The outlook for oil output from the Eagle Ford Shale of South Texas is strong enough to cause analysts at Wood Mackenzie to predict that it will rival the Bakken Shale by 2015 as North America's leading tight-oil producer.
"This year, liquids production in the South Texas Eagle Ford Shale has grown by more than 50%, exceeding 125,000 b/d in the first six months," Wood Mackenzie said in an "Upstream Insight" note. "While originally targeted as a gas play, currently more than half of the 185 active rigs in the play are now targeting oil."
The sweetest spot to target oil in the Eagle Ford has emerged as DeWitt, northern Live Oak and Karnes counties, according to Wood Mackenzie. "Operators in these counties, including EOG [Resources] and Petrohawk (now BHP Petroleum), are well positioned to outperform their peers," the firm said.
However, it remains to be seen still how much oil each Eagle Ford well will produce. Wells of current technological vintage have only been online for two years, so production data and insight into ultimate recoveries are limited, the analysts said. Nevertheless, Eagle Ford activity has been robust and is expected to remain so, at least for the time being.
"The initial ramp-up [in Eagle Ford drilling] has been sharp, with the first half of 2011 seeing 1,241 drilling permits issued, 20% more than in all of 2010," Wood Mackenzie said. "However, the pace of production growth will begin to taper in 2013 as cost-carry arrangements roll off and reduce the number of annual wells drilled."
There are a number of obstacles to further development of the Eagle Ford. For one, service costs have climbed, and Wood Mackenzie estimates that many operators' breakeven economics have increased by more than 40% since early last year.
Sourcing water for hydraulic fracturing is another area of concern. However, producers are increasingly recycling water whenever they are able, and Eagle Ford players have access to two large aquifers. Operators are able to source water from the aquifers by drilling in collaboration with area landowners, Wood Mackenzie said.
With about 1.96 million b/d and 3.38 Bcf/d of incremental pipeline takeaway capacity slated to be added in the Eagle Ford by 2012, midstream firms are clearly responding to the play's development. Until more of this comes online, though, operators will continue to truck a large portion of their liquids production, the firm said.