The Eagle Ford is pumping out oil and gas on Cadillac finances

— If there is one thing this season of earnings conference calls is proving, it's how much the upstream industry likes a good rate of return on a productive play. And one area where it's throwing some pretty massive bucks around to obtain those handsome return rates is the Eagle Ford Shale in South Texas, which has become one of the US' top fields in less than four years.

The Eagle Ford, first pioneered in late 2008 as a natural gas play by the former Petrohawk Energy, appears to be among the top three US' top oil/liquids plays right now. With 214 rigs last week -- including 149 drilling for oil and 65 drilling for natural gas, according to Global Hunter Securities' weekly Rig Count Reckoning -- only the Permian Basin's assorted plays and the much-touted Bakken Shale in North Dakota have more total active oil-directed rrigs (319 and 197 respectively).

Some of the US' biggest upstream names have raved about the economics of the Eagle Ford, which offers a trio of "windows" yielding gas, oil and condensate. For example, Marathon Oil, which split off its refining arm in mid-2011, said it will spend $1.35-$1.65 billion yearly, or about 30% of its total $4.5-$5.5 billion company-wide capital allocation this year in the Eagle Ford.

Marathon says the economics for condensate can exceed 100% for condensate and anywhere from 22% to 50% on oil.

From its production there last year which averaged less just over 9,000 boe/d in the fourth quarter (although the company was producing 15,000 boe/d net in early February), Marathon expects to average 30,000 barrels of equivalent liquids there this year, growing to nearly 60,000 boe/d in 2013 and as much as 100,000 boe/d in 2016.

Big independent Pioneer Natural Resources says in its latest investor presentation that its pre-tax rate of return in the Eagle Ford is 70%, based on an oil price of $100/b and gas price of $4/Mcf. Pioneer said it will spend just $130 million of its own money in the Eagle Ford this year, but that is apart from $879 million in total future drilling costs that Reliance Industries Limited is paying as part of a 2010 joint Eagle Ford venture with Pioneer.

EOG Resources -- a giant US shale player that also claims to be the largest Eagle Ford producer at 53,000 boe/d net at the end of September 2011 -- called the play's return rates "likely the highest in industry for a large oil or gas project." The company is targeting a return rate close to 80% in the field this year.

EOG said in a recent presentation that a single one of its wells there throws off more than $1.8 million/month in revenues, about $300,000 more than its closest peer.

Then there's Australia's BHP Billiton, which in a move that reverberated throughout industry put a ring on Petrohawk's finger and acquired it last August at a relatively handsome $12.1 billion, excluding debt. Industry had suspected Petrohawk wouldn't remain an independent bachelorette forever; the question was who the lucky suitor would be. BHP will almost double its rig count there to 26 rigs in 2013 from 14 in November.

But it isn't just the big names that are lured to the Eagle Ford. Small upstream operator

Magnum Hunter Resources in a recent presentation cited investment bank Credit Suisse which in October ranked the Eagle Ford as the highest single rate-of-return shale play in the US at 51%, edging out even the Marcellus (47%) liquids play in Southwest Pennsylvania (although the Marcellus overall is mostly gassy), and North Dakota's Bakken/Three Forks (34%) oil play.

Rosetta Resources, another small upstream operator, also has ramped up spending there both dollar-wise and percentage-wise. The company plans to spend $595 million in the Eagle Ford in 2012, or 93% of its $640 million capital budget for 2012 in the play, up from about $404 million or 85% of the $475 million spent last year.

The Eagle Ford has become so core for Rosetta that it accounted for 91% of the company's 970 Bcf of equivalent gas reserves in first-half 2011, against 66% in 2010 and about 12% in 2009. Not only that, but Rosetta said it has 10 years worth of drilling inventory remaining in its 50,000 net acres in the liquids window. Moreover, the independent has aother 15,000 net acres in the gas window.

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