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Analyst: Expiring Leases Offer Eagle Ford Second Chance

Companies that missed out on the first round of leasing in the Eagle Ford Shale in South Texas that began in 2008 will have another chance as some of those leases will be expiring in the coming months, an industry analyst said recently.

The average term of 2008 Eagle Ford leases is about 36 months, Jason Simmons, senior research analyst for Drillinginfo Energy Strategy Partners, told attendees at a Hart Energy Publishing Eagle Ford conference in San Antonio, TX, recently. "A lot of these positions are set to expire at the end of 2010, 2011 and the beginning of 2012.

"There's going to be a lot of opportunities coming up in the latter part of this year and next year, and I know a lot of operators have spoken about needing to drill up acreage. I think in the next year to year and a half there's going to be about 150,000 acres [of leases] expiring that hasn't been drilled up yet. So if you missed out on the gas condensate and oil window...there's going to be some opportunities there if the acreage doesn't get drilled up..."

Simmons noted that this year there has been a substantial jump in leasing activity in the liquids-rich areas of the Eagle Ford, and well permitting activity in the play has tripled this year, with nearly all permits issued for drilling in liquids-rich -- wet gas and oil -- areas. "There's very little permitting activity, leasing activity going on in that southern dry gas window," he said.

Companies exhibiting the most activity include EOG Resources Inc., Anadarko Petroleum Corp., Petrohawk Energy Corp., Lewis Energy Group, Chesapeake Energy Corp., SM Energy Co. and Pioneer Natural Resources Co., Simmons said. Meanwhile, production out of the Eagle Ford has reached new heights, with the emphasis decidedly on oil and wet gas.

Simmons' analysis shows that Petrohawk, which has the most wells in the play, has historically had the most successful wells. However, Talisman, which has far less experience drilling in the play, is showing well results that rival those of veteran Petrohawk, while wells drilled recently by ConocoPhillips have been "some of the best in the play."

Examining well performance results, Simmons also found that longer laterals are key -- but not always. As laterals get longer, maximum initial production rates go up in the dry gas window of the play and also in the oil window, Simmons said. "The interesting thing is we're not seeing that in the wet gas window. This is something that we've seen in the Barnett and the Haynesville; lateral length will matter up to a certain point and then we see it doesn't matter anymore, at least [not] statistically back to production."

If Simmons is right, others will have an opportunity to try their hand at plying the Eagle Ford -- or at least hook up with players already there -- as the ticking lease clock and capital constraints pressure companies to make a move.

"It's a capital budget constraint to try to do a lot of this on your own," Simmons said. "I think as we move forward and try to drill a lot of this acreage up, I think there's going to be a lot of opportunity out there for a lot of operators."

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