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Oil-directed drilling maintaining pace of Eagle Ford gas output growth: Barclays

Highlights

Although producers in the Eagle Ford Shale play in southern Texas are largely targeting oil and natural gas liquids, production of associated gas is driving the total gas output from the play higher, according to a study released Tuesday by Barclays analysts.

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"Without a change in drilling activity and with a 10% gain in drilling efficiency, natural gas production in the Eagle Ford should maintain last year's pace of growth and rise 1.4 Bcf/d to an average of 6.8 Bcf/d in 2014," the analysts say.

"We are seeing a lot of production growth for natural gas and we're forecasting similar growth in 2014," Shiyang Wang, coauthor of the study, said in an interview.

According to US Energy Information Administration, at the end of January, there were 290 rigs operating in the play, the majority of which are oil-directed rigs.


With so many rigs operating in the basin, "there's still going to be a sizable natural gas production growth simply because you're drilling more oil," Wang said.

Development of the Eagle Ford started in 2009, with producers targeting the region's rich gas resources, but the focus quickly shifted to the more lucrative production of oil and liquids, the analysts noted.

However, even with the shift in focus, gas production from the 23 counties comprising the Eagle Ford play more than tripled from 1.7 Bcf/d in January 2009 to 5.4 Bcf/d in July 2013.

"In fact, gas production from oil wells overtook gas-well gas in driving aggregate Eagle Ford gas output higher last year," according to the report.

Barclays says that in the coming years, because the Eagle Ford is facing increasingly steep declines in per-well gas production, producers will have to continue their current pace of oil-directed drilling "to maintain steady output" of gas from the play.

"In 2012, production from wells existing prior to January 2012 declined by 1.4 Bcf/d, or 40% during the year. Wells that started production in 2012 brought a cumulative 2.5 Bcf/d by the end of the year, leaving total production growth at 1.1 Bcf/d from December 2011 to December 2012," the report says.

"Rigs drilling in the Eagle Ford are increasingly likely to produce predominantly oil and deliver smaller amounts of gas production. EIA's Drilling Productivity Report shows that, since 2010, oil production per rig has risen consistently, while natural gas production per rig remains below its 2009 peak, even after rebounding in the past two years."

Wang said that despite the recent weather-driven run-up in gas prices, in the longer term, gas prices are not expected to increase to a level that would reverse the trend toward oil- and liquids-directed drilling in the Eagle Ford and other basins.

"The forward curve is very backwardated. We're not really getting the kind of prices in [calendar year 2015] and beyond for producers to resume dry gas drilling in the Eagle Ford or the Haynesville or some of the other dry gas plays in the southwestern part of US," she said.

--Jim Magill, jim.magill@platts.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com