State of Shale 2023, Eagle Ford: A Return to the Spotlight

Editor’s note: This is one in an occasional series of articles examining the state of major U.S. shale plays at the end of 2022.

Often cast in the shadow of the mighty Permian Basin, the South Texas Eagle Ford Shale began showing signs of a resurgence in 2022.

By proximity alone, the Eagle Ford offers several advantages for potential investors, researchers at East Daley Analytics said.

“Producers in South Texas are closer to Gulf Coast industrial demand centers and export terminals, resulting in higher realized prices for crude oil, natural gas and NGL. And unlike the Permian, producers in the Eagle Ford aren’t plagued by significant takeaway constraints for natural gas,” analysts said in late November.

Indeed, the Eagle Ford was adding rigs in November, peaking at 97 by Dec. 1, with a gain of five rigs added across four weeks. That figure represents the highest count since March 2019.

By contrast, the Permian in West Texas and eastern New Mexico shed 23 rigs during the same period.

But it’s more than players in the basin getting busier that suggests a revitalization is in play.

The third largest player by volume in the Eagle Ford, Marathon Oil Corp., acquired basin pure-play Ensign Natural Resources in a $3 billion cash deal in November. The transaction included assets comprising 130,000 net acres, more than 600 undrilled locations and 67,000 net boe/d of production spanning Live Oak, Bee, Karnes and Dewitt counties.

Marathon is hardly the only large independent taking notice of what’s happening in South Texas.

Its announcement followed the September closing of Devon Energy Corp.’s purchase of Validus Energy for $1.8 billion. Meanwhile, Chesapeake Energy Corp. is shopping its Eagle Ford assets in a deal that Enverus said in July could fetch between $4.6 billion and $5.9 billion, based on strip prices at the time.

Dealmakers appear to be excited at the potential sale of several private companies in the Eagle Ford. Possible targets include BlackBrush Oil & Gas LLC, GulfTex Energy LLC, 1776 Energy Operators LLC among others.

Marathon’s is the second deal in the Eagle Ford to potentially set the stage for buyers’ willingness to pay more for potential upside.

During Marathon Oil’s Nov. 3 earnings call, CEO Lee Tillman said the Ensign deal found a “sweet spot” between immediate cash flow accretion and inventory that competes for capital within the company’s portfolio.

“On the value component, when we think about the valuation, I would say in general we would kind of put it almost 50:50 between PDP and future undrilled development opportunities,” he said. “That was one of the unique opportunities about the deal.”

The largest producer in the Eagle Ford, ConocoPhillips Co., was one of the first companies to invest intensively in the liquids-rich play. In 2009, Conoco began exploring its development potential, and by the end of 2021, it held about 200,000 net leasehold and mineral acres, mostly in DeWitt, Karnes and Live Oak counties. ConocoPhillips has drilled more than 1,600 wells in the field through the years, representing 40% of its potential drilling inventory, and built infrastructure capacity with central facilities and pipelines, with an emphasis on liquids value optimization through the operation of two condensate processing facilities, according to company data. Its current focus is on full-field development in the Eagle Ford, its second-most prolific unconventional resource holding.

At EOG Resources, the second-most prodigious producer in the play, executives have pointed out the financial benefits and efficiencies that come from steady work in a basin.

“We started drilling Eagle Ford wells, 8,500-foot laterals at $12 million a well. We’re down to $4 million or $5 million a well at this point in time,” Ken Boedeker, EOG’s executive vice president for E&P, said in November during the BofA Securities Global Energy Conference in November. “That’s that continual improvement.”

Boedeker also said the location of EOG’s assets in the Eagle Ford presents new opportunities in the wake of global desire for LNG.

“We have a significant amount of flexibility on what we can take with LNG,” he said. “The majority of our gas out of the Eagle Ford … obviously goes into [Corpus Christi]. We do have an increased exposure to LNG. We have 140 million a day now exposed to international pricing with LNG. And that goes up to 420 million a day in 2025 with Cheniere Stage 3 coming on. There’s an additional 300 that’s linked to Houston Ship Channel, just to make sure there aren't any differentials at that point in time.”

But it’s not just the large public indies playing in the Eagle Ford. Rounding out the top five operators is Verdun Oil Co. and SilverBow Resources, two private producers.
Verdun owns more than 177,000 net mineral acres in the trend across Dimmit, La Salle, Frio, McMullen, Live Oak, Atascosa, Karnes, Gonzales, and DeWitt counties. As of April 2022, the company was operating more than 1,200 wells in the region.

SilverBow upped the ante in the Eagle Ford during the spring of 2022. The Houston-based firm closed its cash-and-stock acquisition valued at roughly $71 million of SandPoint Operating LLC, marking the company’s latest purchase in the Eagle Ford Shale. It was the fourth expansion deal for SilverBow’s footprint in less than a year.