Eagle Ford: Texas Shale Star (Resourceship in action: III)

By Fred Lawrence and Ron Planting -- July 19, 2013

“The Eagle Ford, still in an early stage of development, may end up being more complex than some of the earlier big resource plays such as the Barnett or Haynesville … Companies from around the world are interested in being part of the Eagle Ford success, a sign that this evolving transformation is global as well as awesome in scope.”

One of the most remarkable sources of gains in U.S. liquids and natural gas production in recent years has come from Texas’s Eagle Ford play, thanks to the application and ongoing refinement of horizontal drilling and hydraulic fracturing techniques. These developments have helped put Texas and North Dakota at the top of the list of regions that have been contributing to the brightening U.S. energy picture.

Oil production in the Eagle Ford, in the southwestern portion of Texas, has gone from a minimal level in 2010 to over 300 thousand barrels per day so far this year, plus another roughly 70 thousand barrels per day of condensates. [Update: Total 2012 production of 381 thousand barrels per day is now averaging more than 512 thousand barrels per day.]

Besides spurring jobs growth, the jump in Eagle Ford production has been among the major factors driving Texas crude oil production past the 2 million barrels per day mark just this past August – a level not seen since 1988.

Overview

The Eagle Ford formation is named for a town in eastern Texas near Dallas – though the formation itself extends to the southwestern end of the state, where the play’s activity is concentrated, and on into Mexico. A shale formation roughly 4,000 to 12,000 feet below the surface, it has served as the source rock for the East Texas Field (among the top 100 fields in the U.S.) and for conventional fields in the overlying Austin Chalk.

The Austin Chalk has been drilled since the 1920s, but has been an on-again, off-again play with success depending in part on drilling into natural fractures in this otherwise low-permeability formation. Beginning in the 1990s, horizontal drilling has enabled operators to intersect multiple natural fracture systems with the aim of increasing overall well productivity compared with vertical drilling.

With the fine-tuning of horizontal drilling and the refinement of horizontal fracturing technology, the hydrocarbon-rich Eagle Ford has become a major target of independents. As is often the case, independents pioneered the play, which is now drawing considerable interest from majors and international joint ventures.

Although the southeastern band of the play has more natural gas, it becomes more “oily” on the northwestern side, with a condensate “window” in between. Since the first horizontal drilling began in 2008, activity has risen sharply to more than 250 active rigs in mid-2012 and currently has more than 230 active rigs.  [June 2013 update: 266]

Rigs drilling in Eagle Ford counties account for roughly one of every eight active rigs in the U.S., and for one of every four rigs in Texas.  In the Eagle Ford counties, 95 percent of the rigs are drilling horizontal wells, contrasting with just 40 percent for the rest of the state and 60 percent for the U.S. as a whole. This is a major testament to these breakthrough technologies.

According to the first-ever assessment by the U.S. Geological Survey (USGS), published in 2011, the shale held estimated technically recoverable reserves of 853 million barrels of oil, 2 billion barrels of natural gas liquids, and 1.8 trillion cubic feet of natural gas, though some experts suggest that the figures could ultimately turn out to be significantly higher.

In many ways, the Eagle Ford has some attractions over the Bakken in North Dakota. Besides being more “fracturable,” the Eagle Ford is not as deep, translating into more rapid completions and lower drilling and completion costs (perhaps 30 percent lower, according to some reports).  Wells tend to be more productive compared with Bakken wells, according to a recent IHS study. The Eagle Ford potentially has more oil in place, and has the decided advantage of proximity to processing infrastructure and markets.

Generally, the Eagle Ford has enjoyed a premium versus West Texas Intermediate, mid-continent, and North Dakota crudes on the order of $20/barrel, as it is closer to existing pipelines, gas processing facilities, and delivery points along the Gulf Coast, while West Texas and North Dakota crudes have been more infrastructure-constrained. It still experiences discounts versus Louisiana Light Sweet due to higher transportation costs.

Development Trends

Early activity in the Eagle Ford was focused on the gas-rich areas in the southeast window of the play. However, with weaker natural gas prices, industry attention has turned to oil and condensate windows, as well as natural gas prospects richer in liquids (natural gas liquids, or NGLs). By the spring of 2011, the number of rigs designated as searching for oil began to outnumber the count for rigs searching for natural gas, and currently, there are three oil rigs for every natural gas rig in the region.

The Eagle Ford is also likely among the largest plays for supplying NGLs, a fuel that is extracted from natural gas streams and has grown considerably over the past four years.

As the Eagle Ford play has matured, experience has led to improvements and refinements as the technology advances, such as the use of 3-D seismic to more accurately place the horizontal segments of wells and the increase in the number of fracturing stages to enhance productivity. Fracturing stages now often run in the 10 to 20 range, and have gone as high as 25 or more in the region.

Experience and analysis has allowed companies to drill and complete wells more quickly and efficiently, at lower cost, requiring fewer rigs in operation at any one time. Pipeline projects that connect with processing facilities and major refining centers in the region reduce the amount of trucking and overall transportation costs.

Economic Impacts

Development of the Eagle Ford play has significantly benefited the regional economy. Direct employment has been boosted by increased demand for workers to drill and complete wells, to provide the geophysical and engineering analysis to guide projects, and to build pipelines and processing facilities. This, in turn, has increased diverse jobs for workers who provide housing, transportation, and consumer goods and services of all kinds for the larger regional workforce.

This also means a workforce with rising wages with more money to re-inject into the local economy. According to analysis by the Dallas Federal Reserve Bank, the average weekly pay in the entire region rose 14.6 percent annually from the first quarter of 2010 to the third quarter of 2011, more than double the 6.3 percent rate for the U.S. as a whole. According to a study by the Institute for Economic Development at the University of Texas at San Antonio (UTSA),

Eagle Ford activity supported 38,000 jobs in 2011. That figure was forecast to grow to over 82,000 jobs by 2021. In that year, it is estimated that the boost in economic activity will add more than $1.5 billion to state revenues and $888 million to local government revenues.

Eagle Ford in Perspective

The Eagle Ford, still in an early stage of development, may end up being more complex than some of the earlier big resource plays such as the Barnett or Haynesville shale plays, with its greater range of liquids potential versus natural gas and thus more options for operators to target the highest-value resources.

The Barnett Shale in northwest Texas was the first big shale play, and the fruitful result has been that Barnett counties now account for roughly a third of all Texas natural gas production. In 2008, rig activity was running at a high of over 190 rigs as operators pursued natural gas targets that also happened to have significant liquids content.

This meant a large addition of gas processing capability to extract sizeable volumes of by-product NGLs and natural gas.  However, as natural gas prices softened, the rig count has dwindled to the 30s as companies shifted toward the most liquids-rich projects. Activity is particularly focused on the “Barnett combo” play in the northwest end of the region, where the higher ratio of liquids relative to natural gas greatly improves current economics. 

The Haynesville Shale, straddling western Louisiana and eastern Texas, has competed with the Barnett for the title of largest natural gas producing play. Even more pronounced than the Barnett, the Haynesville is primarily a natural gas play, and as a result, has witnessed an especially large slowdown in rig activity.

Both of these plays have had more time to develop than the Eagle Ford, which is still in its early stages. Nevertheless, as objectives across plays have shifted toward liquids as a target and not just a by-product, the importance of developing pipeline infrastructure and mid-stream processing capability has grown, in the Eagle Ford and elsewhere.

The oil focus has also led to the application of technological advances in revisiting older plays. In the Austin Chalk, for example, horizontal drilling and hydraulic fracturing are giving new life to that decades-old oil play.

In short, the concept of resource development has been evolving toward a fuel portfolio perspective, where the prospective options for liquids (especially oil) versus natural gas within an individual play have become increasingly part of the investment decision. There are already signs of this occurring in the Utica in eastern Ohio.

While the Eagle Ford is in earlier stages of development than the Barnett and Haynesville, the Utica is even less developed. Every play is different and operators are gathering information and gaining experience as they assess the geology and deal with different infrastructure issues. Like the Eagle Ford, the Utica has a wide range of liquids vs. natural gas potential depending upon the location, each, like all shale plays, unique in geology, potential, and technological approaches.

If going through a natural gas phase before re-targeting toward oil has been the pattern for several other plays, the economics of the past several years have accelerated this shift, and even before the Utica has brought on significant production, rig count data show that this shift to liquid targets and away from dry gas-only targets has already taken place.

Each play continues to evolve. Independent producers will continue to be at the forefront of this transformation that has heralded a new role for American oil and natural gas. Independents are connecting yesterday’s plays with tomorrow’s plays through innovation, technology, risk-taking, and entrepreneurship.

Companies from around the world are interested in being part of the Eagle Ford success, a sign that this evolving transformation is global as well as awesome in scope.

—————

Fred Lawrence is Vice President of Economics & International Affairs at the Independent Petroleum Association of America (IPAA). This article was originally published on December 19, 2012, at the Resources website of the IPAA.

————–

Resourceship in Action Series

I. Permian Basin

II. Bakken

III. Eagle Ford play (today)

IV. Niobrara play (forthcoming)

The concept of resourceship explains the phenomenon of expanding “depletable” mineral resources. For other MasterResource posts in this area, see here.