Sitting pretty?: EOG boss Mark Papa
‘Giant gas find’ boosts EOG
Shares of EOG Resources surged 18% to a new high yesterday after the independent oil producer said it may have discovered one of the largest accumulations of natural gas in Canada so far.
It also raised its production forecasts, touting success in the Barnett Shale play in Texas and its lands in north-west Colorado, but did not factor in any volumes in the early-stage Canadian play.
Houston-based EOG said drilling on its acreage in north-eastern British Columbia may have uncovered 6 trillion cubic feet of natural gas, which one analyst said would rank it among the largest gas resource plays in Canada.
By comparison, three untapped gas fields in the Mackenzie Delta region of the Northwest Territories - discovered in the 1970s and now targeted for a major pipeline to southern markets - have estimated recoverable reserves of the same magnitude.
"I would say it puts it in the top 10 gas discoveries in Western Canada," FirstEnergy Capital Corp analyst Stephen Paget said.
He cautioned that EOG's Horn River Basin play near Fort Nelson, British Columbia, which has been in the works for three years, differs from large single "pools" because the gas is trapped in rocks over a large area, making it trickier to produce.
Shares of EOG surged $19.05 to close at $124.73 on the New York Stock Exchange. The stock eclipsed its previous lifetime high of $108.92, Reuters reported.
Details of the find created a buzz in the oil patch yesterday and led investors to drive up the shares of companies with lands near EOG's, such as Nexen and EnCana.
"The market is looking for anybody with exposure to this and just kind of trying to do the math themselves," Tristone Capital analyst Chris Feltin said.
EOG has amassed 140,000 net acres near British Columbia's northern boundary, where it has drilled a total of six wells so far, it said.
"Up until six months ago, we basically said: It looks like a duck and quacks like a duck - is it really a duck? But we really hadn't drilled wells in it to prove that it was a duck," EOG Chief Executive Mark Papa told analysts yesterday.
Flow rates after recent drilling have ranged between 3.5 million and 5 million cubic feet a day, although that was from shorter-distance horizontal wells than those it will use for commercial production. Output would likely double with those, he said.
"We will be putting those wells on sales in June of this year, so we will actually start to get flow data from this asset in just a few months," he said.
Output will not rise quickly, due to the remote northern location and the need to build up infrastructure, Papa said.
Shares in EnCana, which also operates such resource plays in the region, jumped more than 3% to C$76.22 on the Toronto Stock Exchange. Nexen gained 5% to C$31.
"Our land surrounds EOG's land, so we're hopeful we'll see the same stuff when we get to the same stage of our programme," Nexen spokesman Michael Harris said.
"They're about 12 months ahead of us. What we are doing this winter is what EOG was doing last winter and we hope we'll have similar success."
EOG also said it is raising annual average production growth estimates for 2009 and 2010 to 13% to 15% from its prior forecast of 10%.