This article is part of the Houston Chronicle’s 100 project. To see more, click here.
For a company that has ridden a wave of innovation to soaring earnings, the Houston headquarters of EOG Resources doesn’t have much evidence of innovators.
There are no engineering strategy rooms or walls covered with geological diagrams. In fact, there are no engineers or geologists.
That’s because they are all in the field, testing different methods and technologies for pulling oil out of shale rock formations deep underground, EOG Chief Executive Officer Mark Papa said.
The company’s technical staff is developing innovations to follow the ones that have helped catapult EOG into a leadership spot in shale oil production and to the top of this year’s Chronicle 100 list, Papa said.
Strong all around
EOG led the list with an all-around strong performance, including a 551 percent jump in earnings per share and a 64 percent gain in revenue during 2011.
Overall, the company pulled in $1 billion in net income off $9.6 billion in revenue from operations. EOG has 2,550 employees, with more than half of those in Texas and 494 in Houston. The company’s earnings in 2010 were $161 million.
“The magic” of EOG’s performance, Papa said, was rooted in the company’s first full-year of benefit from a heavy gamble on shale oil that began at a time when the company was deep into shale gas production.
“Five or six years ago, we read the tea leaves relating to North American natural gas and said it looks to us that there is going to be a surplus of supply over demand, and it’s probably going to last for a long period of time,” Papa said.
The company shifted heavily toward shale oil production at a time when many did not believe oil production from shale was practical, he said.
“There was a big disbelief factor in the industry, and EOG was one of the only companies that said we don’t think that particular line of thinking is correct,” he said.
But a bet on oil was just the start, he said. The company has pushed the envelope with its drilling technology, finding ways to pull more oil out of rock formations that were previously thought to be unproductive.
EOG also made a major discovery, with about 1.6 billion barrels of recoverable oil, in the Eagle Ford Shale of South Texas.
But EOG believes there is more to be had, and is pushing its drilling teams to think of ways to squeeze more oil out of its Eagle Ford find, from which it now can recover only 6 percent of what it has identified.
“We think there’s roughly another 26 billion barrels of oil that we won’t recover from this reservoir with current technology,” Papa said. “So one of our big focus efforts is how can we improve that 6 percent recovery factor to capture some incremental portion of that 26 billion barrels of oil under our acreage.”
Much of that effort comes from the company’s independent wildcatter mentality, Papa said. The company runs like a collection of smaller exploration and production companies that operate almost autonomously out of their division offices, where they take chances on their own new approaches and technologies.
“We try to promote what I call a rational risk-taking culture, and that’s what’s really paid off,” he said.
EOG believes it also has set itself up for major returns from the Eagle Ford for decades to come by building a plant to provide its own sand for hydraulic fracturing, the process of blasting underground rock formations with mixtures of water, sand and chemicals to free up oil and natural gas.
The plant will save the company about $300 million a year, paying for itself in one year, by cutting down on the highest cost associated with drilling new wells – fracturing sand, Papa said.
“That’s kind of a no-brainer economically,” he said. The company also has added a facility that will allow it to move more of its oil by rail to markets where it can take advantage of high crude prices.
EOG plans to drill about 300 wells annually in the Eagle Ford over the next decade, with the hope of more technological breakthroughs.