The Eagle Ford shale is a Cretaceous-age, organic-rich formation that extends from the Maverick Basin in South Texas to the western portion of the Mississippi Salt Dome Basin. It is stratigraphically above the Buda limestone interval. The shale is prospective in South Texas at depths from 10,000 to 14,000 feet, with thickness averaging 250 feet.

The Eagle Ford shale has long been considered a major petroleum source, principally for the Austin Chalk, the underlying Buda and for shallower Cretaceous and Tertiary horizons. Recently, however, it has become a reservoir target on its own. Initial development has used horizontal drilling and is yielding encouraging results.

Operations. Wells in the Eagle Ford typically have horizontal lateral lengths in excess of 3,000 feet. Completions involve hydraulic fracturing with 2 million pounds of sand proppant pumped in eight to 12 stages. Petrohawk Energy Corp. is generally regarded as a leader in the play and has experimented with 18-stage fracs in two recent wells, reporting flatter production declines. Drilling and completion costs range from $5- to $6 million per horizontal well.

Within the greater Eagle Ford shale play, two sub-plays are emerging.

Updip of the Edwards margin, the Eagle Ford is a normally pressured, primarily oil reservoir, characterized by significant lateral variability in organic-rich shale abundance and reservoir quality related to structurally controlled depo-centers.

Downdip of the Edwards margin, the Eagle Ford is an over-pressured, primarily gas reservoir with significant associated condensate. It is characterized by lateral reservoir variability and primary permeability controlled by the location of distal turbidite deposition.

Haynesville comparison. The Eagle Ford’s characteristics are often compared to those of the prolific Haynesville shale. While the Haynesville is much larger, with more than 250 trillion cubic feet (Tcf) of estimated recoverable resource in place, the Eagle Ford’s technical merits compare quite favorably. Drilling in the Eagle Ford is less challenging and the net-to-gross ratio of pay is 100% throughout the thick shale.

Key competitor analysis. Meaningful transactions in the Eagle Ford have been limited to a few joint ventures as the play develops. Several companies have emerged as leaders due to the quality of their acreage, well results and general activity. More joint-venture announcements are likely in 2010 as operators seek to raise capital and diversify risk.

Petrohawk Energy Corp.: Holds 210,000 acres under lease, primarily in LaSalle and McMullen counties. The average initial production (IP) rate for the company’s last 11 wells is 8.9 million cubic feet equivalent (MMcfe) per day at 6:1 revenue equivalency. Petrohawk estimates 5- to 6 billion cubic feet equivalent (Bcfe) per horizontal well at a cost of $4.5- to $5 million per well. It recently announced a joint venture with Swift Energy Co.

Pioneer Natural Resources Co.: Holds 310,000 acres under lease (25% held by production) along the company’s Edwards shelf play in DeWitt, Karnes, Bee, Live Oak, McMullen and LaSalle counties. After having mechanical issues with its first well (#1 Friedrichs Gas Unit), Pioneer recently completed the #5 Sinor with a 2,600-foot lateral and nine-stage frac at an IP of 8.3 MMcfe and 500 barrels of condensate per day.

St. Mary Land & Exploration Co.: Holds 225,000 acres under lease, which includes 159,000 acres of 100% working interest and 66,000 acres (net) in a joint venture with Anadarko Petroleum Corp. The company’s acreage is in Dimmit and Webb counties. St. Mary has had strong results in its four completed horizontals to date with an average IP of 7.1 MMcfe per day.

Swift Energy Co.: Holds 89,000 acres under lease. Swift is ramping up activity in this area and recently announced a joint venture with Petrohawk to jointly develop approximately 26,000 acres in McMullen County. Swift will retain 50% working interest in the development, which includes interests ranging from the Olmos to the base of the Pearsall. Total consideration for the joint venture was $39 million, implying Petrohawk paid $3,000 per acre. Land costs in the area before this announcement were topping out around $1,000 per acre.

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