The Eagle Ford Shale in South Texas continues to be one of the hottest of all the North American shale plays. Activity is frenetic, and operators and oilfield service companies are working around the clock to keep up with the development pace.
Who says there is an unemployment problem in the United States? This is certainly not true in the Eagle Ford shale play, which has generated tens of thousands of new jobs already and there are openings for tens of thousands of additional new hires. Companies are having difficulty finding employees and locating housing for them, especially in the portion of the shale that stretches from near the border in Southwest Texas to areas south and east of San Antonio. All the drilling and production activity has turned formerly sleepy little villages that were losing population into boom towns as revenue from oil companies and their workers pours into local coffers.
Eagle Ford 'windows'
The Eagle Ford Shale has three "windows" – a dry gas window in the southern portion of the play, a "liquids" window in the middle, and an oil window in the northern portion. Since natural gas prices have been chronically low the past few years, most of the current activity is taking place in the oil window and the liquids window due to the higher market prices for these products.
Investment in the top unconventional resource plays continues at a brisk pace, and those companies that intend to acquire acreage in the Eagle Ford but haven't yet will find prices sky high, especially in the wet gas and oil windows.
Researcher and consultant Don Warlick, writing in the August issue of Oil & Gas Financial Journal, estimates that just four shale plays – the Marcellus, the Bakken, the Haynesville, and the Eagle Ford – together account for 85% of total US contract drilling, directional services, pressure pumping, and related oilfield services. The early entrants who negotiated low lease costs are seeing higher margins than newer entrants who are getting more modest returns on their investments.
Here are a few of the transactions and deals that have occurred thus far over the summer:
- In June, Houston-based Marathon Oil agreed to acquire $3.5 billion in Eagle Ford Shale assets from privately-held Hilcorp Resource Holdings, a partnership between affiliates of Hilcorp Energy and Kohlberg Kravis Roberts & Co., a private equity firm. A year prior, KKR had made a $400 million investment to acquire a 40% interest in the company. The acquisition includes roughly 217,000 gross acres primarily, which increases Marathon's total Eagle Ford position to about 285,000 acres, moving the company into the top five in the play in acreage holdings. Marathon entered the Eagle Ford in November 2010.
- Also in June, Houston-based Carrizo Energy added 13,000 acres to its portfolio in the Eagle Ford. Funding for the acquisition came from the company's sale of non-core Barnett Shale assets. Carrizo says it will focus on the liquids-rich Eagle Ford Shale and the Niobrara play in the Rockies. The company also operates in the Marcellus Shale.
- Denver-based SM Energy has sold 15,400 acres in LaSalle and Dimmit counties in the Eagle Ford to an undisclosed buyer for $225 million. Proceeds from the sale will support the company's CAPEX spending for development activities in other portions of the Eagle Ford. In addition, SM Energy has exchanged a 12.5% working interest in its non-operated position in the Eagle Ford for a $680 million drilling carry by a subsidiary of Japan's Mitsui & Co. Ltd.
- Australia's Strike Energy Ltd., along with four Texas-based companies, has secured a 27.5% interest in a joint venture in the Eagle Ford Shale. Currently, the JV has secured 12,400 acres, mostly over the past year. Leasing activities will continue over the next several months. The majority of the leases are located in Fayette County.
- On the midstream front, Howard Energy Partners (HEP) has begun operations with the acquisitions of Texas Pipeline LLC and Bottom Line Services LLC for a total consideration of $76 million. San Antonio-based HEP provides midstream services through its subsidiaries and will operate in the Eagle Ford and Pearsall shales in South Texas.
- NuStar Energy said this summer that it will partner with a midstream company based in Oklahoma to construct a 70-mile pipeline that will have the capacity to transport more than 100,000 barrels of oil per day from the Eagle Ford Shale in South Texas to NuStar's terminal near Corpus Christi, on the Texas Gulf Coast. NuStar Logistics and Velocity Midstream Partners will build and operate the 12-inch line, which will originate at Gardendale, just north of Cotulla, and connect with a new storage facility NuStar is constructing near Three Rivers. NuStar's Three Rivers storage facility will also connect to its existing 16-inch pipeline, which has the capacity to move 200,000 barrels of oil per day to its Corpus Christi North Beach terminal.