Recently in Eagle Ford Shale Category
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:
The Eagle Ford in South Texas is big news, even in California.
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.
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.
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.
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:
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:
And, as with natural gas in the latter part of the last decade, US crude oil production and resulting supply are increasing:
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:
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:
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.
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.
Amazing image. No better way to illustrate the activity in the Eagle Ford.
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.
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":
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.
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:
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:
Rosetta originally planned to space its wells so that there would be one well per 100 acres:
Rosetta is now experimenting with closer spacing - in other words, one well may not drain 100 acres:
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.
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:
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.
The EPA has issued its draft plan to study the impacts of hydraulic fracturing on drinking water in the U.S. Two state regulatory authorities have absolved frac'ed wells from responsibility for contaminating drinking water in Colorado and Texas. Maryland's top einvornmental regulator urged lawmakers to impose a two-year moratorium on frac'ing, as Maryland's legislature considers additional laws to regulate the practice. Meanwhile, the boom in shale gas drilling continues.
Darell T. Brownlow, Ph.D, has published an article giving his analysis and opinion of the ability of the Carrizo Aquifer to supply water demands caused by fracing of wells in the Eagle Ford play. The article was published in the newsletter of the Texas Ground Water Association, Fountainhead, and can be found here: Brownlow Article.pdf
Dr. Brownlow, a hydrologist, concludes that there is plenty of water in the Carrizo, in most places, to meet the demands for frac water. His estimates:
- There are about 6 million acres in the Eagle Ford play, and a possible 20,000 oil and gas wells (one well per 300 acres).
- An average frac job uses 15 acre-feet of water (4,887,765 gallons, or 115,375.5 42-gallon barrels).
- So, the frac jobs on those 20,000 wells would use about 300,000 acre-feet of water over the life of the play.
- Current withdrawals from the Carrizo Aquifer are about 275,000 acre-feet per year; so the entire demand for frac water from Eagle Ford wells would equal about one year's withdrawal of water from the aquifer. At a rate of withdrawal of 275,000 acre-feet per year, groundwater management studies estimate that the Carrizo water table will drop an average of 30 to 35 feet by 2060.
Dr. Brownlow says that, if a successful Eagle Ford well makes 300,000 to 400,000 barrels of oil at $80/bbl, the return to the landowner would be $520,000 per acre-foot ($1.60 per gallon). In contrast, the return to a farmer using the same acre-foot of water to irrigate corn, peanuts or coastal hay would be $500 to $1,000 per acre, or about $250 per acre-foot of irrigation water. "The point here is that using groundwater from the Carrizo for hydraulic fracturing in the Eagle Ford Shale has enormous economic potential for landowners, oil production companies and the entire region. Moreover, from a geologic and water planning perspective, additional impact on the aquifer appears minimal."
Dr. Brownlow is a resident of Wilson County, a cattle rancher in LaSalle County, serves on the South Central Texas Regional Water Planning Group (Region L), and was the governor's appointee to the Evergreen Underground Water Conservation District from 2000-2010.
Arthur Berman, a geological consultant, has once again blasted the economics of gas shale plays -- this time the Marcellus. At the annual conference sponsored by the Association for the Study of Peak Oil & Gas - USA, held on October 7-9 in Washington, D.C., Mr. Berman made a presentation: "Shale Gas--Abundance or Mirage? Why the Marcellus Shale Will Disappoint Expectations." His power-point from that presentation may be found here: Arthur Berman on Marcellus.pdf Mr. Berman argues that only a small percentage of the areas now being touted as productive in shale plays -- the "core areas" are economic at any price; that even within the core areas, performance is not uniform and the geology is complex; that the wells are very expensive and the break-even gas price is as high as $8-$12/mcf; that reserves have been overstated by the companies in the plays; that the industry is not properly estimating estimated ultimate recoveries from the wells; that changes in reporting rules recently adopted by the Securities and Exchange Commission allow companies to "book" estimated reserves prematurely; and that the economies of the plays will ultimately be reflected in lower share prices of the companies participating in the plays.
For the Marcellus in particular, Mr. Berman asserts that infrastructure limitations -- lack of pipeline and gas processing capacity -- will slow development, that environmental issues -- fears about groundwater contamination, proximity to urban areas, and regulatory restraints -- will not go away, and that economics for drilling in the Marcellus Shale are no better than in the Barnett Shale. Mr. Berman says that shale gas is the nation's next speculative bubble likely to burst.
Mr. Berman created a stir just a year ago when he published a similar gloomy analysis of the Barnett Shale, at the ASPO conference in October 2009. At that time he was a contributor to a trade publication called World Oil, which is sent free to top oil & gas E&P executives. In early November 2009, World Oil was about to publish another article by Mr. Berman critical of shale plays, but the president of the publication ordered that it not be published. Mr. Berman resigned, and his editor Perry Fischer, who insisted that the article be published, was fired. All of this created a stir in the blogosphere. Fischer contended that World Oil executives were pressured by CEOs of two public E&P companies not to publish any more of Mr. Berman's critiques. Tudor Holt & Pickering, who analyze the oil and gas industry, published a critique of Mr. Berman's analysis, and two oil executives from Devon and Chesapeake wrote newspaper op ed pieces critical of his work. Chesapeake CEO Aubrey McClendon said at the time that he expected gas prices to continue to rise, which would lead to an increase in drilling and production in the shale plays. "We think all of the elements are in place for gas prices to be higher in 2010 than they are today," McClendon said.
McClendon's predictions have not held true. Gas prices have continued to slide, although drilling in the shale plays has continued. Particularly in the Haynesville, wells are being drilled that are surely not economic at current prices. The only explanation I know of for this continued drilling is that the companies who paid $10,000 to $25,000 per acre for leases in the play must drill the wells to prevent the leases from expiring. The result is that gas production and drilling remains high despite lower prices, resulting in a continued glut in supply, further reducing prices. In the meantime Mr. McClendon, always quick on his feet, has moved to the Eagle Ford Shale play, a "liquids-rich" play, because oil prices, unlike gas, have not declined. Chesapeake acquired a large position in the "oil window" of the Eagle Ford and quickly made a deal with China's national oil company to sell them one-third of its acreage for $10,000 an acre. If indeed, as Mr. Berman believes, the shale plays are the next speculative bubble, maybe it will be national oil companies like China's who are left holding the bag.
RigData has compiled the numbers of active drilling rigs by county for each of the major shale plays in Texas: Barnett, Haynesville and Eagle Ford. These serve as a good measure of the degree of activity in each of the counties within these plays.
The Barnett Shale rig count shows a total of 81 rigs in July. The rig count has held steady around 80 for the last several months. Activity is concentrated in the core area, Tarrant and Johnson Counties.
The Haynesville Shale rig count has a total of 184 rigs working in both Texas and Louisiana, with 56 of those rigs in Texas - 12 in San Augustine County, 11 in Harrison County, 10 in Shelby County, and 9 each in Nacogdoches and Panola Counties. This count also has remained steady at around 180 rigs over the last several months.
The Eagle Ford in South Texas has 84 rigs running , up from 49 rigs in April, including 22 rigs in Webb County, 12 in La Salle County, and 10 deach in Dimmit and De Witt Counties. Operators are clearly moving rigs into the oil-rich portions of the Eagle Ford, to take advantage of the oil and liquid-rich portions of that play in light of low gas prices.
EOG Resources has filed an application for designation of two new fields and for temporary field rules for oil wells in seven counties in South Texas (Eagle Ford proposed rules.pdf). Unlike its previous application, which sought to consolidate numerous Eagle Ford fields in Railroad Commission of Texas Districts 1, 2 and 4 and provide for temporary field rules for oil and gas, the new application seeks rules oil well rules only, for seven counties -- DeWitt, Karnes, Gonzales, Wilson, Atascosa, LaSalle and McMullen. EOG asks for expansion of the existing Eagleville (Eagle Ford) Field, renamed the Eagleville (Eagle Ford -2) Field for Karnes and DeWitt Counties, and a new Eagleville (Eagle Ford -2) Field for Gonzales, Wilson, Atascosa, LaSalle and McMullen Counties.
The proposed rules would provide for a minimum 330 feet from lease line spacing, no between-well spacing, and a minimum of 100 feet from lease line to the first and last take points in a horizontal well, a "box" rule, and a special rule for off-lease penetration of the producing formation.
The standard proration unit size for oil wells would be 80 acres, plus additional acreage for horizontal wells as allowed by RRC Rule 86. Under the proposed rules, an operator would be allowed to assign up to 360 acres to a horizontal well with a 5,000-foot lateral.