Eagle Ford activity continues at a frenzied pace

While shale gas plays are experiencing their share of headaches in a low-price environment, shale oil plays like the Bakken, Niobrara, and Eagle Ford are continuing to shine.

The Eagle Ford, with its distinct gas, condensate, and oil windows, covers a vast swath of Texas and extends into Mexico. As gas prices have dropped, operators have moved into the liquids-rich part of the play, creating an oil boom the likes of which Texas has not seen in quite some time.

According to information from Hydrocarbons Technology Reports, total gross production from the play increased from 0.02 MMboe in 2006 to 105 MMboe in 2011 at a compound annual growth rate of 435%. Much of this has to do with the liquids-rich nature of the play, the report stated.

“The remarkable increase in the overall gross production in 2011 over 2010 is due to the increase in crude oil prices over natural gas prices,” it said. “The profitability associated with the crude oil prices has driven the growth in overall crude oil production in the Eagle Ford shale in 2011.”

The report goes on to state that between January and April 2012, 1,620 drilling permits were issued in the play. This frenzied activity is expected to continue for several years.

A July 2012 report from IHS echoes this optimism. “Strong drilling results, coupled with the large prospective area and magnitude of the resource potential, combine to make the Eagle Ford shale play in South Texas a contender for the best tight oil play in the US,” the report said, noting that typical well performance and peak-month production of the play’s best wells exceed wells drilled in the Bakken, currently the darling of the shale oil plays. “The favorable outlook for the Eagle Ford is reflected in a highly competitive merger and acquisition environment, with implied deal values averaging [US] $14,000 per acre for Eagle Ford acreage in 2011 and top prices approaching $25,000 per acre,” the report stated.

Pioneer Natural Resources has 12 rigs operating in the Eagle Ford and hopes to raise production to 29,000 boe/d by year-end. (Photo courtesy of Pioneer Natural Resources)

A view from the field

Operators in the Eagle Ford definitely support this sense of frantic activity. Marathon Oil is one of the most active operators in the field, with 325,000 net acres across the play and 200,000 net acres in its core. It operates about 90% of its wells and carries an average 80% working interest.

Currently the company has 20 rigs running, although it expects to reduce that number to 18 by the end of the year. It also has four dedicated frac crews.

With a mix of condensate, high gas-oil ratio (GOR) oil, and low GOR oil, the company’s average estimated ultimate recovery per well is 480,000 boe. Typical lateral length is 1,525 m (5,000 ft).

Marathon has been successful at harnessing the positive economics of the play, with nearly 50% quarter-on-quarter production growth and a decrease in spud-to-spud days from 44 days in November 2011 to 23 days by July 2012. Its production growth is supported by extensive midstream infrastructure, including 336 km (210 miles) of gathering lines to interconnect its facilities.

Four new central gathering and treating facilities have been commissioned, with five additional facilities under construction. The company is now able to transport about 70% of its production by pipeline. It estimates net production to climb from about 40 MMboe/d in 2012 to about 125 MMboe/d in 2016.

In a recent earnings call, Clarence P. Cazalot, chairman, president, and CEO, said that lower commodity prices “dictate a more disciplined level of domestic spending and activity.” This has led to plans to reduce the company’s rig count in the Bakken and Anadarko Woodford plays. However, the small rig count reduction in the Eagle Ford is attributed to greater drilling efficiencies, not lower commodity prices.

Marathon entered the play in a big way when it acquired Hillcorp in November 2011. As the new drilling crews became more familiar with the procedures, they became more efficient, Cazalot said, enabling Marathon to maintain the same level of activity while using fewer rigs. This will allow the company to stick to its goal of drilling 230 to 240 wells in 2012.

Marathon’s recent purchase of Paloma Partners II LLC brings an additional 17,131 net acres to the portfolio and includes 17 gross operated and nine gross nonoperated wells producing an average of 8,600 net boe/d.

Pioneer Natural Resources also is active in the Eagle Ford, with approximately 310,000 gross acres and an extensive 3-D seismic database. The company is running 12 rigs and plans to drill about 125 wells in 2012. It has ramped up production from 23,000 boe/d in 1Q 2012 to 24,000 boe/d in 2Q. It hopes to raise that figure to 29,000 boe/d by year-end.

Like Marathon, Pioneer also is investing in midstream infrastructure, adding three central gathering plants during 2Q for a total of 11 operational plants.

Pioneer was an early entrant into the Eagle Ford, having held acreage in the Edwards play for more than a decade. “The Eagle Ford is above the Edwards, so for every Edwards well we drilled, we were drilling through the Eagle Ford,” said Joey Hall, vice president over South Texas operations. Hall added that the company had an extensive amount of drilling and logging data as well as a highly advanced seismic database.

“All we had to do was change our horizon,” he said.

Its acreage, which is mostly in the liquids-rich part of the play, proved to be a tempting target for Reliance Energy, one of India’s largest oil and gas companies. In June 2010 Pioneer entered into a joint venture (JV) with Reliance, selling 45% of its proved and unproved properties to Reliance for upfront cash and a portion of future drilling costs valued at approximately $1.1 billion. Pioneer remains operator of the acreage.

“For a company the size of Pioneer to take on a project of the magnitude of the Eagle Ford was a challenge,” Hall said. “We try to maintain a fiscal discipline and operate within cash flow. In resource plays, because of the land position, you have to move quickly to maintain your leases by drilling rather than renewing. Without the JV, Pioneer would not have been able to maintain the kind of discipline that we like from a cash flow management perspective.”

Hall characterized the JV as a win-win. Reliance has the opportunity to learn about resource plays, but Pioneer also benefits from Reliance’s unique experiences as an operator of world-class developments.

Like Marathon, Pioneer also has dedicated frac crews. One is provided through a service company; the other two are owned by the company. The integrated service model evolved across the company following the acquisition of Evergreen Resources in 2004, Hall said, which operated various services to aid in its CBM development in Colorado.

“They discovered it was very expensive to bring in third-party services, so they started providing their own services to keep well costs low,” he said. “A typical oil and gas company would see something like that and divest of it. But we saw that the model worked and expanded it into the Permian and then later into the Barnett and Eagle Ford.”

The company also has been testing the use of white sand instead of ceramic proppant for its frac jobs in shallower areas of the field, and it now plans to expand its use into deeper areas to determine the sand’s performance limits. Through 2Q Pioneer tested 53 wells and realized an average savings of $700,000 per well. It plans to use white sand in 50% of its 2012 drilling program.

For Hall, operating in the Eagle Ford is exciting. Having worked deepwater fields and built an island in the Arctic Ocean (“That’s pretty cool stuff”), Hall was originally reluctant about being sent to South Texas.

“I can honestly tell you that from the moment I hit the ground until this day, I’ve never been more challenged and have never enjoyed an assignment more,” he said. “It’s primarily due to the pace – it’s just frantic. There’s never a dull moment.”