EOG Resources changing strategy to get more crude out of stubborn shale

HOUSTON – EOG Resources says it can get “triple-digit” returns at $60 a barrel oil, a sign the company has whittled down drilling costs as it moves rigs to its most profitable spots.

Outlining a new strategy, the Houston oil company said Friday it has pointed its drill bits at its top-shelf locations in South Texas’ Eagle Ford Shale and elsewhere that get a minimum 30 percent return at $40 oil.

“Our shift to premium is permanent and not simply a temporary high-grading process in a low-commodity price environment,” EOG Resources Chief Executive Bill Thomas told investors. “If history is any indication, we will continue to push the oil price needed for triple-digit returns even lower.”

It’s a sharp departure from the wild and woolly wildcatter business model that was once common among U.S. shale drillers in the days of $100 a barrel oil.

The company’s plan is among the industry’s biggest moves to address the widespread problem of low oil-production rates in the once-booming shale plays at the center of the nation’s energy renaissance. Thomas said it’s an effort that “extends our lead as the low-cost horizontal oil producer.”

One of the reasons the downturn has been so painful for U.S. oil companies is that squeezing oil out of shale rock is expensive, and though wells across Texas and North Dakota were gushing before the downturn, the shale business has never proven itself to be profitable.

Oil companies took out hundreds of billions in debt to drill thousands of expensive wells that gave up only 4 percent to 8 percent of the buried crude and that lost 70 percent of their production in the first year. Scores of U.S. oil companies have gone bankrupt.

EOG Resources has 220 drilled wells that it hasn’t brought into production but could activate once management believes the oil bust is turning into a recovery. But Thomas said the U.S. oil industry will take at least a year and $60 to $65 a barrel oil prices to restart its growth cycle after the punishing downturn.

Still, he said, his company can start pumping money back into its “premium” assets with oil at $15 to $20 a barrel lower than the average driller. EOG Resources could boost production by completing 40 percent of its backlog of drilled-but-uncompleted wells without renting any more oil field equipment.

“Our shift to premium drilling this year is a game changer,” he said. “We expect well productivity to improve more than 50 percent in 2016.”