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BP Grabs Leasehold in Eagle Ford Shale

BP plc has expanded its North American natural gas holdings by acquiring a stake in the Eagle Ford Shale in South Texas. The news came during a BP strategy meeting last week with top management and financial analysts (see related story).

The Eagle Ford leasehold was acquired through several transactions, including a joint venture (JV) with privately held Lewis Energy Group, a BP spokesman told NGI.

"Our new Eagle Ford position of circa 5 Tcf of resources is comprised of multiple lease acquisitions, including the largest being a joint venture transaction with Lewis Energy, which closed at the end of 2009," said BP spokesman Daren Beaudo.

In the JV with Lewis Energy Group BP acquired a 50% stake in 80,000 acres of the Eagle Ford Shale for $4,000-4,500/acre. One rig is running now and the activity could expand to four rigs by the end of this year.

"We now hold positions in four top quality shales -- Woodford, Haynesville, Fayetteville and now the Eagle Ford, with a combined resource potential exceeding 10 Tcf," Beaudo said.

BP made its entry into U.S. shales in July 2008 when it acquired all of Chesapeake Energy Corp.'s interests in 90,000 net acres in the Woodford Shale (see NGI, July 21, 2008). BP two months later acquired a 25% stake in Chesapeake's Fayetteville Shale leasehold, which then totaled around 540,000 acres (see NGI, Sept. 8, 2008).

During the strategy meeting last week, the management team was questioned about why it would ever use JVs to secure leaseholds in North American shale gas plays when, as one of the largest U.S. producers, it "surely should have enough" skills to find gas prospects on its own. "Why go to somebody else to get that gas?" an analyst asked.

"In terms of North American gas shales, an entry point was buying other people's stuff," said Upstream CEO Andy Inglis. However, he noted that BP also quietly goes it alone. In any case, he said, BP's expertise and technology have added value to the shale plays that it has acquired or in which it partners.

"We've increased initial production rates significantly above what had been achieved earlier" after acquiring leaseholds in the shales, Inglis noted. "We bring our technology to it...For the existing resources, we have changed the economics of that resource. It's not just fracing [fracturing] of wells, but seismic...we drill better wells...It's a real distinction...

"The Eagle Ford was a classic land acquisition," he said. Of the transaction with Lewis Energy Group, Inglis said, "We are not buying the company but the land. We are taking an organic approach. It's land access...and we are quietly building a portfolio."

BP also may not have the biggest onshore leasehold in shale prospects, but Inglis said the development would be the best.

"The important metric here is not the number of acres we hold, but the quality of the resource."

Lewis Energy Group, based in San Antonio, employs around 350 people and focuses its core operations in South Texas. The private explorer claims to be the most active producer in Webb, LaSalle and Dimmitt counties. Rodney R. Lewis, the CEO and president, founded the company in 1983. The company also has operations in Colombia as well as Mexico.

BP is one of the leading gas producers in the United States, currently supplying an estimated 4% of total U.S. consumption of natural gas. It also is the largest natural gas marketer in North America, according to NGI's rankings of U.S. and Canadian gas marketers.

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