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Producers Ante Up $30B for Eagle Ford Development

Production from the prolific Eagle Ford Shale will increase this year as operators lay down close to $30 billion to unearth more crude oil and liquids, new research is claiming.

According to industry consultant GlobalData, the South Texas formation has an even larger resource than estimated because operators are successfully downspacing wells, which creates more drilling sites and which unearths more production. Downspacing is being used successfully in onshore basins across North America.

The growth in production from the South Texas formation will help to reduce net U.S. crude imports and increase refined export products to pre-1990 levels, said GlobalData's lead analyst.

"With over 250 rigs operating in Eagle Ford, companies are expected to spend approximately $30 billion in capital this year, and nearly all of the major operators are projecting at least five years' more drilling at the current rapid pace," said analyst Taryn Slimm. "The most efficient operators in sweet spots are achieving over 100% pre-tax internal rates of return (IRR) with conservative pricing."

ConocoPhillips is operating "some of the best acreage in the play," analysts said. During the third quarter, ConocoPhillips' average output from the Eagle Ford increased 66% year/year to 126 million boe/d and represented almost one-quarter of its Lower 48 production (see Shale Daily, Nov. 4, 2013). The Houston operator has around 227,000 net acres in the play.

"The company's production in the play is forecast to peak at 225,000 boe/d in 2026," according to GlobalData.

Australia's BHP Billiton, another key South Texas producer, has "boasted" extremely high IRRs on its wells, "despite reported costs of $10 million per well in 2011." In fiscal 2013, BHP produced 99 million boe in the United States, with 33% from the Eagle Ford (see Shale Daily, Aug. 21, 2013).

BHP, which is cutting back its U.S. spending this year, is forecast to hit peak production in the Eagle Ford of 210,000 boe/d, according to GlobalData.

EOG Resources Inc. is considered the "benchmark for operator performance," the analyst said. During 3Q2013, EOG reported strong results from 569,000 net acres within the crude oil window in the western and eastern portions of the Eagle Ford; the operator also has 21,000 in the wet gas window and 49,000 in the dry gas window (see Shale Daily, Nov. 12, 2013). In the crude oil window, EOG drilled and completed about 460 net wells last year.

"Its large acreage position has allowed it to make several long-horizon decisions, including spending $100 million on a rail spur and loading terminal in St. James, LA, to access Louisiana Light Sweet crude (LLS)/Brent pricing," GlobalData said. "EOG's production is forecast to peak at 370,000 boe/d."

GlobalData suggested that most of Chesapeake Energy Corp.'s Eagle Ford acreage "has been generally considered inferior," but "an advantageous joint venture with China National Offshore Oil Corp. has provided ample capital for development that is forecast to peak at 210,000 boe/d." The Chinese national paid more than $2 billion in 2010 to buy and fund a one-third stake in Chesapeake's 600,000 net acres in the shale play (see Shale Daily, Oct. 12, 2010).

"While there are a number of bottlenecks in the Eagle Ford, such as strained pipeline capacity, this play will continue making a significant contribution to U.S. crude oil production over the coming years, as strong economics cushion it from price volatility," Slimm said.

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