Texas' Eagle Ford awaits time in spotlight
Houston, 2 October (Argus) — Oil investors and producers priced out of the Permian basin could be looking to the neighbouring Eagle Ford as an alternative and future driver of US output growth. But questions surrounding the basin's productivity could prevent it from having its moment in the spotlight.
Texas' Eagle Ford is the US' second-largest shale oil basin behind the Permian. The EIA puts Permian October production at 2.64mn b/d, up by 55,000 b/d on the month, driving total US shale oil output to 6.08mn b/d. Eagle Ford produced about 1.27mn b/d for the same month, but with a fall of 9,000 b/d seen as temporary after flooding in the shale caused by Hurricane Harvey. Chesapeake, EOG and others lowered their output guidance for the third quarter as a result of temporary shutdowns. But the Federal Reserve Bank of Dallas says most producers expect only a slight and temporary impact.
The Eagle Ford faces bigger concerns over the longer term productivity of its wells. In terms of drilled but uncompleted wells, the Permian accounted for a third of the total in August — up by 133 to 2,297 — increasing the US total by 231 to 7,048. Eagle Ford had the second highest increase, of 47 to 1,401.
The gap between the two is unlikely to narrow much, even given concerns surrounding a recent rise in gas output from Permian wells. That is because Eagle Ford productivity has largely held flat from 2013-17, with oil output in its wells' first year of production at around 20 bl for every foot drilled. Well productivity doubled over the period in the Permian's Delaware basin to over 30 bl/ft and from less than 10 bl/ft to around 20 bl/ft in the Permian's Midland basin. In the Bakken shale of North Dakota, oil production has risen to 15 bl/ft from 10 bl/ft.
Eagle Ford's flat barrels per foot productivity comes despite it being "a time of very high technological improvement" in the industry, according to oil field services company Schlumberger adviser Robert Kleinberg. "What happens when our ideas run out?"
But Kleinberg cautions that the poor well productivity plaguing Eagle Ford could spread to other major shale basins. Well productivity has risen over the past two years, but mostly as a result of operators drilling longer lateral wells, he notes. Some laterals are now as long as 10,000ft, compared with about 3,000ft prior to the oil price downturn that started in 2014.
Eagle Ford is an important source of shale oil output for producers including ConocoPhillips, Chesapeake, EOG, ExxonMobil subsidiary XTO and UK-Australian firm BHP. But Enterprise Products Partners senior vice-president Brent Secrest says the problem with Eagle Ford is that most producers can prioritize output elsewhere, such as the Permian. Bigger private equity investments may start to come into the Eagle Ford as they get priced out of the Permian. Higher interest may result in improved productivity as producers focus on ways to increase output from the region. Efforts by some smaller producers solely focused on the basin, such as WildHorse Resources, may help improve its productivity.
Others expect that Eagle Ford will remain an attractive investment, particularly given the opening up of the oil sector in Mexico and the basin's proximity to it. Mexico plans a licensing round to open up its onshore shale sector — potentially contiguous to Eagle Ford — to private-sector investment. "We think the Eagle Ford — given the growth in Mexico — will continue to be really attractive," consultancy KPMG's US energy sector leader, Regina Mayor, says. Eagle Ford will also be an investment destination, alongside the Permian, she adds. "I see people hedging their bets and moving money to different parts of the geography."