[Editor's note: A version of this story appears in the September 2018 edition of Oil and Gas Investor. Subscribe to the magazine here.]

Recent headlines about the Eagle Ford Shale bring back fond memories of the play’s go-go days. Rig and completion counts are up, and prospects for rising production in the second half of the year have reinstalled an air of optimism and confidence. In June, Eagle Ford liquids production is estimated at almost 1.4 MMBbl/d, up from 1.3 MMBbl/d at the start of the year. Stratas estimates associated gas production increased by some 600 MMcf/d during this period. Production could reach new recent highs due in part to the quickening pace of completions in recent months and to high-grading of well locations selected for development.

Although it is tempting to pull out our pencils and test sensitivities to our production estimates, we will resist this temptation and instead peel back some layers of the Eagle Ford onion in an effort to shed light gleaned from our new and enhanced in-house database. Interestingly, while activity has indeed turned higher from year-ago levels, the play is not exactly a bastion attracting new capital or new entrants.

In fact, the Eagle Ford appears to be settling, quite comfortably, into mid-life. A cadre of well-known names including EOG Resources Inc., Chesapeake Energy Corp. and ConocoPhillips Co. dominates activity. By extension, spending in the play is set by a relative few, leading to tight capital discipline. A quick look at monthly well rig counts provides a glimpse of this in action. While spud activity has varied month-to-month in 2018, the general trend is flat and stable.

Delving deeper into the data reveals a microcosm of sorts. For example, operators appear to stick with assets that work for them. For most operators, this means that activity is confined to no more than two counties in the play. The lone exceptions are EOG and Chesapeake, with activity in five and three counties, respectively. In EOG’s case, the Eagle Ford is a key resource. In 2018, EOG is responsible for just over a fifth of the spuds. As for Chesapeake, the company accounts for almost 10% of 2018 spuds in the play.

Activity remains greatest in the familiar places. Dimmit, Karnes and La Salle counties top the list on a consistent basis. Typically, these three counties represent more than a majority of new drilling. In Dimmit County, Chesapeake has been strong, followed by Murphy Oil Corp. In Karnes and La Salle, EOG has been dominant.

As discussed above, Dimmit, Karnes and La Salle counties are bastions of activity. On the opposite end of the spectrum lies Atascosa, Frio and Webb counties. These counties collectively represent no more than 5% of new activity in a typical month. Interestingly, EOG is frequently drilling in Atascosa County.

Webb County, home to Lewis Energy Group (LEG), is down sharply compared with last year. LEG has been a key operator in Webb County historically. Low natural gas prices are likely weighing on drilling in gassy areas including Webb County.

All told, the Eagle Ford still commands great respect. The play continues to offer some of the best economics and has plenty of running room for future development. While the Permian Basin and other emerging areas grab headlines, the Eagle Ford provides an almost picture perfect photograph on maturing effectively.

Consider this, the mere fact that so much of recent activity occurred in a few discreet areas suggests that, just maybe operators are drilling their best areas first. It makes sense if one assumes that maximizing returns and cash flow are key objectives. Cash flow generated from the best wells is often viewed as a preferred source for funding emerging and riskier assets.

Now let’s return to EOG and its activity in Atascosa County. EOG has maintained a modest level of spuds in more marginal areas like Atascosa County. This is a great example of directing capital to riskier assets to further de-risk and improve fringe areas. If successful, EOG could extend the expected development horizon it has in the Eagle Ford.

One could easily assume that there is a single recipe for optimizing wells within a play. Time has shown that this is not the case. One of the biggest mistakes a company can make is drilling a string of marginal and poor wells. Stratas estimates indicate that it can take four or more top producing wells to cover the sunk costs and lack of cash flow due to a single poor well. By exercising discipline while pushing out from “core” areas, companies can reduce costly and sometimes debilitating mistakes. Although much of the Eagle Ford is now known, much remains unsolved. As such, a disciplined approach to spending is not only wise and prudent for the Eagle Ford, but also sets a standard for other plays.

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