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EOG Resources Inc. (EOG) Chief Executive Mark Papa said Friday that the producer expects 70% of its North American revenue this year to come from oil and liquid natural gases, highlighting company's shift from natural gas production to more profitable commodities.
Papa, speaking to investors during a conference call to discuss the company's fourth quarter results and 2011 outlook, said the Houston company, once primarily a natural gas producer, will only drill into dry gas reservoirs this year where it needs to do so to preserve lease agreements.
The company also plans to sell $1 billion of gas-producing properties and pipelines in 2011.
EOG began steering exploration efforts toward oil-rich basins in 2006, moving early down a path that most U.S. independent producers, including Chesapeake Energy Corp. (CHK), Devon Energy Corp. (DVN) and Petrohawk Energy Corp. (HK) now follow.
EOG's shift to oil "has been difficult" but there is "light finally at the end of the tunnel," said Tudor Pickering Holt, which advised clients to buy the stock on Friday.
Shares traded 4.37% higher at $108.77 on Friday following the conference call.
Late Thursday, EOG reported a profit of $53.7 million, or 21 cents a share, compared with $400.4 million, or $1.58 a share, last year. Excluding such items as write-downs, earnings fell to 36 cents from 92 cents a year ago.
The 87% plunge in profit was attributed to increased write-downs and marketing costs along with higher depreciation. But adjusted profit fell less than analysts had expected because of higher revenue, which climbed 1.6% to $1.79 billion.
Revenue from crude, $630.4 million, surpassed that from natural gas, $587.5 million, during the quarter.
EOG forecast 49% growth in oil and liquid natural gas output this year.
Pappas said that the Eagle Ford shale formation in south Texas will "be the biggest component" of that liquids production growth. The company reported a 100% success rate for the 96 wells it drilled there last year and plans to drill 250 more in 2011.
The Eagle Ford, where the company has more than 500,000 acres, could surpass North Dakota's Bakken shale as EOG's largest oil production field as early as 2012, Papa said.
"Because of its size, the Eagle Ford gives us an opportunity to invest a large amount of capital at very high direct reinvestment rates of return," Papa said, adding that those rates range from 65% to 110%.
-By Ryan Dezember, Dow Jones Newswires; 713-547-9208; Ryan.Dezember@dowjones.com;
--Joan E. Solsman and Ian Thomson contributed to this article.