Earlier this year, EOG Resources Inc. (EOG 0.59%) announced that it had increased its Bakken and Three Forks reserve potential by 600 million barrels of oil equivalent, or BOE. That's not a trivial amount of oil and gas by any means as it's equivalent to about 8.6% of America's annual oil consumption. Furthermore, it's far from the first time the company has increased its reserve estimates as it continues to find more oil under its feet as these discoveries are being made within the company's current acreage positions.
Exploring in its own backyard
As the slide below shows, EOG Resources has increased its estimate for oil and gas reserve potential from its acreage in the Bakken-Three Forks play from 400 million BOE to 1 billion BOE over the past five years.
Data source: EOG Resources Inc. investor presentation.
The company has largely done so without acquiring a lot of additional acreage, but instead by exploring the acreage potion it already had. That meant testing the limits of how closely wells could be drilled together -- testing additional zones, such as the Three Forks formation, while also improving upon its well and completion design so that it could get more oil out of those tight rocks.
This focus on organically exploring within its current acreage position has paid off in other plays as well. As this next slide shows, the company has increased its reserve potential in the Eagle Ford by 250% since 2010.
Data source: EOG Resources Inc. investor presentation.
Meanwhile, the company has uncovered over a billion barrels of oil equivalent reserve potential in the Delaware Basin of West Texas as it explored its acreage in that region over the past few years. There's the potential for a lot more oil in that play, too, as EOG Resources explores additional zones, including tests in the Second Bone Spring Sandstone that have already yielded positive results. It's still evaluating its potential in that one play, but given its acreage position, it could be sitting on substantially more recoverable oil than first thought.
Improving the formula
Aside from testing new zones, a big reason why EOG Resources continues to find more oil on its own acreage is because it's doing a better job at simply recovering the oil that it knows is there. Oil trapped in tight rock formations is tough to access, and in many cases, only a fraction of the oil is recovered. However, as this next slide shows, the company is using both a better well completion design and drilling wells closer together so that it can extract more oil per section.
Data source: EOG Resources Inc. investor presentation.
This is yielding two results. First, the improved completion designs enable horizontal wells to not only hit the best spots within the reservoir so that it can access more of the oil and gas, but it also improves the flows right along the horizontal well bore. Meanwhile, by downspacing wells closer together the company isn't leaving as many untapped pockets of oil in the reservoir.
In other words, the company is increasing the percentage of oil on its acreage that it is coming in contact with, enabling it to to recover more of the oil that's underneath its acreage than it thought it would just a few years ago. This is proving to be a powerful combination as the company now expects to be able to unlock several billion barrels of additional oil in its own backyard.
Investor takeaway
EOG Resources does a lot of things very well, but it's probably the best at finding more oil within its own acreage position. It's doing so by not only finding additional oil producing rock layers, but also by discovering ways to recover a greater percentage of the oil that's in its currently producing zones. As a result, it will be able to recover a lot more oil than it originally expected, and it didn't have to pay any extra for the rights to that oil via hefty leases or acquisitions. That should prove to be very lucrative to investors over the long term.
