EOG Resources Inc. has come a long way in the 15 years since its split with its infamous parent company Enron, which imploded in late 2001.
“I like to think we’re the only good thing that came out of Enron,” EOG’s former CEO and Chairman Mark Papa told a journalist in 2011.
Papa, president of Enron Oil & Gas Co. before the present company’s birth in 1999, led EOG’s growth from a $2 billion market cap with 700 employees to a $28 billion-plus market cap with 2,300 employees in late 2013 when he retired.
His well-planned retirement, announced in 2011, left William R. “Bill” Thomas in his position as CEO and chairman, a man Papa described as having “EOG DNA.”
Thomas, he said, embodied EOG’s corporate culture, was innovative, shared a sense of urgency and was committed to making EOG a more successful company.
Papa, 67, remained on EOG’s board as a director until Dec. 15 of this year, just a day after an unexpected press release announced he was stepping down from the board “for personal reasons.”
Except for Thomas’ reluctance to step into tight oil plays in other parts of the world, something Papa once saw as a next step for EOG, the two men appear to see eye to eye on most company matters.
Still, Papa left a legacy of achievements behind that would be challenging for any successor to match, even one such as Thomas who was working closely with Papa during most of those 14 years.
One of first to switch to liquids
Before other natural gas producers in North America’s shale boom began switching their focus to oil and condensate production, Papa recognized a long-term low-price problem on the horizon for natural gas. Thus, in 2007 EOG began buying up South Texas Eagle Ford acreage in a “stealthy manner,” as Papa described it.
The company paid an average of $450 an acre for 595,000 acres in the core of the Eagle Ford, Papa told the press in 2011.
“What we basically made was a $250 million investment. If we were to sell our position today it would probably be worth between $12 billion and $18 billion,” Papa said.
One of the leaders in developing horizontal oil production in tight sands beginning with multi-stage fractured wells in the Permian Basin in 2000, in the Barnett shale in Texas in 2003 and in the Bakken in 2006, EOG continued tight oil exploration into the Eagle Ford.
Securing railcars for long-term
Papa recognized early on that railroads would be key to carrying oil out of the Bakken to market while pipeline infrastructure was being built.
Rail cars first moved oil out of North Dakota in 2008, carrying fewer than 10,000 barrels. In four years, that volume jumped to 500,000 bpd, and in recent months it has been about 800,000 bpd, according to the North Dakota Pipeline Authority.
According to the Association of American Railroads, BNSF Railroad ships more than 600,000 bpd out of the Bakken, a large shift in business considering it had never hauled a single barrel of oil as recently as 2009.
The key to rail is that it offers flexibility, and if West Coast refineries make the investment to process light crude, then most of the oil will be West Coast bound.
EOG leases rail cars and has track fee arrangements with BNSF Railroad to deliver from the Bakken in North Dakota and Montana to St. James, Louisiana, with rail accounting for essentially all of its Bakken crude and some from the Permian.
The need for rail to move crude from Midcontinent fields will likely persist, even if plans for expanding pipeline links from the Bakken to the Gulf Coast go ahead, Papa told a Colorado conference in 2013.
He said rail will still be used five years from now to deliver Bakken crude to all three Lower 48 coasts.
EOG Bakken ROR hits 100 percent
Under Papa’s lead, EOG also invested in its own sand mines, which has allowed the company to obtain low-cost sand and to experiment liberally to find optimum levels of sand injection into its stimulation fractures.
Thanks to “having the best acreage,” the “best in-house completion technology” and “lower cost” wells, EOG now gets more than a 100 percent “direct after-tax reinvestment rate-of-return” in three “premier” U.S. resource plays - the Eagle Ford, Bakken and Leonard, the company announced in mid-2013.
