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Eagle Ford Natural Gas Output a Force to Reckon With

The Eagle Ford Shale now rivals the nearby Haynesville Shale in natural gas output and could be decisive in shaping U.S. gas production trends into the future, according to Barclays Capital.

Analysts Biliana Pehlivanova and Shiyang Wang took a deep dive into drilling activity in the Texas play and considered scenarios on future production. One challenge they faced in reviewing gas production trends resulted from stacked formations: Eagle Ford formations extend from South Texas to northeast of Houston, with areas 400 miles-plus from the core of the play often referred to as the "Eaglebine," a combination of the Woodbine and Eagle Ford stacks.

The duo found that no matter what type of well is being completed in the Eagle Ford, a lot of natural gas is coming with it.

"In the Eagle Ford Shale play, an ongoing shift to drilling for oil has not translated into natural gas production declines," they said. "Instead, well-level data show that associated gas production has overtaken gas-well gas in driving the play's output higher."

To determine the rise in gas volumes, the Barclays duo used county-level output from the main producing counties: Atascosa, Bastrop, Bee, Brazos, Burleson, Dewitt, Dimmit, Fayette, Frio, Gonzales, Karnes, LaSalle, Lavaca, Lee, Leon, Live Oak, Madison, Maverick, McMullen, Milam, Webb, Wilson, and Zavala.            

What they found is that between January 2009 to July 2013 gas production through the formation increased to 5.4 Bcf/d from 1.7 Bcf/d. Formation-level data also show output rising to 4.0 Bcf/d from zero over the same timeframe.

The compiled data reflect wet gas volumes, those before natural gas liquids were removed from the gas stream.

The discrepancy in county-level and formation-level data is from wells that were flowing prior to 2009, said the analysts. Incremental growth over the past five years "has been largely broadly consistent" with gas volumes rising 3.7 Bcf/d versus 4.0 Bcf/d."

Output from gas wells that existed before January 2012 declined by 1.4 Bcf/d, or around 40%, the vintage data indicate. However, wells that ramped up in 2012 brought a cumulative 2.5 Bcf/d, leaving total output growth at 1.1 Bcf/d from 2011.

Using the definition of a "gas well" per the Railroad Commission of Texas, gas well output has risen to 3.8 Bcf/d as of July 2013 from 1.6 Bcf/d in January 2009. In that same time period, gas production from oil wells increased to 1.7 Bcf/d from 0.1 Bcf/d.

Associated gas production has had stronger growth in the past two years, but it has shown shallower declines, the Barclays team noted.

This dynamic "is likely highlighting the importance of the timing of gas well completions, rather than reflecting the performance of individual wells in the...play," said the duo.

"Indeed, a large number of wells that came online in 2012 began reporting production in the last three months of the year. This means that vintage 2012 gas well gas production data capture a disproportionately high number of wells in their first three months of declines, compared with the 2012 oil well gas data."

To eliminate the effecting of the timing of well completions and gain a perspective of the average well performance, individual wells were grouped by year of first production, then aligned with the peak production month for each well to create "vintage natural gas decline curves, or type curves."

The type curves suggested that initial production rates from oil and gas wells improved steadily from 2008-2011, but the gains then flatlined. The flat production rates may suggest gas wells reached their potential, but it also could relate to the big drilling shift to oil, along with increased drilling efficiencies, such as downspacing, said the analysts.

So, what to make of the data?

Several outcomes for 2014 gas production were suggested by Barclays under the assumption that the Eagle Ford oil and gas rig count would remain broadly constant with an average of 290 rigs in operation:

  • If drilling productivity were to remain unchanged, gas output would rise around 1.2 Bcf/d to average 6.6 Bcf/d.
  • If drilling productivity were to increase by 10% from 2013, production would increase 1.4 Bcf/d to average 6.8 Bcf/d.
  • If productivity were to be up 20%, gas production would increase 1.6 Bcf/d to an average of 7.0 Bcf/d.

"We expect the number of rigs in the Eagle Ford to remain broadly constant this year compared with last," the analysts said. The second scenario, with productivity up 10%, is the base case.

"However, should the drilling activity in the play slow to an average of 260 rigs in 2014, natural gas production growth would decelerate to 1.2 Bcf/d year/year (y/y). In contrast, 315 rigs drilling in the play would accelerate production growth to 1.6 Bcf/d y/y."

Those scenarios suggested to analysts that drilling would have to fall to below 185 oil- and gas-directed rigs before gas output would decline.

"In other words, 185 rigs are needed to maintain a steady level of natural gas output from month to month. Note that in this scenario, production will still grow on an annual average basis by more than 700 MMcf/d y/y."    

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