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EOG’s Shale Oil Bet Pays Bakken and Eagle Ford Dividends

by Kenneth E. DuBose on August 11, 2011

EOG’s Bakken Shale and Eagle Ford Shale success was the direct result of the company’s exploratory mentality. The company followed the lead of a geologist when entering the Bakken and then quickly began expanding into the Eagle Ford Shale when it first identified the play. The company literally led the industry into liquids-rich gas and oil plays, with the Bakken, Eagle Ford, and Niobrara just being three to the company’s primary targets.

The company was able to acquire leases at much better rates than competitors because no one else was interested. That’s an advantage you won’t see too many times as an investor. EOG was investing billions while other oil & gas companies were just not convinced that shale oil could be produced from plays like the Eagle Ford and Bakken. You bet everyone else wishes they would have listened sooner. Acreage in the Eagle Ford now trades at almost 100 times what EOG had to pay.

As a mineral owner, the possibilities make your mind race. If I had only waited………What if…… Those are all questions you can’t answer. Yes, if you knew the Eagle Ford would be a multi-billion barrel field, you could have held out for better bonus money, but the honest truth is no one knew how big Eagle Ford or the Bakken would be when they first started leasing. The best you can do is negotiate for fair value at the time. If you did, chances are you are getting some pretty big royalty checks by today.

It was the winter of 2006, and EOG Resources executive vice president Kurt Doerr had to be wondering what the heck he was doing prospecting for oil in the frigid central plains of North Dakota.

To Doerr’s amazement, the Parshall, ND, well immediately produced 450 to 500 barrels a day, about five times more than his best-case scenario going in. “I called up Mark and said, ‘Wow, I think we’ve found something here.'”

Despite EOG’s reputation for technical know-how, Wall Street investors were skeptical when Papa explained his plan to focus on extracting oil from shale as opposed to gas.

“One guy said to me, ‘Mark, you’ve got a good reputation on Wall Street as a credible person. But about six or seven of your peer companies have been in here in recent months, and they’ve all said EOG is barking up the wrong tree.'”

This “wall of disbelief” — Papa’s term — did have one benefit. It allowed EOG to acquire mineral rights at bargain-basement prices, even after the cloak of secrecy surrounding the Parshall discovery had lifted. EOG holds 600,000 acres in North Dakota, leased at an average cost of $190 an acre, and another 595,000 acres in Texas’s Eagle Ford Shale at a cost of around $450 an acre. Similar properties in the Bakken are now leasing for anywhere from $800 to $6,000, according to Papa, while Eagle Ford acreage goes for as much as $20,000. Papa believes Bakken and Eagle Ford will wind up as the fifth- and sixth-largest oilfields ever discovered in the U.S., each with about 4 billion barrels in recoverable reserves. To put that into perspective, the largest offshore oilfield, Gulf of Mexico’s Thunder Horse, is expected to produce 1.2 billion barrels, and drilling offshore is more expensive. “It was pretty darn uncanny for them to sneak in and carpet-bomb all that acreage,” says Parker.

What’s next for EOG? Papa believes there are many yet-to-be-discovered shale oil plays in other parts of the world. One well-connected EOG shareholder tells Fortune that EOG has formed a partnership with YPF, Argentina’s largest energy company, to develop a “very large shale oil deposit” in that country. A YPF spokesman confirmed the existence of a relationship with EOG, and EOG disclosed in June that it has taken a position in some shale oil acreage in Argentina.

Read the full news release at

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