Over the next three years capital expenditures (capex) in the Eagle Ford Shale could top the projected spending for the Kashagan project in Kazakhstan, now the world's most expensive standalone energy project, according to an analysis by Wood Mackenzie. In 2013 alone, $28 billion is slated to be spent in the South Texas region, according to upstream research analyst Callan McMahon.
With Eagle Ford development "now in full swing, the excitement...and value being extracted from the play continues to exceed expectations," McMahon said. "In terms of overall investment, from 2012 through 2015, Wood Mackenzie expects capital expenditure in the Eagle Ford to surpass the projected capex of the entire Kashagan project in Kazakhstan..."
The latest figures show the offshore Kashagan project, considered the world's largest discovery in the last 30 years with the Tengiz Field, will require a total capital investment of $116 billion. Commercial production was slated to start up by the end of this year, providing the main source of supply for the Kazakhstan-China oil pipeline.
Optimism about the Eagle Ford could rival that project, said the Wood Mackenzie analyst. "Since the beginning of 2011, liquids production, including natural gas liquids (NGL), has grown from around 100,000 b/d to 700,000 b/d. The Eagle Ford has become one of the top producing shales in North America, with average 3Q2012 production topping 1 million boe/d," including natural gas.
Liquids production "is now projected to account for 15% of total onshore U.S. oil production," and after the Bakken, the Eagle Ford "is the second largest tight oil play, while also ranking fifth in terms of shale gas production.
"The U.S. shale play holds huge value for producers with "premium acreage and are well positioned in the play." The leading players "not only hold core acreage positions, but hold a larger quantity of this quality acreage. There are high expectations for the Eagle Ford Shale and as impressive investment returns continue to attract capital...This is apparent in the massive amount of capital being deployed in the play, come 2013 the area will represent 27% of the total capital expenditure of the onshore Lower 48 total," said McMahon.
The three biggest operators -- EOG Resources Inc. BHP Billiton Ltd. and ConocoPhillips -- "have a combined remaining value" of about $30 billion. The trio is outperforming competitors "in different manners," said McMahon. All of them hold core acreage and have "quickly moved to large-scale development."
The Eagle Ford, for instance, holds about 38% of EOG's upstream value, according to Wood Mackenzie's analysis. Australia's BHP entered South Texas last year when it bought Petrohawk Energy and the leasehold now represents "20% of the company's entire upstream global portfolio." ConocoPhillips also targeted the liquids-rich core area "early on, enabling a substantial acreage position to be built at a lower entry cost."
Having the financial resources has enabled producers to unlock the tremendous natural resource potential, said McMahon. "Larger capital budgets" have enabled the biggest producers to progress their development programs "increasing overall valuations, while smaller players are able to leverage joint venture and cost-carry agreements to maximize on a value per-acre basis."
The Eagle Ford's success has come from several factors.
"Operators have successfully delineated acreage, well productivity has increased thanks to both technology and experience, and depressed natural gas prices have continued the diversion of capital to liquid-rich plays such as the Eagle Ford," according to Wood Mackenzie's analysis. "In tandem, the capacity constraints faced earlier in the play's development have been eased, as midstream and service companies invest aggressively to capitalize on the growth in production."
Motley Fool's Aimee Duffy said in a recent note the "Eagle Ford Shale is moving rapidly to challenge the dominance of its oilier brother" in Texas, the Permian Basin. She cited statistics from the Railroad Commission of Texas, which indicated that in 2011 the Eagle Ford produced 914 MMcf/d of natural gas and 119,353 b/d of oil. "So far this year, the gas number is down slightly to 880 MMcf/d, but the oil number has risen significantly to 297,079 b/d through August. Remember, that is an average number: the commission reported that July's production was more than 310,000 b/d. For perspective, in 2008 when PetroHawk...drilled its first well, oil production in the Eagle Ford was only 358 b/d."
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