Everybody loves a robust competition, and being lovers of sport, we at Oil and Gas Investor figured we could pit shale against shale using various criteria to see how tight, unconventional plays fare individually.

First, we tapped Hart Energy’s Stratas Advisors, formerly the Hart Energy Research & Consulting Group, purveyors of the North American Shale Quarterly, for its 2014 estimates on unconventional wells spudded and the rotary rig count. Not surprisingly, the perennial favorite, the Eagle Ford Shale, took home the top prize in both categories, edging out the fast-rising Permian Basin--even including the Midland and Delaware sub-basins.

“The Eagle Ford, Permian, Bakken and Rockies are the top regions contributing to the majority of drilling activities in the U.S.,” ac- cording to Narmadha Navaneethan, senior analyst for Hart Research. The Marcellus and Utica were the top gas plays but appeared further down the list.

Stratas Advisors expects the Eagle Ford to reach 225 unconventional rigs by year-end, compared to 188 in the Permian, with nearly 3,500 wells anticipated for all of 2014. But operators are jockeying for position in the condensate and, increasingly, in the oil-prone areas of the play, and are largely exiting the dry-gas counties.

The Permian, though, is experiencing “tremendous growth,” Navaneethan noted, with 3,362 wells expected in 2014, and its rig count will only increase in the next couple of years, she projected. “We see the Permian and Eagle Ford going up; many operators are moving in.”

The Eagle Ford Shale took home the gold in both the wells spudded and rig count categories, edging out the fast-rising Permian Basin--even including the Midland and Delaware sub-basins.

Unconventional Permian economics have been marginal over the past few years, she observed, but newer wells with improved type curves are trending positive for economics. “EURs have been increasing,” she said, from 200 thousand barrels of oil equivalent (Mboe) previously, to 600 to 800 Mboe on recent wells. “If operators drill those types of wells, then the Permian is very economic.”

The rise of the Eagle Ford and Permian is at the expense of the Bakken Shale, which is third on each list. Stratas Advisors projects Bakken rigs and production will slip a bit due to new anti-flaring regulations in North Dakota, which are expected to slow permitting and thus activity, though slightly. “We think operators will try to maintain production” even as spuds slow, she said.

The Panhandle, defined as the Granite Wash and related plays of the western Anadarko Basin, is fourth in rig count, albeit a distant fourth, but slips to seventh in spuds. Once a favored play, the region is on a downward trajectory, she said.

A few operators have left the play, including SM Energy, Newfield Exploration, Forest Oil and Cabot Oil & Gas. And no wonder: “We ran economics on those plays and it is very marginal,” she said, considering the price of natural gas and EURs per well. “We don’t think the play will grow. It might go down.”

One exception is Apache Corp., the top operator in the region. “Recent wells with higher IPs are economical, but historic wells of the past few years are marginally economic, even uneconomic.” The Granite Wash, with higher IPs and liquids, is the most economic of the Panhandle plays, she said.

Many of those rigs have migrated to the Mississippi Lime cross-state, which is fifth in rig count and sixth in wells spudded. Navaneethan calls it a mixed play, where some operators are moving in while others are moving out.

The Rockies are sixth on the list for rigs, but a solid fourth in wells spudded. This grouping includes the gassy Piceance and Green River basins, which are trending down, and the robust Niobrara Shale and up-and-coming Powder River Basin.

“The D-J Basin is a big part of the Rockies category, but the Powder River is picking up those rigs from the Green River and Piceance. We think the Powder River is going to be a big play.”

The Marcellus is the first mostly gas play to show on the leader board, at seventh in rigs and fifth in wells.

The Woodford Shale clocks in at eighth, a play Navaneethan sees as on the rise, absorbing rigs from the nearby Panhandle.“The SCOOP and STACK plays are very good,” she said, where Continental Resources and Newfield are tilling up the southern Anadarko and Ardmore basins. “The IP rates and EURs are very high there compared with the Panhandle.” Grady and Stephens counties are sweet spots.

Unconventional oil and condensate will primarily be sourced from the Eagle Ford, Bakken, Permian and Rockies, while natural gas will flow mostly from the Marcellus. "Even with the higher deliverability of the gas plays ... it still makes sense to target the oil plays," said ITG Research managing director Manuj Nikhanj.

Vying for the bottom of the top 10, the gas-centric Haynesville and Utica shales round out the plays garnering the most rigs, at 32 and 30, respectively. But they are no shows on the wells spudded board, edged out by the similarly gassy Barnett and Fayetteville shales.

Production numbers—split by commodity and by play-—largely reflect the activity forecasts. Unconventional oil and condensate will primarily be sourced from the Eagle Ford, Bakken, Permian and Rockies, in that order.


Gas will flow mostly from the Marcellus, followed by the Haynesville, the Rockies, Eagle Ford, Barnett and Fayetteville.

As expected, most operators are targeting oil and liquids plays, but Navaneethan sees hope for gas plays. “Once LNG plants come online in 2017 or so, these dry gas plays might pick up. It might not be at the same pace as the oil plays, but companies will begin to move rigs into them.”

The original shale gas play, the Barnett, con- tinues to be a significant contributor to production, at fifth place, mostly from private operators drilling dry gas and independents in the liquids-rich Barnett Combo. The Fayetteville Shale, at sixth, is held up by a sole producer—-Southwestern Energy.

“Southwestern is the majority of drilling in the Fayetteville, and they’re increasing. It’s very economic for them because they’ve gotten costs down. The Fayetteville will be the model for other plays going forward,” Navaneethan said.

Drilling down

ITG Investment Research, a data-driven upstream research firm based in Calgary, Alberta, provided Oil and Gas Investor with a different perspective on the shales, comparing peak rates, EURs and breakevens.

Looking at shales with peak IPs, gas plays top the list, with the Haynesville, Granite Wash, Utica, Marcellus, Piceance, Cotton Val- ley, Pinedale and Arkoma Woodford hogging the top of the chart, in that order.

“Gassy plays do have higher deliverability,” ITG Research managing director and head of energy research Manuj Nikhanj said. However, he noted, this data only gives an indication of average rates per well at the wellhead, and rankings can be affected by operators control- ling flowback.

Of the condensate and oil plays, the Eagle Ford, Bakken, Bone Spring and D-J Niobrara rank highest in IPs.

“Even though the Bakken and Eagle Ford are down the list,” he said, “they have the biggest IPs from an oily perspective. The oil cuts are the reason for the attractiveness of those plays. Even with the higher deliverability of the gas plays, from an economic sense of the oil-to-gas ratio, it still makes sense to target the oil plays.”

Notably absent from the peak IP ranks are Permian Basin horizontal plays, excepting the Delaware Basin’s Bone Spring. The reason: The data set is too small as of yet due to early stage development, and multiwell leases make identifying production of single wells difficult.

The horizontal Permian plays’ time will come, however.

“It’s definitely going to be one of the big three for oil,” said Nikhanj. “Even though it’s not up to the level of the Eagle Ford or Bakken right now, the average productivity per well is going to improve quite dramatically, into the range of the higher-rate oil plays.”

When comparing peak rates to EURs per well, the rankings change, he said. The Marcellus and Utica leapfrog the Haynesville because their decline curves aren’t as steep.

“If you’re looking for big recoveries per well, this chart gives an idea of which plays have the most potential.”

Again, gas-weighted plays rank highest, but perhaps the most significant ranking has to do with breakevens-—which plays prove the most economic?

For EURs, the Marcellus and Utica leapfrog the Haynesville because their decline curves aren't as steep. Oil and condensate plays with more than 65% wellhead oil will break even at $66 on the West Texas Intermediate scale. Gas plays have a weighted average supply cost north of $4 or $100 WTI, based on a 25:1 gas-to-oil ratio.


Clearly, the oil plays are going to be on the lower end of the cost curve," Nikhanj said, as companies home in on areas that work to reduce the cost structure.

Oil and condensate plays with more than 65% wellhead oil will break even at $66 on the West Texas Intermediate scale. Compare that to gas plays, with a weighted average supply cost north of $4, based on a 25:1 gas-to-oil ratio.

“Multiply that by 25, and the breakeven is above $100 WTI on an equivalency basis,” he said. “That’s why there’s such a massive focus on oil plays.”

The Bakken wins this competition at $67, followed by the Eagle Ford, Bone Spring, D-J Niobrara, Barnett Combo and Powder River Basin.


“If a company moves capital from the Hay- nesville to the Eagle Ford or Bakken, you still get a pretty big deliverability per well,” he noted.


Including the Permian Basin horizontal plays--again absent from the present chart--Nikhanj thinks these oily plays ultimately will be in a sub-$65 environment. “We don’t think for the next five to seven years there will be any significant deterioration of results, because there is still a lot of inventory in the higher-quality areas."

Midrange oil-weighted plays such as the Barnett Combo and Granite Wash are “fairly strong,” he said, outranking gas-weighted plays on economics, but still run into the higher end of the cost curve for oil. “When internal rates of return get above $70 to $80, you start to diminish quite a bit. You’re not going to generate huge returns north of $80.”

The first primarily dry gas play to enter the ranks is the Marcellus, far down the list at a breakeven of almost $4 per Mcf. Can’t the Marcellus turn in a better performance?

“That’s an average of all wells drilled in the Marcellus over several years, which is higher cost than most oil plays,” Nikhanj said. “But the core areas of the Marcellus only need $2.50 to make them work, and those areas are still large. In a sub-$4 gas price environment, only the Marcellus can compete among gas plays.”

On the whole, “gas plays just can’t compete with oily opportunities.” Gas plays rank high on the peak rate but EUR rankings plummet when comparing economic breakevens.

Most dry gas plays are struggling from an economic perspective, but as soon as even a little bit of liquids is added to the stream, “the story changes quite a bit.”

Across the spectrum, most of these plays continue to get better as drilling times decrease, said Nikhanj, and the industry continues to push the envelope. “This is a backward look. Ultimately, we’ll see improvement on what’s to come.”

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