EOG Resources (NYSE: EOG) is planning to ramp up the number of well completions by nearly 30%, despite oil prices taking a dive in recent weeks, as it continues to tout its premium drilling program.

The Houston-based company aims to complete 350 net wells in 2016 — including its backlog of already drilled inventory — up from its previous target of 270.

EOG also says it will drill 50 more wells —totaling 250 for the year—all without outspending its $2.4 billion to $2.6 billon capex. The company has divested about $425 million in noncore assets in 2016, which should help with funding.

The higher target of drilling and completions came as EOG, a large independent with international assets and its dominant crude oil-producing position in the Eagle Ford Shale play, released its second-quarter 2016 earnings report.

EOG’s steps conflict with previous statements by EOG’s CEO Bill Thomas, who said that the company would wait for solid pricing, perhaps at $60, before resuming production.

“We don’t want to ramp it up and drive the price of oil back down again,” he said in February.

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Many E&Ps are nevertheless ramping up production for 2017. Not even the recent dip that sent oil prices from about $50/bbl earlier this summer into the low $40s has halted an eagerness to pump and possibly gain profits. About a year ago, EOG delivered a profit of $5.3 million, but on Aug. 4 it reported a second-quarter net loss of $292.6 million.

“Many operators are getting ready to move back to a growth mode for 2017, despite the lack of a relevant price signal,” Jefferies analysts said in a note. “Indeed, WTI forward strip pricing is only $46/bbl currently, a level most producers acknowledge is too low for reasonable returns. We do believe oil prices will improve next year, but hedges and returns are not yet available.

The drilled but uncompleted (DUC) well drawdown and cost reductions may mean the additional development is more capital efficient compared to previous quarters for EOG, analysts added; however, “there is a clear opportunity cost in ‘draining’ 30 DUCs in such a low price environment.”

First-Class Completions

EOG is counting on growing its so-called “premium inventory”—wells that generate at least 30% rates of return at $40/bbl oil— to further increase resource potential. Company executives say better rock and better completions techniques have improved the productivity of wells, and longer laterals, particularly in Eagle Ford West, are adding to its premium inventory.

The company said its premium inventory increased by 1,100 locations to 4,300 net wells with an estimated resource potential of 3.5 billion barrels of oil equivalent (Bboe) during the second quarter, an increase of 75%.

For years, EOG has leveraged science and technology with lower costs and longer laterals to expand its resource profile. The company prides itself on organic growth but said exploration and bolt-on acquisitions will add to its inventory. “The additions were the result of advances in completion technology, precision targeting, longer laterals and cost reductions,” the company said.

Between 2017 and 2020, EOG expects 10%-20% compound annual crude oil production growth at $50-$60—within cash flow.

“We have much more inventory on the verge of conversion,” Thomas said during an earnings call Aug. 5. “By improving well productivity or lowering the costs in most cases we expect much of our current non-premium inventory in the top basins to be converted to premium over time.” Well productivity and cost-savings improvements are never-ending, he added.

In the Eagle Ford, where EOG generates its highest returns, premium inventory increased by 390 net drilling locations to nearly 2,000. That’s 10 years of premium high-return drilling, according to Billy Helms, executive vice president of E&P. Lowering well costs by 10% or improving EURs by 10% could add another 2,000 into the premium category, he said.

Drilling longer laterals could also convert locations to premium.

During the second quarter, the average 30-day IP rate per Eagle Ford well was 1,705 boe/d, EOG said. Sixty wells with average treated lateral length of 4,800 ft per well were completed in the Eagle Ford.

“The trick with longer laterals is to maintain, or preferably enhance, productivity per foot of lateral,” Helms said. “Due to engineering breakthroughs and EOG’s completion designs, we have gone out as far as two miles with no degradation in productivity per foot.”

In The Gallery

Analysts appeared to be swayed.

“We believe the long-term plan is impressive given the large current base of oil production. Moreover, it is based on specific mapped well locations which should increase confidence,” analysts with Simmons & Co., energy specialists of Piper Jaffray, said in a note. “This plan fortifies our conviction that EOG is a core holding for long-term energy investors.”

“While the release should be positive for the stock, the follow-through could be more muted given expectations regarding EOG’s ability to grow long-term oil production are already high,” the analysts added.

In addition, the company is looking at the prospectivity in the Upper Eagle Ford, further delineating the Austin Chalk play, drilling more wells per pad and utilizing more efficient rigs designed specifically for pad drilling, Helms added.

Such rigs enable simultaneous operations, such as conducting drilling and cementing operations on multiple wells at the same time, cutting costs and time, he said.

EOG reported crude oil and condensate volumes of 267,700 bbl/d, of which 265,400 bbl/d were produced in the U.S., for the second quarter. The overall volume was up slightly from 276,500 bbl/d a year earlier. Natural gas volumes also fell, dropping to 1,194 MMcf/d from 1,257 MMcf/d.

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Velda Addison can be reached at vaddison@hartenergy.com.