Landmen headed for the Eagle Ford Shale, you're too late. Engineers
need to hurry. And beancounters, your day is coming. The Eagle Ford is
the hottest thing in South Texas, but like the unconventional plays
that came before, it too will have its seasons.
"The way you look at the play needs to change as the play matures
because strategies that succeed in one part of the play will not
succeed in other parts of the play," said PFC Energy's Raoul LeBlanc,
senior director of the financial advisory practice. "...[F]or
companies, understanding what they're good at, what they're going to
be good at and when the time for that may have passed or not yet
arrived is very important."
To illustrate what's to come in the Eagle Ford, LeBlanc turned to the
more mature Fayetteville Shale in Arkansas during his presentation at
Hart Energy Publishing's Developing Unconventional Gas: Eagle Ford
conference last week in San Antonio, TX.
In the middle of the decade people were "drilling in a whole bunch of
places" in the
Fayetteville, he said, noting that relative to what was to come later,
wells of this vintage were seldom "above the median." They were "almost
all bad wells in terms of the life of the play." But that didn't
as the best was yet to come.
This earliest period is what LeBlanc described as the "prove its
potential" phase in the development of an unconventional play. During
this stage the play is largely a "science experiment" marked by
geoscience, land acquisition and pilot well activity. "We would argue
that you have to do the sort of things that would normally get you
fired in an oil and gas company," LeBlanc said.
"Science experiment is a dreaded phase in the oil and gas industry, but
in fact this is what people are actually doing."
While it may seem counterintuitive, during this period the odds of
success increase when there are more companies active in the play, he
said. Also during this period, oilfield service providers have much to
their exploration and production (E&P) company clients as they
possess science and technology relative to the play that "can be very
particularly at this stage," and worth the price, LeBlanc said.
At this stage E&Ps need to focus on their cost for acreage, the
quantity and distribution of their leasehold and the reservoir
information they garner from each drilling dollar. "Every well you
drill is really going toward information," LeBlanc said.
Next came the "optimize it" phase in the Fayetteville, the beginning of
which is where the Eagle Ford is now.
"It's a fairly chaotic phase where you have a multiplicity of players
and a multiplicity of service providers and investors and lots of
people crowding in and starting to lay the foundation for a full-scale
play," he said. "In terms of what succeeds, it's sort of right-brained
engineering. The goal of this phase is to find the recipe that will
get these wells to maximize production over time."
Those that succeed here are companies that can digest "hundreds of
thousands or millions of data points that are
coming at them in real time and turn those into knowledge that they can
apply next week on the well that they're going to drill," LeBlanc said.
During this period companies focus on trying everything, gaining scale
and scope and ramping up drilling. An E&P often will call on
multiple service companies to maximize access to creativity, LeBlanc
"This is also the phase where we start to see consolidation of
companies," he said. The first wave is made up of players that are
succeeding in understanding the play buying up "companies that either
aren't getting the results that they
need or don't have the capital and wherewithal to go to the next phase."
During this period in the Fayetteville, lateral lengths grew
dramatically. While initial production per lateral foot became less
impressive, well economics were improving. "Here's the phase where
we're really trying to get to the recipe of what works and everybody
knowing what that is," LeBlanc said.
In the Eagle Ford "people are now more into the production of the well
testing the reservoir, LeBlanc said. "Don't get me wrong. There's still
lot of that going on because this play is so large, but we would argue
that you're essentially beyond the prove it phase and you're now here
in the optimize it phase; you're early in this phase...Were still on
that path to figuring out how long we can drill these laterals
economically, what we ought to do, how we ought to complete them and
what we're going to get from that."
The transition to the third phase -- "industrialize it" -- represents
significant change and the emergence of the gas factory.
"We have very large programs and the focus really moves from a lot of
the subsurface to the above-ground," LeBlanc said. "In terms of
strategies, this is the place where you start to do cookie-cutter, and
the risk here is actually that you start to tailor every well."
Midstream assets and capacities need to be aligned with production
needs "so that this machine that is cranking out production can just
keep going. In this phase a premium [oilfield] service provider really
may not find that they'll get much traction because the small service
companies have caught up and they're doing the exact same well as
everybody else is doing so the E&P companies tend to go with the
It is during this phase that the majors tend to buy in as their
relatively lower cost of capital "enables them to invest the sums that
are necessary and, frankly, get better returns, simply based on that
metric," LeBlanc said. "You also get a lot of clustering at this point
where people start to drill infield wells in the core areas."
Finally comes the "rethink it" phase when new ideas and/or technology
are needed to rejuvenate a mature field where assets have likely
changed hands. "You can try to develop it more intensively; you can
work the base; you can expand outward; you can go deeper..." LeBlanc
said. "Sometimes it involves brining in new technologies...A lot of it
involves keeping the costs low...
"You have to maybe find another sweet spot or bring in a new idea to an
What drives a play through these phases is a wide variety of things,
some of which are not directly related to the play itself. Prices,
company attitudes, compositions and skill sets are all factors, LeBlanc
said. "The comparative advantage that a company has to have also is not
going to be static, and so companies need to deal with that.
"Every company can stand up and show you the
metrics that work for them. The question is what are the metrics that
are important now in the play for success."