Oil Money Still Pouring into Eagle Ford

A new analysis by Evaluate Energy highlights the big differences in drilling costs between companies in North American shale plays. The data reveals how much companies are set to spend and how many wells they will drill in the coming year in each play, and provides a benchmark average cost of a drilled and completed well across 8 North American shale plays, based on these guidance figures.

The Eagle Ford: Different Companies, Different Costs

Taking the Eagle Ford as an example of Evaluate Energy’s new analysis, the raw data itself draws some interesting comparisons. The Eagle Ford was arguably the biggest headline maker of 2011 in US Shale; the number of new wells drilled in Texas’ liquids rich shale play in Q4 2011 was double the number in Q4 2010, and the price paid per acre in M&A transactions soared to over $10,000. Below is a graph of just 6 of the major operators in the area, and the average cost per well they reported in annual reports, corporate presentations and press releases:

Source: Evaluate Energy

Evaluate Energy estimates the average cost per well for the Eagle Ford at $7.8m, using reported 2012 capex budgets, 2012 planned well activity and company reported cost per well. The wide range here shows Anadarko Petroleum predicting to make a healthy saving on this amount, with its reported cost per well at $5.8m, but Rosetta Resources and El Paso Corp (currently being acquired by Apollo Global Management LLC) are set to foot a heftier bill, with costs at $9.5m-$10m.

The disparity could be down to a number of things. In the Eagle Ford, location will play a big part; the play’s depth varies greatly across Texas, and gas/oil ratios can also be highly varied even within counties, both of these may cause fluctuation in costs. The Eagle Ford is still in the relatively earlier stages of its development compared to its more mature and higher-producing neighbours – some companies will have identified the most efficient practices, while others are still experimenting. In comparison, the Haynesville play saw the figures amongst the larger operators ending up very similar. New companies entering the play, with either less experience or different methods, will also have an impact on the level of disparity. Evaluate Energy’s horizontal drilling data shows Anadarko ($5.8m) have been drilling for oil/liquids in the areas of the Eagle Ford since Q1 2010, while El Paso ($9.5m) only started drilling for oil in the play a year later, and on a much smaller scale. This would suggest Chinese state-owned company CNOOC has made a good choice in joining forces with Chesapeake Energy, a company that could arguably be considered the powerhouse of US Shale.

(With US gas prices below $2/mcf, well below economic levels, it is assumed that most reported Eagle Ford figures will be referring to oil/liquids drilling rather than gas drilling.)

2012 Outlook

According to Evaluate Energy’s new analysis, 2012 will be another big year for the Eagle Ford. Using this average well cost of $7.8m, and reported capex/planned number of wells guidance figures, the companies/joint ventures destined to make major strides in the Eagle Ford this year can be predicted.

The number of wells itself here, for these 10 selected companies/joint ventures is quite remarkable. Even if the average well cost of $7.8m is applied to the data, these companies alone will be drilling around 1500 wells. From Evaluate Energy’s data, it is clear that this number is a low estimate; of these 10 companies, 5 report average well costs, and Anadarko ($5.8m), Pioneer/Reliance ($7.5m) and SM Energy ($7.3m) are all projecting drilling costs below this $7.8m average.

2 of the 3 non-US companies listed above, Statoil ASA and Reliance Industries, will be looking to the Eagle Ford to build on recent successes. Statoil, 50/50 Joint Venture partner with Talisman Energy in the Eagle Ford, reported record quarterly company-wide production figures in Q1 2012. The Norwegian major has moved into US Shale since June 2011, acquiring Eagle Ford acres with Talisman, and then further displayed its faith in the sector with its $4.7 billion acquisition of Bakken-operator Brigham Exploration towards the end of the year. The record production figure was mainly made up of gas outside of the US, but shale oil is clearly one of Statoil’s major plans to increase this number further. Pioneer’s ambitious Indian partner, Reliance Industries Ltd, is also on a high right now, with the news that its US Shale segment, acquired in 3 deals in 2010 (Marcellus x2 and Eagle Ford), has reported $250m revenues and $30m profit for the 2011-12 fiscal year. With gas prices low, and activity in the Marcellus likely to fall this year, operations in the Eagle Ford will be important for Reliance if this success is to continue.

Evaluate Energy now provides average well costs, which have been calculated using reported 2012 guidance figures, and planned 2012 activity, for 8 North American plays: US Bakken, Duvernay, Eagle Ford, Haynesville-Bossier, Marcellus, Montney, Niobrara, Utica. This is the latest addition to Evaluate Energy’s unique shale product, which provides its clients with horizontal drilling data, acreage holders, gas and liquids production, and M&A deals across the most important plays in the US.

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