For a play that had a modest beginning in 2008, the Eagle Ford’s production has expanded like a popular fast-food chain. Six years later, its output keeps trending upward. Summing up the play’s successful story, a recent study from the University of Texas at San Antonio (UTSA) observes that the Eagle Ford’s impact continues to exceed expectations. It is also luring more capital investment than any other U.S. shale.

As oil and gas professionals gathered at Hart Energy’s DUG Eagle Ford conference in San Antonio in September, the production and economic impact numbers shared by speakers were impressive. The Eagle Ford’s oil and condensate production had swelled to 1.5 million barrels per day (MMbbl/d) as of August 2014, according to the UTSA study, released in late September. Final Eagle Ford numbers for 2013 indicate that 3,311 new wells came online and natural gas production climbed to more than 4 billion cubic feet per day (Bcf/d).

The oil and gas industry spun off an overall economic impact of nearly $72 billion in the Eagle Ford’s core, 15-county area in 2013, according to the study. The industry generated almost 115,000 full-time-equivalent jobs in the 15 counties and contributed $2 billion to state and local governments. Adding in six contiguous counties, the 2013 economic output jumps to $87 billion, employment hits 155,000 and state and local revenues reach $2.2 billion.

Laura Atkins, executive director-upstream for Stratas Advisors, expects overall Eagle Ford output will grow into the early 2020s to nearly 2.5 MMboe/day.

Raymond James associate analyst Cory Garcia said two-thirds to three-quarters of projected condensate production will come out of the Eagle Ford.

Proppant gusher

A notable production trend in the Eagle Ford this year is an increase in the amount of proppant used in hydraulic fracturing. The penchant for proppant has helped increase EUR per well—up to a point—said Laura Atkins, executive director, upstream, for Stratas Advisors, a Hart Energy company.

“It’s not a linear relationship,” she said. “At some point you can increase the size of the fracture treatment as represented by the proppant volume, but you’re going to get less and less incremental production.”

In its research, Stratas analyzes Eagle Ford results for eight regions, from the Mexico border to Brazos and Grimes counties, Texas. To illustrate the effect of proppant, Atkins zeroed in on Karnes and Wilson counties in South Texas.

In Karnes County, where the formation is more mature and contains lighter-gravity oil, the EUR was 1.76 million barrels of oil equivalent (MMboe) when 7- to 9 million pounds of proppant was used vs. 1.02 MMboe when using 3 to 7 million pounds.

In Wilson County, where the Eagle Ford is less thermally mature and oil gravity is less than 40 degrees, the EUR was 781,000 boe with 7- to 9 million pounds of proppant. With 3 to 7 million pounds, the EUR was 354,000.

“You get a larger percentage increase in Wilson County by going from smaller to larger fracture treatments, but you certainly get more bang for your buck in an area with more favorable geology, like Karnes County,” Atkins said.

Overall, Stratas finds a 20% increase in proppant-per-foot across the play this year. In addition, spacing has tightened “as the leading edge moves to less than 200 feet between fracks compared to 250 to 350 feet previously,” according to Atkins.

Lateral lengths have remained 5,000 to 5,500 feet, she said, “though many operators are likely to increase [this] to between 6,000 and 7,500 feet over the next few years, moving beyond sectional development with tests as long as 10,000 feet.”

Excluding the southern, predominately dry gas fairway, Stratas expects overall Eagle Ford output will grow into the early 2020s to nearly 2.5 MMboe a day. More than half of that number will consist of oil and condensate, and about 30% will be dry gas.

Christopher Heinson, Sanchez Energy's COO, said, "We are never in a position where we need to make an acquisition, so that lets us be very picky."

A&D action

While increased proppant is an Eagle Ford tendency, A&D activity is proving to be a mainstay. Total transactions in the past 12 months in South and Southeast Texas came to $17.1 billion, and 20 of those deals were at least $75 million, according to Anderson King Energy Consultants LLC.

Anderson King participated as technical advisor in two notable transactions: GeoSouthern Energy’s sale of its Eagle Ford interests to Devon Energy in a deal valued at $6 billion; and Treadstone Energy Partners’ sale of its Buda-Rose assets for $715 million to Energy & Exploration Partners.

“In both cases, there was minimal production when they first captured the assets,” said Randy King, managing partner of Anderson King, adding that each deal exemplified “a build it from the ground up story.”

But before a buildup gets underway, acquirers seek to confirm type curves and infill spacing, which King calls “the most important determinants in ongoing value. The issue of repeatability, and the scope of that repeatability confirmed by actual performance, is a huge geometric driver in valuation.”

Sanchez Energy has completed four Eagle Ford acquisitions since mid-2013, according to Christopher Heinson, the company’s COO. Sanchez’s acquisition strategy is based on a conservative financial position that allows it to move swiftly if new assets that meet the company’s criteria become available, he said.

“Our philosophy is to remain opportunistic. We are benefitting from having a deep inventory of high-rate-of-return wells across the Eagle Ford. We are never in a position where we need to make an acquisition, so that lets us be very picky.”

Sanchez’s largest purchase in the Eagle Ford, the Catarina acquisition, occurred in June. The company bought assets from Royal Dutch Shell for $639 million. Its second-largest deal came about a year earlier, with its Cotulla purchase from Hess Corp. for $265 million.

Referring to the Cotulla acquisition, Heinson said, “This is an asset that has gone from a 13% rate of return to having returns of over 50% for us.” He added that locations to be drilled at Alexander Ranch in La Salle County have increased by 70% because of downspacing and infill programs.

Sanchez has sought out other areas capable of reproducing similar returns, Heinson said, and it now thinks that as much as 70% to 80% of its acreage in the Eagle Ford is prospective for 40% rates of return. That projection doubles the company’s 2012 estimate of 20%, he said.

Sanchez’s future bids will hinge on a “deep technical analysis” of the assets, he said, based on the understanding that the Eagle Ford is “expanding vertically.”

Halcón Resources Corp., according to executive vice president and COO Charles Cusack, has high expectations for the Eagle Ford east of the San Marcos Arch.

Northeast of the arch

The play is also expanding north and east of the San Marcos Arch. Halcón Resources Corp., which has a long history in the Eagle Ford, sank its talons in an area called the El Halcón about two years ago.

Charles Cusack, executive vice president and COO, said the company has about 101,000 net acres leased in “the sweet spot of the play.” For second-half 2014, Halcón expects to spud about 22 gross operated wells with three rigs. It foresees having 800 to 1,000-plus locations, depending on spacing assumptions.

The company has improved its well economics, Cusack said. He cited reduced drilling days, lower fracking costs, improvements in drilling and completion techniques, and optimized artificial lift.

Cusack compared the South Texas Eagle Ford to the El Halcón area. They are similar in that total organic carbon on both sides of the San Marcos Arch is greater than 2% by weight. Both plays have a low percentage of swelling clay, with South Texas having an average clay content of less than 20% while East Texas has 25% to 45%. Thickness is 100 feet to 300 feet in South Texas and 100 feet to 200 feet in East Texas.

Trevor Sloan, managing director of energy research for ITG Investment Research, also talked about developments in the northeast portion of the Eagle Ford. He said the area continues to show promise and dynamics similar to those found in the South Eagle Ford.

But Sloan said that in the western portion of the Eagle Ford, the big story is declining condensate production. “We see significant deterioration in EURs over time,” he said, noting that average EURs dropped to 400,000 boe in 2013 from 520,000 boe in 2011. “A lot of that seems to be driven by steep decline rates.”

Raymond James associate analyst Cory Garcia, however, said that overall, condensate’s long-term story will not be one of decline.

“We can see for the prior 10 years pretty steady [production of condensate] at 500,000 barrels per day. This is U.S. condensate production, not just Eagle Ford. But obviously, the Eagle Ford is the primary driver of this growth. We’re forecasting by 2020 overall condensate production could exceed 2 million barrels a day. Arguably, two-thirds to three-quarters of that is going to come out of the Eagle Ford, so trying to handle that amount of volume growth … is going to be interesting to watch over time,” he said.

“From a pricing standpoint, we’re still focused on condensate: how to handle it, and the infrastructure and pricing as it’s going forward,” Garcia said, adding that federal regulators have not provided concise parameters on how condensate differs from crude. “We still need some definition constraints, particularly when we’re talking about crude exports or condensate exports, longer term.”

A recurring theme at the conference was restrictions on crude exports. Marathon Oil Corp. president and CEO Lee Tillman said that lifting the current export ban would strengthen the U.S. economy, create jobs and help ensure the efficient development of the domestic energy sector. He added that lifting export restrictions would not have a negative impact on consumers.

“We can and should find a way to play a greater role in contributing to that diversity by finding new ways to bring American crude oil to global markets,” Tillman said. “We’re a nation with a history built on free trade, and I’m of the very strong belief that America is well-positioned to compete in the global oil and natural gas market.”

Top: Marathon Oil Corp. president and CEO Lee Tillman said lifting export restrictions would not have a negative impact on consumers. Above: Rick Cargile, midstream president for Energy Transfer Partners LP, expects that U.S. production will exceed demand in 2018. That, he said, will build a case for exports.

Christopher Guith of the U.S. Chamber of Commerce touted domestic production, and said the Obama administration is compelled to move along the debate on crude and gas exports.

Christopher Guith, U.S. Chamber of Commerce senior vice president of policy for the Institute of 21st Century Energy, noted that the Obama administration has moved the export debate along on both dry gas as well as crude more so than anyone in its environmental base wanted to see. That’s because economic development—and government revenues—stall when production levels out due to a glass ceiling.

“Believe it or not, they appreciate that.”

Since 2005, U.S. crude production has increased by 3.5 MMboe/d, he said, more than the output of all countries globally except four—for just the increase. Over that time, U.S. job creation is down 2.5%, while the oil and gas industry is up 40%.

“It’s the golden goose,” Guith said, “and even someone who isn’t in love with oil and gas knows not to lop off the head of the golden goose when you still rely on the eggs.”

Rick Cargile, midstream president for Energy Transfer Partners LP, presented a case for exports based on an expected upward trajectory of domestic production. He expects that U.S. production will exceed demand in 2018. “We don’t have the capacity to consume all of the natural gas, NGLs and condensate we will produce, and that will lead to exports,” he said.

“The shale revolution is what is driving our economy,” Cargile added. Shale-play development “has been the real stimulus package” pulling the nation out of recession.

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