If you’re following the money in the oil and gas business, you’re likely following it to the Eagle Ford Shale in South Texas. Speakers at Hart Energy’s DUG Eagle Ford Conference and Exhibition described the economics of the play in terms of “fantastic” returns, “best prices” with excellent potential.
Todd Abbott, VP for resource plays south of Marathon Oil Corp. expressed his enthusiasm for returns in the Eagle Ford as “Fantastic.” The play’s strengths include its low cycle times, high oil cuts and Louisiana Light Sweet crude oil pricing, Abbott said during a mid-morning session.
Marathon has positions in four of the lowest cost oil basins in the U.S., including the Eagle Ford, Abbott said. He added that the play delivers reliable production, capital efficiency and free cash flow. Marathon’s Eagle Ford production is about 100,000 barrels of oil equivalent per day.
Stephen Chazen, chairman, president and CEO of Magnolia Oil & Gas, told attendees that his company was high on Austin Chalk, and seeing excellent potential for economic growth. That’s assuming both entry costs and well costs remain reasonable, he said. “General investors want reasonable growth, earnings per share, and free cash flow,” said Chazen. “Magnolia’s strategy is to extract every barrel it can as economically as possible.”
The Eagle Ford Shale is rich in M&A activity as well as oil and gas, another speaker said during a mid-morning economics panel. Only the Permian Basin exceeds Eagle Ford in M&A, said Robert Urquhart, director for energy at Scotiabank Global Investment Banking. Transactions in 2017 and year-to-date 2018 total $15 billion, he said, with this year likely to set a record. “We should expect combinations of sub-$1 billion market cap companies in the Eagle Ford,” Urquhart said. “And the IPO market will reopen at some point. New public pure plays of scale will exist.”
But how long the Eagle Ford can maintain its advantage is a key question. The Eagle Ford needs to show investors a positive rate of change in well results and large numbers of locations in inventory, said fellow panelist Subash Chandra, managing director and senior equity analyst of Guggenheim Securities. “The best attribute of the Eagle Ford has been its price,” Chandra said. But that alone will not be enough: “With every passing day the Permian problems get solved, which will challenge the Eagle Ford.”
Innovations in well-spacing and stacking have allowed ConocoPhillips to achieve a 20% field-level recovery factor in the Eagle Ford Shale, the company’s chief technology officer told attendees. The play has areas where the cost of supply is as low as $20 to $30 per barrel of oil, said Greg Leveille. Those core areas are where ConocoPhillips is focused.
Other speaker described how the goods would be exported. Sean Strawbridge is focused not so much on getting crude out of the ground as getting it out of the country. “The Port of Corpus Christi aims to be the energy port of the Americas,” Strawbridge, the port’s CEO, said. The ship channel is the beneficiary of $50 billion in capital investments, he said. The port is already the largest exporter of produced crude in the U.S.
Brian Hill, director of the U.S. Western Gulf Gateway Office of the Department of Transportation’s Maritime Administration, oversees the Western Gulf area. Ports, he said, are already congested.
SilverBow Resources Inc., works both wet and dry gas areas, and is the Eagle Ford’s only public pure-play in dry gas, said Gleeson Van Riet, the company’s EVP and CFO. SilverBow has drilled 20 of the top 50 Eagle Ford gas wells and, Van Riet said, the play is the best place to be in the U.S. for natural gas. “It has the best prices, good infrastructure and it’s located in the demand growth area,” he said during a late-morning panel on natural gas.
Joining Van Riet was John Thaeler, CEO of Vitruvian Exploration IV LLC, who said the dry gas portion of the Eagle Ford possessed great rock and lots of promise. “If you compare this to a baseball game, the dry gas Eagle Ford is just in the second inning,” he said. That’s because operators have focused on modern slickwater completion styles since 2015, resulting in a major step change in productivity, he said. Vitruvian has found an excellent greenfield opportunity in the area with contiguous leaseholds in a proven unconventional petroleum system.
The essence of the conference was summed up by Stephen Beck, senior director for upstream at Stratas Advisors. “The Eagle Ford boasts some of the best economics in North American shale,” he said, but large swaths of the play are densely developed. Beck sees several years of attractive inventory remaining. “Longer lateral lengths, increased stage counts and a tight grip on costs are the keys to maintaining strong economics in less prospective areas,” he said.