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Searchin' - EOG Again Seeks to Build Its Oil and Gas Inventory Organically, This Time in the Utica

As U.S. E&Ps deal with a slew of shorter-term challenges such as broken supply chains, labor shortages, and infrastructure constraints, they’re also paying increasing attention to a longer-term concern: “inventory exhaustion.” There is a growing chorus of analysts asserting that oil and gas producers’ inventory of top-tier drilling locations has been significantly depleted as the nation’s major unconventional resource plays mature. Many producers have continued to rein in their capital spending and husband their current resources and several have boosted inventories through bolt-on acquisitions. Premier E&P EOG Resources has taken a different approach, emphasizing organic exploration that has led to the discovery of two new significant plays over the past two years, including the recent announcement of a new Utica Shale combo play that it describes as being “almost reminiscent” of the early Delaware Basin. In today’s RBN blog, we discuss EOG’s dramatically different approach to building inventory and dive into the details of its new Utica discovery.

From the onset of the Shale Revolution, E&Ps funded double-digit annual growth that boosted output from 5.5 MMb/d in 2010 to nearly 13 MMb/d in 2019 before the pandemic-induced demand destruction disrupted the industry. Despite soaring crude prices, booming markets, and ever-improving drilling-and-completion technology, post-pandemic U.S. oil production recovery has proceeded at a much more tepid pace, frustrating politicians and consumers in the process. U.S. crude oil production may finally reach 2019’s average level next year, although the Energy Information Administration (EIA) has twice reduced its 2023 growth forecast to a current 4%, or 480 Mb/d.

Major factors in the anemic rebound include producers’ new laser-focus on cash returns, plus shortages in labor and materials, sharply higher costs and (in some areas) insufficient pipeline takeaway capacity. There are longer-term worries too — not just the uncertain timing and impacts of the energy transition, but also that, after more than a decade of aggressive development, the inventory of top-tier drilling locations in maturing resource plays appears diminished. According to one recent analysis, the number of highly productive locations in the U.S.’s top five plays have been cut in half since 2016.

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