada.
Operations Outside the United States and Canada
EOG has operations in Trinidad, the United Kingdom North Sea and East Irish Sea and the China Sichuan Basin, and is evaluating additional exploration, development and exploitation opportunities in those and other international areas.
Trinidad. EOG, through several of its subsidiaries, including EOG Resources Trinidad Limited,
* holds an 80% working interest in the South East Coast Consortium (SECC) Block offshore Trinidad, except in the Deep Ibis area in which EOG's working interest decreased as a result of a third-party farm-out agreement;
* holds an 80% working interest in the exploration and production license covering the Pelican field and its related facilities;
* holds a 100% working interest in a production sharing contract with the Government of Trinidad and Tobago for each of the Modified U(a) Block, Modified U(b) Block and Block 4(a);
* owns a 12% equity interest in an anhydrous ammonia plant in Point Lisas, Trinidad, that is owned and operated by Caribbean Nitrogen Company Limited (CNCL); and
* owns a 10% equity interest in an anhydrous ammonia plant in Point Lisas, Trinidad, that is owned and operated by Nitrogen (2000) Unlimited (N2000).
Several fields in the SECC Block, Modified U(a) Block and Modified U(b) Block as well as the Pelican Field have been developed and are producing. In the Pelican field, EOG drilled a successful exploratory well in late January 2010 that is expected to begin producing by the end of the first quarter of 2010. In Block 4(a), EOG installed offshore facilities and plans to drill development wells to supply natural gas under a contract with the National Gas Company of Trinidad and Tobago (NGC) if the North Eastern Offshore (NEO) pipeline is installed by NGC. The NEO pipeline has not been completed, and EOG plans to source the natural gas for this contract from its existing fields until the NEO pipeline is completed. Sales under the contract commenced on January 1, 2010. Given EOG's current level of equity ownership in CNCL and N2000 and its ability to exercise significant influence over certain material actions, it accounts for these investments using the equity method. During 2009, EOG recognized equity income of $0.5 million and received cash dividends of $3 million from CNCL and recognized equity income of $3 million and received cash dividends of $4 million from N2000.
Natural gas from EOG's Trinidad operations currently is sold to NGC or its subsidiary. Crude oil and condensate from EOG's Trinidad operations currently is sold to the Petroleum Company of Trinidad and Tobago.
In 2009, EOG's average net production from Trinidad was 273 MMcfd of natural gas and 3.1 MBbld of crude oil and condensate.
At December 31, 2009, EOG held approximately 156,000 net undeveloped acres in Trinidad.
United Kingdom. In 2002, EOG's subsidiary, EOG Resources United Kingdom Limited (EOGUK), acquired a 25% non-operating working interest in a portion of Block 49/16, located in the Southern Gas Basin of the North Sea. In August 2004, production commenced in the Valkyrie field in the Southern Gas Basin.
In 2003, EOGUK acquired a 30% non-operating working interest in a portion of Blocks 53/1 and 53/2. These blocks are also located in the Southern Gas Basin of the North Sea. Since November 2003, three successful exploratory wells have been drilled in the Arthur field, with production commencing in January 2005. There is currently one remaining producing well in the Arthur field and this well is expected to cease production during the first half of 2010.
In 2006, EOGUK participated in the drilling and successful testing of the Columbus prospect in the Central North Sea Block 23/16f. A successful Columbus prospect appraisal well was drilled during the third quarter of 2007. The field operator expects to submit a revised field development plan to the United Kingdom (U.K.) Department of Energy and Climate Change during the second quarter of 2010 and anticipates receiving approval of this plan in late 2010. The operator and partners are currently evaluating an export route for production from the project.
During the third quarter of 2009, EOG completed a farm-in agreement with owners of the Central North Sea Block 15/30a Area AB. In December 2009, EOG, as operator, drilled an exploratory well on this prospect, which was declared a dry hole in January 2010.
During the second quarter of 2009, EOGUK drilled two exploratory wells in the East Irish Sea. Well 110/14b-7, in which EOGUK has a 70% working interest, was a dry hole while well 110/12-6, in which EOGUK has 100% working interest, was an oil discovery and was designated the Conwy field. Engineering studies were initiated with an intent to submit a field development plan to the U.K. Department of Energy and Climate Change during the first quarter of 2010. A rig has been contracted and has begun drilling two further exploratory wells offsetting the Conwy field. The first of the wells was declared a dry hole in February 2010. Results are expected for the second well by the end of the first quarter of 2010. The licenses for the East Irish Sea were awarded to EOGUK in 2007.
In 2009, production averaged 7 MMcfd of natural gas, net, in the United Kingdom.
At December 31, 2009, EOG held approximately 277,000 net undeveloped acres in the United Kingdom.
China. In July 2008, EOG acquired rights from ConocoPhillips in a Petroleum Contract covering the Chuanzhong Block exploration area in the Sichuan Basin, Sichuan Province, China. In October 2008, EOG obtained the rights to shallower zones on the acreage acquired.
During the second quarter of 2009, EOG completed a monitoring well and in the third quarter of 2009, drilled a horizontal well, which will be completed and tested during the first quarter of 2010. During the third quarter of 2009, EOG drilled a second monitoring well to evaluate one of the shallower zones and is currently drilling a second horizontal well that is expected to be completed during the third quarter of 2010.
In 2009, production averaged 8 million cubic feet equivalent per day of natural gas, net, in China.
At December 31, 2009, EOG held approximately 130,000 net acres in China.
Other International. EOG continues to evaluate other select natural gas and crude oil opportunities outside the United States and Canada primarily by pursuing exploitation opportunities in countries where indigenous natural gas and crude oil reserves have been identified.
Wellhead Marketing. In 2009, EOG's United States and Canada wellhead natural gas production was sold on the spot market and under long-term natural gas contracts based on prevailing market prices. In many instances, the long-term contract prices closely approximated the prices received for natural gas sold on the spot market. In 2010, the pricing mechanism for such production is expected to remain the same.
In 2009, a large majority of the wellhead natural gas volumes from Trinidad were sold under contracts with prices which were either wholly or partially dependent on Caribbean ammonia index prices and/or methanol prices. The remaining volumes were sold under a contract at prices partially dependent on the United States Henry Hub market prices. The pricing mechanisms for these contracts in Trinidad is expected to remain the same in 2010.
In 2009, over 90% of the wellhead natural gas volumes from the United Kingdom were sold on the spot market. The remaining volumes were sold by means of forward contracts. The 2010 marketing strategy for the wellhead natural gas volumes in the United Kingdom is to sell all natural gas on the spot market.
In 2009, all of the wellhead natural gas volumes from China were sold under a contract with prices based on the purchaser's pipeline sales prices to various local market segments. The pricing mechanism for the contract in China is expected to remain the same in 2010.
Substantially all of EOG's wellhead crude oil and condensate and natural gas liquids are sold under various terms and arrangements based on prevailing market prices.
In certain instances, EOG purchases and sells third-party natural gas production in order to balance firm transportation capacity with production in certain areas.
During 2009, no single purchaser accounted for 10% or more of EOG's natural gas, crude oil and condensate and natural gas liquids revenues. EOG does not believe that the loss of any single purchaser would have a material adverse effect on its financial condition or results of operations.