Leonard Shale

EOG Conference call transscript:

In Southeastern New Mexico, we've been working over a year on our Red Hills area, Leonard Shale play, and our first horizontal well now has a 300-day production history. I'll note that the Leonard may also be called the Upper Bone Spring or Avalon Shale, as there are some industry variance in terminology.

We now feel we have reserve potential of 65 million barrels of oil equivalent net after royalty reserves on 31,000 of the 120,000 net acres we have in the play, which completed seven horizontal and four vertical wells, and we believe typical for well reserves for horizontal wells or about 400,000 barrels of oil equivalent net after royalty for $6.5 million well costs, which yields a 40% direct after-tax reinvestment rate of return using NYMEX future prices.

Typical wells are at Lomas Rojas 26 #1H and #2H, which tested at 710 barrels of oil per day with 1.7 million cubic feet of rich natural gas, and 800 barrels of oil per day with 1.5 million cubic feet of rich natural gas, respectively. We have 100% working interest in these wells.

We're currently testing other portions of our 120,000 acres and we'll have results before year end. I'll note that the production stream from this accumulation is analogous to our Barnett Combo play, since 1/3 of the production is crude oil, 1/3 is NGLs and 1/3 is residue gas. This play is just starting up. It will be late 2011 before we see a substantial production contribution from this asset.