Articles Posted in Eagle Ford Shale

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The Wall Street Journal reported that Sanchez Energy Corp is in talks to buy Anadarko’s leases and production in the Eagle Ford, partnering with Blackstone Group LP, for $3 billion to $3.5 billion. Separately, Sanchez Energy is selling $181 million of “non-core” Eagle Ford leases, about 15,000 acres, to Carrizo Oil & Gas Inc.  Carrizo will fund the purchase with sale of 6 million shares of common stock.

The Sanchez-Anadarko deal would be a big bite for Sanchez, which has a market cap of $472 million and $1.7 billion in long-term debt. Sanchez entered the Eagle Ford play by buying Hess’s leases, and in 2014 it bought Shell’s lease position for $639 million. Anadarko’s Eagle Ford leases are principally in Dimmit and Webb Counties, including the Briscoe Ranch, in all more than 1600 producing wells.

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The environmental group Ceres has released a map showing the overlap between shale plays and water-stressed areas of the U.S. You can view it here.  It is based on a study of 110,000 wells fracked over the past five years. Read Ceres’ summary of findings here. Its report is an update of an earlier 2014 report on fracking and water use.

In Texas, operators rely almost exclusively on groundwater to frac wells. Operators in the Eagle Ford play rely on the Carrizo Wilcox aquifer, a huge fresh water resource that extends across South Texas – and an aquifer that is being rapidly depleted by pumping for agricultural and municipal uses. Oil and gas operators are exempt from laws in Texas that allow local groundwater districts to regulate and limit pumping.

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In May of this year, the Provost Umphrey law firm filed a class action complaint in federal court in Pennsylvania against Talisman Energy USA, Inc. for underpayment of royalties on production from the Eagle Ford field in South Texas. Regmund v. Talisman complaint  The Plaintiffs are three royalty owners who own royalties in wells drilled by Talisman and Statoil under a joint venture covering several thousand acres of leases in the Eagle Ford. The Plaintiffs had a basis to file in Pennsylvania because Talisman’s principal place of business is in Warrendale, Pennsylvania. The Plaintiffs had a basis to file in federal court under the Class Action Fairness Act of 2005. That act allows federal courts to preside over certain class actions where the amount in controversy exceeds $5 million, the class comprises at least 100 plaintiffs, and at least one plaintiff class member resides in a state other than the residence of the defendant.

Talisman USA is a subsidiary of Talisman Energy, Inc., based in Calgary, Alberta. In May 2015, Talisman Energy, Inc. was acquired by Repsol S.A., the largest Spanish energy company, for $13 billion.

In 2010, Talisman opened a Texas office and started buying oil and gas leases in the Eagle Ford under a joint venture with Statoil, Inc. Under the Joint Development Agreement, each company would own a 50% interest in the leases. Each company separately marketed its share of oil and gas and paid royalties on its share of production. Under a modification of the Joint Development Agreement, Statoil operated wells in the eastern part of the joint development area, and Talisman operated wells in the Western part.  In December 2015, Statoil took responsibility for operating all jointly owned wells and acquired a portion of Talisman’s ownership, so that their joint venture is now 63%/37%.

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NASA has published before-and-after photos of the area around Cotulla, Texas, in the heart of the Eagle Ford, showing the impact of oil and gas development in the region. Photos are below. Full report can be viewed here.

eagleford_vir_2016046
The area in 2009:

cotulla_tm5_2000352
The area today:

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From Fuelfix:

New federal data shows that the Energy Department expects drillers in the Permian Basin to push oil production in the shale play above 2 million barrels per day for the first time ever this November.

The U.S. Energy Information Administration’s monthly Drilling Productivity Report released Monday, which covers seven of the biggest shale plays in the country, projects production in the Permian to jump by 17,000 bpd this month. That increase would bring the play above the 2 million bpd mark. In December, the EIA expects the play to grow again by 11,000 bpd.

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The news is filled with stories predicting the effect of falling oil prices on US production.  Good news for the economy, bad news for the Texas oil and gas industry. Will the rig count fall? Will companies go into bankruptcy? Only time will tell.

The answer may depend on OPEC. OPEC countries produce about one-third of the world’s total oil each month. OPEC countries have about 80 percent of the world’s oil reserves. Predictions of OPEC’s demise are greatly exaggerated. But US production has increased to almost 9 million barrels a day, close to Saudi Arabia’s production. Texas is responsible for a big part of that increase:

Texas production chart.PNG

Clearly the increased US production, combined with the predictable decline in demand and the slowdown of China’s and Europe’s economies, is affecting the world oil price. OPEC convenes on November 27, and pundits are guessing what it will do. On October 29, OPEC’s Secretary-General Abdalla El-Badri, cautioned calm, after a conference in London: “We don’t see really fundamental changes in the supply side or the demand side.  Unfortunately everyone is panicking. The press is panicking, consumers are panicking. We really should think and see how this will develop.”

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There are always nay-sayers who predict that the current boom, whatever it may be, will soon be a bust. Recently, however, some pretty prominent voices have cautioned that all of the rosy predictions about the future of the shale boom, US energy independence, and the continued growth of US oil and gas production are false – a bubble soon to burst.

One of those is J. David Hughes, a geoscientist with the Post-Carbon Institute. He spent 32 years with the Geological Survey of Canada, and coordinated an assessment of Canada’s unconventional natural gas potential. He has authored “Drill, Baby, Drill,” published last year by the Post Carbon Institute and the Energy Policy Forum. It is a pretty comprehensive review of the long-term viability of the shale plays. Some excerpts:

  • “World energy consumption has more than doubled since the energy crises of the 1970s, and more than 80 percent of this is provided by fossil fuels. In the next 24 years world consumption is forecast to grow by a further 44 percent–and U.S. consumption a further seven percent–with fossil fuels continuing to provide around 80 percent of total demand.”
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With increasing frequency, my landowner clients have complained about gas flaring, especially in the Eagle Ford Shale.  Landowners are beginning to insist that their leases require royalty payments on flared gas. Landowners also complain of the odors and noise from gas flares.

The San Antonio Express News has recently published a four-part series, Up in Flames,  on flaring in the Eagle Ford, after a year-long investigation. Among its findings:

  • Since 2009, flaring and venting of natural gas in Texas has surged by 400 percent to 33 billion cubic feet in 2012. Nearly 2/3 of the gas flared in 2012 came from the Eagle Ford.
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I ran across an article in the New York Times about a new publication, “The Boom,” becoming popular with oil field workers in the Eagle Ford. It’s a good read. And it’s free online. Check out the article in the August publication, “Eagle Ford Shale Takeaways.” It’s a reprint of an article from Drillinginfo, based on Drillinginfo’s analysis of several thousand wells in the Eagle Ford play. One conclusion from that article:

The very best Eagle Ford Shale operators produce 30% to 40% better than the median FOR THE SAME QUALITY OF ROCK, and they produce three times as much as operators at the low end. … The implications for mineral owners in this scenario are obvious. Massive gaps in production naturally lead to large gaps in royalty payments. A 25% royalty lease with an average operator is equivalent to an 18% royalty lease with the best operators.  That same lease with the worst operators is the same as an 8% lease with the best.

 Also check out Texas Eagle Ford Shale Magazine, another digital publication catering to the Eagle Ford play.

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