An energy Eagle set to soar

— One of the most promising natural gas shale plays in the US has high well rates, lots of potential and some of industry's biggest players digging into it. And yet few in the energy patch outside of Wall Street write about it.

Ever since shale bull Petrohawk Energy announced its success in the Eagle Ford Shale in South Texas last year, operators have quietly amassed acreage there and turned up early drilling successes. But some of that lustre has paled among the bigger news of slashed E&P budgets and lower quarterly earnings.

Companies such as Anadarko Petroleum, Pioneer Natural Resources, Apache and XTO Energy have staked out Eagle Ford positions and are in the early stages of figuring out how the play compares to more established shales such as the Barnett, Haynesville and Woodford. Right now, Eagle Ford's potential remains an open question, but operators say their current tests put them in good stead for next year, when gas prices, E&P budgets and activity could all bump up.

Petrohawk, perhaps the most active and vocal of Eagle Shale operators, has completed eight Eagle Ford wells. The three most recent ones have weighed in with impressive average initial production rates of over 9,000 Mcf/d of equivalent gas apiece. Dick Stoneburner, Petrohawk chief operating officer, said he believes the play's reserves are in the "4 to 7 Bcf/well range."

With yields like this, why hasn't the play made more noise? First, it's probably because such high rates for shales are becoming ho-hum. Industry has become accustomed to seeing large initial gas flows in fields such as the Haynesville Shale, last year's Wall Street darling, where it is not unusual to see average wells of 15 to 20 Mcf/d.

More recently, the Granite Wash play in Oklahoma and the Texas Panhandle has made a splash with even higher flow rates for gas plus a liquids component. Also, after barely squeaking to the $4/Mcf level after a couple of months submerged in the $3s/Mcf, a play thought of as largely gas does not flutter the market's heart, although Eagle Ford does also contain some liquids.

Still, analysts say Eagle Ford is worth watching and waiting for. It has already shown much early promise and its returns can compete with the best shales, according to Jefferies analyst Subash Chandra. Costs are relatively cheap, as newer horizontal-play wells go -- around $5 million, versus $7 to $8 million in some other areas.

The Eagle Ford also boasts other show-off traits: While Chandra says typical first-month declines there are 46%, Petrohawk's wells have experienced just 30%. And, "we are incrementally more bullish on the Eagle Ford because of the low front-end costs" and BTU premium for gas condensate, Chandra said. "In fact, the economics are more robust than in the Haynesville, by our analysis."

As more operators join the fray and more data becomes available, Eagle Ford's merits should become apparent. Let's hope that they don't get as buried during the industry's upturn as they did on the way down.