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Eagle Ford remains profitable even amid challenging financial markets

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Platts Global Alert - Oil

Eagle Ford remains profitable even amid challenging financial markets

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Producers, financiers say play is mature, lower-cost

M&A is low because of wide bid-ask spread

Capital is harder to come by than before

San Antonio, Texas — More than a decade after its unveiling to industry, the Eagle Ford Shale remains profitable despite challenging financial markets, presenters said Wednesday at a conference devoted to the South Texas play.

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The Eagle Ford, which debuted in late 2008 as an unconventional natural gas play and soon after came to be known for its high quality oil, has generally offered low breakeven prices and has provided excellent cash flows, operators and analysts said at the 10th annual DUG Eagle Ford Conference in San Antonio. The gathering is sponsored by Hart Energy.

Presenters agreed the Eagle Ford has many advantages.

"The maturity of the play is a plus," Bryce Erickson, senior vice president of Mercer Capital, said. "It's shallower, so has lower drilling costs. Water cuts are much better, and breakevens are lower."

Also, the "fundamentals of the area" -- that is, its location in South Texas which is relatively close to the US Gulf Coast with its refining and export markets -- is also an advantaged feature, Erickson said.

But capital is more difficult to come by these days and "there's probably less private equity money than there has been," he added.

BID-ASK SPREAD STILL WIDE

Moreover, even though consolidation might seem logical for a mature play, the bid-ask spread is still wide, with property owners wanting more money for assets and potential buyers unwilling to meet those expectations, Erickson said.

The Eagle Ford produces 1.5 million b/d of oil and 6.74 Bcf/d of gas, projections by S&P Global Platts Analytics showed.

As of last week, 79 rigs were drilling in the play, down from 91 at the start of 2019 and a peak of 278 in 2014, according to Enverus/DrillingInfo.

Of the 79 rigs last week in the Eagle Ford, about 61 were in the Western area, with the East accounting for the rest, Bernadette Johnson, Enverus' vice president of market intelligence, said.

The Western Eagle Ford appears to house the "best, [most] highly economic areas" of the play, she said.

Productivity in the two areas is different, with type curves and average well yields a little higher in the West than the East. That is due to a shift in drilling of the play to more outside core areas in the East after 2016.

"Companies are starting to delineate and test on the outskirts, and you're seeing a little drop but nothing dramatic," Johnson said. Even so, both sides are "very consistent."

Overall, the Eagle Ford has been "more resilient" than other plays, Johnson said.

Production has rebounded to its present level from barely over 1 million b/d in mid-2017 after prices hung lower during the previous two years.

Oil breakevens are sometimes below $30/b in the play, but mostly $30/b to $40/b. "In some other plays, the variance is much greater," she added. "Even in the Permian, you still see areas of $80/b-plus."

The play has attracted and retained some of industry's biggest shale operators including BP, ConocoPhillips and EOG Resources.

"We still have thousands of wells yet to drill and billions of [barrels of oil equivalents] yet to produce," Erec Isaacson, vice president of ConocoPhillips' Gulf Coast unit, said.

ConocoPhillips produced 221,000 boe/d from the Eagle Ford in the second quarter of 2019, up from 182,000 boe/d in Q2 2018.

CONTINUES TO TWEAK WELL COMPLETION TECHNIQUES

The company has continued to tweak its well completion techniques for greater efficiency and hydrocarbon yields, as most of the industry is doing. That, plus Data Analytics that helps spot and analyze trends quickly and adjust and maximize its operations, has "had a profound effect on our fields," Isaacson said.

A pilot project in DeWitt County also indicated well recoveries could be improved. The company found more hydraulic fractures than anticipated, many of which did not have sufficient proppant added, Isaacson said. Proppant is a sand and fluids mix that keeps the fractures open to force oil and gas out of the well.

ConocoPhillips also found that proper spacing and stacking of wells can create value, as does refracturing older Eagle Ford wells using an updated completion template. The result has been a 60% increase in resource from refracked wells.

Not only that, but refracs smooth out issues between older "parent" and newer infill drilling of what industry popularly calls "child" wells.

The maturity of the play has made things "a little tougher now," said William Deupree, founding partner, president and CEO of Escondido Resources, which operates in the Escondido and Olmos formations in Webb and La Salle counties.

But the economics are worth it. "Even though we're not right in the middle of the core, the returns stack up versus five years ago, with plenty of running room ahead," Deupree said.

-- Starr Spencer, starr.spencer@spglobal.com

-- Edited by Geetha Narayanasamy, newsdesk@spglobal.com

Platts Analytics Client Seminar | October 22-23, 2019 | New York

This one-of-a-kind gathering highlights our short-term and long-term outlook for crude oil and petroleum products, natural gas, electric power, petrochemicals and more.

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