EOG Resources Inc. (EOG) is stepping forward to become a large onshore U.S. oil producer on the back of new discoveries and deployment of more money towards oil through asset sales.
In its annual analyst conference, the company announced major oil discoveries in South Texas, North Dakota and Colorado. To deliver significant returns to shareholders, the company is planning to capture horizontal crude oil and liquids-rich assets.
While maintaining a low debt-to-capitalization ratio is one of the main goals, EOG will divest $1.0 billion to $1.5 billion of North American non-core natural gas assets during late 2010 or early 2011 to fund capex for these years. It plans $5.1 billion in capital spending this year, up from $3.6 billion in 2009.
Based on the company’s solid inventory of drilling opportunities and increasing investment, EOG has set a full-year target of organic production growth of 13% with a 47% increase in liquids production volumes.
However, EOG is more confident about the later years. For 2011 and 2012, it is targeting a production growth of 19% and 21%, respectively. It has also said that total growth in the 2010–12 period comes from an expected 47%, 60% and 41% production growth in crude oil, condensate and natural gas liquids, respectively.  
With an all-time high horizontal rig count and an uptrend in capital spending (60% of 2010 drilling capex vs. 42% in 2009), horizontal oil plays are clearly gaining momentum. Given the company’s plan to capture more horizontal oil assets coupled with our medium to long term positive oil outlook, we view these as favorable for the company’s growth story.
In a favorable oil price environment, we like the company’s initiatives for transition toward an oil-focused portfolio. This, coupled with the consistent track record of organic growth, is what very few of its peers can match.
All these helped to ramp up EOG’s share price by 6.53% to $103.74 at Wednesday’s closing.


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