Recently in Eagle Ford Shale Category

November 12, 2014

The Fall in Oil Prices

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."

El-Badri has a point. Looked at over the long term, as shown below, this may be but another adjustment in world prices.

EIA gas and oil price chart.PNG

Not all OPEC countries are the same. Some countries will be squeezed by oil prices below $80:

OPEC price squeeze.PNG

So far, the falling oil price appears to have had little effect on drilling activities in Texas. The Texas Petro Index published by the Texas Alliance of Energy Producers reached 312.3 in September, up 6% over last September. The Baker Hughes rig count in Texas was 902 in September, up from 837 rigs in September 2013. But the US rig count dropped by 4 rigs to 1,925 for the week ended November 7, although horizontal rigs gained 9 to 1,362.

One analyst, Gavekal Dragonomics, says that, if oil prices continue to fall, "drilling activity is likely to decline." But the negative effects on the energy sector will be outweighed by the positive effect on US consumers. Lower prices will lift net exports. And each one-cent drop in gasoline prices puts $1 billion in the pockets of consumers over a one-year period.

Dr. Harold Hunt, professor at the Texas A&M Real Estate Center, recently presented an analysis of how falling oil prices affect the Houston economy. Here is a link to the Powerpoint of his presentation: Hunt_S_TX_College_Oct__2014___.pdf  Dr. Hunt notes the declining cost of drilling in the Eagle Ford, lowering the break-even price of oil:

Well Costs - Hunt.PNG

 

Down-sizing of well spacing has also maximized the value of Eagle Ford acreage:

Well spacing.PNG

Dr. Hunt also notes the increased rates of initial production in the Eagle Ford, but also the increase in decline rates of those later wells:

EIA increased production rates over time.PNG

 

His conclusion: 80% of shale oil resources in the US can make money with oil at $50 to $80 per barrel:

Hunt break-even.PNG

Much depends on where the acreage is in the play. There are good sections and bad sections in the Eagle Ford, as in all fields. Those producers on the margins will suffer at $80 prices. And investors may be more wary of putting their money in areas with higher risk.

September 10, 2014

An Alternative View of the Shale Boom

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."
  • "Shale gas production has grown explosively to account for nearly 40 percent of U.S. natural gas production; nevertheless production has been on a plateau since December 2011 --80 percent of shale gas production comes from five plays, several of which are in decline. The very high decline rates of shale gas wells require continuous inputs of capital--estimated at $42 billion per year to drill more than 7,000 wells--in order to maintain production. In comparison, the value of shale gas produced in 2012 was just $32.5 billion."
  • "Tight oil plays are characterized by high decline rates, and it is estimated that more than 6,000 wells (at a cost of $35 billion annually) are required to maintain production, of which 1,542 wells annually (at a cost of $14 billion) are needed in the Eagle Ford and Bakken plays alone to offset declines. As some shale wells produce substantial amounts of both gas and liquids, taken together shale gas and tight oil require about 8,600 wells per year at a cost of over $48 billion to offset declines. Tight oil production is projected to grow substantially from current levels to a peak in 2017 at 2.3 million barrels per day. At that point, all drilling locations will have been used in the two largest plays (Bakken and Eagle Ford) and production will collapse back to 2012 levels by 2019, and to 0.7 million barrels per day by 2025. In short, tight oil production from these plays will be a bubble of about ten years' duration."

Hughes' report is filled with graphs illustrating production and consumption world-wide and by field. Here is an example:

The Haynesville, Barnett, Fayetteville, and Woodford plays, which collectively produce 68 percent of United States shale gas, are late-middle-aged in terms of the life cycle of shale plays. Unless there is a substantial increase in gas price and a large ramp-up in drilling, these plays will go into terminal decline. The prognosis for the top nine shale plays in the United States, which account for 95 percent of shale gas production, is presented in Table 2.

Hughes 1.JPG

Hughes 2.JPG

Hughes also discusses the two biggest oil shale plays, the Bakken and the Eagle Ford. Together, these fields produce more than 80 percent of tight oil production in the US. "Overall field decline rates are such that 40 percent of production must be replaced annually to maintain production."

Given the EIA estimate of available well locations, the Bakken, which has produced about half a billion barrels to date, will ultimately produce about 2.8 billion barrels by 2025 (close to the low end of the USGS estimate of 3 billion barrels). Similarly, the Eagle Ford will ultimately produce about 2.23 billion barrels, which is close to the EIA estimate of 2.46 billion barrels. Together these plays may yield a little over 5 billion barrels, which is less than 10 months of U.S. consumption.

Some figures from Hughes' discussion of the Eagle Ford:

Hughes 3.JPG

Hughes 4.JPG

"The future production profile of the Eagle Ford--assuming a total of 11,406 effective locations, a 40 percent overall field decline, and current rates of drilling with all new wells performing as in 2011--is illustrated in Figure 75. This yields a production profile which rises 34 percent from June 2012 levels to a peak of 0.891 million barrels per day in 2016 as illustrated in Figure 75. At this point, with all well locations drilled, production declines at the overall field decline rate of about 40 percent. The overall field decline may decrease somewhat over time after peak as wells approach terminal decline rates. This also assumes that 70 percent of the wells drilled to date have targeted the oil-rich portion of the
Eagle Ford play. Total oil recovery in this scenario is about 2.23 billion barrels by 2025, which agrees quite well with the EIA's estimate of 2.46 billion barrels.157 Average well production falls below 10 bbls/d in this scenario by 2021."

Hughes 5.JPG

Hughes 6.JPG

Hughes' report provides a wealth of data and puts the "shale boom" in perspective. He may be overly pessimistic, but he certainly makes one think about the world's unsustainable thirst for hydrocarbons.

August 26, 2014

Flaring in the Eagle Ford

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.
  • Gas flared in the Eagle Ford resulted in more than 15,000 tons of volatile organic compounds and other contaminants into the atmosphere in 2012 -- more than was emitted by the six oil refineries in Corpus Christi.

Part Three of the Express News report focuses on the role played by the Texas Railroad Commission in regulation of gas flaring. Under RRC regulations, a company can flare gas for 10 days after a well is completed; after that, the company must apply for a permit if it flares more than 50,000 cubic feet of gas per day from the lease.  The Express News asked the RRC for records showing the 20 leases in the Eagle Ford with the most gas flared and vented in 2012, and for the permits allowing those companies to flare that gas. It turned out that seven of the 20 leases lacked the necessary flaring permits -- a fact that the RRC apparently had not noticed until the newspaper asked for the information.

The RRC's lack of enforcement of its own rules was a subject of criticism of the agency in the last Sunset Commission review of the RRC. The Sunset Commission report said that the RRC "pursues enforcement action in a very small percentage of the thousands of violations its inspectors identify each year.  Part of the reason for the large number of violations is that the commission's enforcement process is not structured to deter repeat violations. The commission also struggles to present a clear picture of its enforcement activities, frustrating the public."

RRC rules provide for a fine of up to $10,000 per day for flaring without a permit. After the Express News pointed out that seven of the 20 highest flaring leases in the Eagle Ford had no flaring permit, the RRC fined two of the companies more than $60,000 and is considering action against the others.

According to the report, the RRC could not point to a single instance when it denied a permit to flare gas -- sometimes for more than 180 days.

Most of the Eagle Ford production is oil -- some natural gas is produced with the oil, but with high oil prices and low gas prices, companies don't want to shut in wells until pipelines can be laid to gather the relatively small amounts of gas produced with the oil. So, the companies flare the gas. Burning the gas produces carbon dioxide, a greenhouse gas. If the gas is not burned completely, or if it is vented, methane and volatile organic compounds are released into the atmosphere.

Last year the RRC appointed an Eagle Ford Shale Task Force to identify and make recommendations to address issues resulting from exploration and production activities in the Eagle Ford play. One of its recommendations was to modernize state regulations, reduce waste of natural gas, and make flaring an "option of last resort." One of the commissioners, David Porter, said that he had "directed commission staff to apply a higher level of scrutiny to applications for flaring and venting operations and to shorten time frames for compliance when violations are reported."  No word yet from the Commission on how that "higher level of scrutiny" has affected flaring in the Eagle Ford.

Bottom line: operators will continue to flare gas as long as it is to their economic benefit to do so. The Railroad Commission will not deny permits to flare the gas. If landowners are able to require royalty payments on flared gas, the lessee's economic incentive to flare the gas will be reduced. Eventually, gas prices will rise, gathering lines will be installed, and flaring will decrease. Until then, flares continue to light up the night sky in South Texas.

August 19, 2014

New Newspaper for the Oil Patch

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.

April 21, 2014

Methane Fugitive Emissions Face Increased Scrutiny

Emissions of methane from oil and gas exploration, production and transportation facilities have become a big topic in the news recently. The E&P industry touts natural gas as a more environmentally friendly fuel than coal for electric generation, reducing greenhouse gas emissions. But methane is a powerful greenhouse gas, and there is much debate over the amount of fugitive emissions from wells, pipelines, processing facilities and other industries handling the fuel.

  • The UN Intergovernmental Panel on Climate Change has endorsed natural gas as a "bridge fuel" to reduce greenhouse gases.
  • The EPA has issued estimates of methane fugitive emissions that have been criticized as low by environmental groups.
  • The Obama Administration has recently outlined a new strategy for reducing methane emissions.
  • Colorado has recently adopted regulations to require operators to reduce and capture fugitive emissions and monitor for leaks.

Emissions from oil and gas exploration and production also are being blamed for increased ozone readings in shale-boom areas in Wyoming and Texas. In Texas, a state-funded study by the Alamo Area Council of Governments is underway to determine whether drilling in the Eagle Ford is contributing to increased ozone readings in San Antonio. San Antonio may soon be cited by the EPA as a nonattainment area for ozone, which would require the city to impose additional air quality regulations. Recently, the Texas Commission on Environmental Quality, which is funding the study, froze increased funding because the Alamo Council issued a statement tying increased ozone levels around San Antonio to Eagle Ford drilling without getting clearance from the TCEQ. 

San Antonio's problems are reminiscent of a debate a few years ago over whether oil and gas exploration in the Barnett Shale was contributing to air pollution in the Dallas-Fort Worth area. The TCEQ has concluded that Barnett Shale drilling has had no significant impact on local ozone levels.  But a recent study by a graduate student at the University of North Texas concluded that ozone is higher in areas with drilling activity in the Barnett Shale.

I expect that the Texas Railroad Commission and the TCEQ will come under increased pressure to tighten rules for fugitive emissions of methane from oil and gas activities in Texas.

 

 

March 19, 2014

Good News Source for Eagle Ford Shale

The San Antonio Business Journal has a good website aggregating news about the Eagle Ford Shale:  http://www.bizjournals.com/sanantonio/blog/eagle-ford-shale-insight/ 
March 3, 2014

Ceres Report on Stresses on Groundwater Caused by Fracing

Ceres, a nonprofit focusing on climate change, water scarcity and sustainability, has issued a report, Hydraulic Fracturing & Water Stress: Water Demand by the Numbers, a Shareholder, Lender & Operator Guide to Water Sourcing.  Here are some excerpts:

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February 18, 2014

Carrizo Springs Makes the LA Times

The Eagle Ford in South Texas is big news, even in California.

http://www.latimes.com/nation/la-na-texas-oil-boom-20140216,0,7621618.story#axzz2tdDZOvWY 

January 6, 2014

The Texas Miracle

Data from the Energy Information Administration shows that Texas' oil production is now the highest it's been in thirty years. Texas crude production is now approaching 3 million barrels/day, a rate not seen since the 1960's.

Texas Oil Production.JPG

Below are EIA graphs showing production of oil from the Eagle Ford and the Permian Basin. It appears that Eagle Ford production rates will soon surpass production from the Permian.

Eagle Ford Oil Production.JPG

Permian Production.JPG

EIA also calculates changes in the initial productivity of new wells in each field, a measure of the improved efficiency of rigs in the field. The graphs below show that new wells in the Eagle Ford are improving substantially; not so in the Permian. IP rates of Eagle Ford wells are now substantially higher than in the Permian.

Eagle Ford new well production per rig.JPG

Permian New Well Production Per Rig.JPG

October 30, 2013

End of the Shale Boom?

I have recently seen articles predicting the end of the shale boom, coming not only from those who have consistently predicted that shale production would never amount to anything, but also from respected sources whose predictions have previously proven accurate. A recent Houston Chronicle article quotes from a paper written by Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis, and Mahmoud El-Gamal of Rice University, saying that "The most likely scenario - absent war - is for oil prices to decline significantly." A significant decline in oil prices would make many if not most wells shale wells now being drilled in the Eagle Ford and Permian areas of Texas uneconomical. Jaffe expects oil prices to decline in the next three to five years. "To hold up prices it would have to be a regime change in several countries that results in lasting civil wars with lots of infrastructure being blown up," she said.

An article in Business Week says that the break-even price for profitability in the Cline Shale play of the Permian Basin is $96 per barrell; in the Eagle Ford, it's $78/barrel, and in the Bakken, $84.  Here is one analyst's prediction of future oil prices:

Business Week graph.JPG

Falling fuel demand is a big part of the prediction.  Jaffe believes demand will fall even with continued growth in China and other emerging nations. The average fuel economy for new vehicles in the US is up 4.7 mpg since October 2007. And Americans are driving less.  Lower-priced natural gas will replace some of the oil demand.  From the Energy Information Administration:

US Crude Oil and Energy Consumption.JPG

And, as with natural gas in the latter part of the last decade, US crude oil production and resulting supply are increasing:

Crude Oil Production and Ending Stocks.JPG

EIA has begun publishing a new report, its "Drilling Productivity Report," focusing on production in the six major shale plays in the US.  The report appears to me to highlight two attributes of shale plays:  first, companies are lowering the cost of drilling and completing wells in these plays, increasing the efficiency of putting new production online; and second, the industry has to continue to drill wells to replace the rapid decline in production from these plays. Here are a couple of the EIA's charts from its recent analysis of Eagle Ford wells that illustrate these attributes:

Eagle Ford new well production per rig.JPG

This shows that fewer rigs are needed to continue the increase in production from the Eagle Ford.

On the other hand, it takes continuous drilling to replace the decline in existing production:

Eagle Ford change in oil production.JPG

The above chart tells me that, if and when oil prices decline, the growth in oil production from the Eagle Ford will quickly turn into a rapid decline, when rigs leave the play.

 

January 11, 2013

Gregg Robertson - Father of the Eagle Ford

The Corpus Christi Caller Times recently published an excellent piece on Gregg Robertson, the geologist responsible for discovering the value of the Eagle Ford formation. Read it here. Gregg is not only an excellent geologist, but also a fine human being. He deserves the award for newsmaker of the year, and much-delayed recognition for his role in starting the biggest oil play in South Texas in many years. Congratulations to Gregg.

TODD YATES/CALLER-TIMES
Geologist Gregg Robertson was named Caller-Times Newsmaker of the Year for his role in the development of the Eagle Ford Shale.

December 14, 2012

NASA Night Photo of Eagle Ford Shale Play

Amazing image. No better way to illustrate the activity in the Eagle Ford.

Capture.JPG

October 16, 2012

Guar, XL Pipeline Protests, and Hart on the Eagleford

Three interesting stories:

Guar, a bean grown mostly in India, has become a hot commodity because of its use as an additive in frac fluid. See this CNBC Report. Indian farmers are getting rich, American farmers are looking into growing the bean, and Halliburton's income is down "due to increased costs, particularly for guar gum."

Protests are popping up all along the XL pipeline being built by Transcanada to transport heavy oil from Canada. Eight demonstrators were arrested in Wood County for chaining themselves to heavy equipment. Seven platforms have been built in trees and occupied by protestors within the pipeline right-of-way. Protestors appeared at the Texas Capitol. Actress Daryl Hannah has joined demonstrations along the pipeline route. See Austin Statesman article here.

Speakers at Hart Energy's third conference on Developing Unconventional Gas, at the convention center in San Antonio, called the Eagle Ford the top unconventional play in the world. See article here.

July 2, 2012

Vacation in Carrizo Springs!

A new industry has sprung up in the metropolis of Carrizo Springs, Texas, in the heart of the Eagle Ford Shale Play: lodging for oil field workers -- and lodging in style. In an attempt to keep workers in the field, companies are putting up their workers in plush hotel-like "lodges." Amenities include three meals a day, laundry and dining facilities, media and recreation rooms, 24-hour business centers, free Wi-Fi, Blu-ray players and flat-screen TVs in all rooms, microwaves and movie rentals. Operators of these facilities rent out blocks of rooms to operators and their vendors, sometimes keeping different companies' employees together and away from their competition, to lessen the risk of raiding competitors. One facility has a 2,000-seat cafeteria, broken up into four separated dining areas with the kitchen in the middle, allowing one company to have a dining room all to itself, to keep out rival companies' employees. Check out these new examples of "remote workforce housing":

http://www.oasislodgetx.com/Accommodation.aspx 

http://www.remotelogisticsinternational.com/camps/carrizo-springs-lodge

http://south-texas-lodge-carrizo-springs.magnusonhotels.com/

http://www.cottoncompanies.com/TH-carrizo-springs.html 

Similar facilities are opening up all across South Texas. Maybe living in the South Texas desert away from friends and family for weeks on end has its compensations.

 

November 15, 2011

Drilling in the Eagle Ford Shale

 

Wells Fargo Bank recently had a presentation about aspects of drilling in the Eagle Ford Shale. Some of its slides are enlightening.

First, below are two pictures of a wellsite during the fracing of a well:

Fracing a Well.jpg

 

Fracing a Well 2.jpg

 

These photos illustrate the impact of drilling operations. A typical drillsite for these types of wells may be five to ten acres. During fracing, it looks like an industrial site. These pads are designed to drill multiple wells from a single site.

 

Below are illustrations of drilling being done by Rosetta Resources on its Gates Ranch Lease. The lease covers some 19,000 acres in Webb County. To date, Rosetta has drilled about 62 horizontal Eagle Ford wells on the ranch. At the time of the slide below, Rosetta had drilled 40 wells:

 

Gates Ranch 1A.jpg 

Rosetta originally planned to space its wells so that there would be one well per 100 acres:

 

Gates Ranch 2.jpg 

 

Rosetta is now experimenting with closer spacing - in other words, one well may not drain 100 acres:

 

Gates Ranch 3.jpg 

Rosetta may end up drilling wells on 55-acre spacing - 340 wells altogether. If three wells are drilled from each pad site, that is 113 pad sites.

  

Gates Ranch 4.jpg 

If one of these wells costs $6 million to drill and complete, that would be $2.04 billion to drill all 340 wells, or close to $70 million per 640-acre section, if spaced at 55 acres per well.

55-acre spacing, for wells with 5,000-foot laterals, requires that the wells would be spaced about 460 feet apart. That means that the wells would drain only 230 feet from the well bore. 

 

Here is an illustration of the lithology of a typical Eagle Ford well drilled in Dimmit County:

 

Eagle Ford Type Log.jpg 

You can see that the Eagle Ford lies between the Austin Chalk and Buda formations, and that it is divided into the Upper Eagle Ford and the Lower Eagle Ford. On this well, the Eagle Ford is about 450 feet thick.

 

Here is the growth in oil production from the Eagle Ford since 2008. It looks like 2011 production will double 2010's.

Eagle Ford Oil Production.jpg