Eagle Ford sweet spots still profitable

Dec. 12, 2014
The average Eagle Ford well remains viable with US light, sweet crude prices at $80/bbl, but the economics of some wells outside the play's sweet spots could prove vulnerable if prices continue falling, Gaffney, Cline, and Associates said in an analysis of unconventional resources.

The average Eagle Ford well remains viable with US light, sweet crude prices at $80/bbl, but the economics of some wells outside the play's sweet spots could prove vulnerable if prices continue falling, Gaffney, Cline, and Associates said in an analysis of unconventional resources.

"Certainly, unconventional resources are expensive to produce and require growing production to fund the treadmill development requirements," said a report written by Bob George, GCA executive director and senior strategic advisor, and Neil Abdalla, GCA senior geoscientist.

GCA said better-performing companies would still appear to be above the economic threshold for much of what they do while others are certainly likely to feel the pinch.

"However, there are many factors that will drive short-term activity beyond just oil price, and perhaps it will be the medium-term before a trend based on fundamentals starts to emerge, by which time the dynamics of the situation may have changed again anyway," GCA said.

Reviewing historic Eagle Ford rig counts and the West Texas Intermediate spot prices for 2 years, GCA said that although there has been an overall decrease in active rigs, the decline does not go hand-in-hand with the WTI price.

The Energy Information Administration estimates that liquids production from the Eagle Ford during those 2 years has almost doubled from around 800,000 b/d to 1.6 million b/d. The liquids production rates continue rising.

Wells vary

Large variability in a play's individual well performance mean that internal rates of return can vary significantly, said George and Abdalla.

In the Eagle Ford oil window, an average well could start producing 700-800 boed yet the range on probably 90% of the wells is 250-1,500 boed, they said, adding that EUR could varies.

Unlike most conventional oil and gas projects, unconventional formations require continuous drilling to maintain or increase production levels. GCA examined publicly available data from 3,000 Eagle Ford wells drilled during 2011-13 in South Texas.

Noting "sweet-spot areas" are still viable at $80/bbl or less, George and Abdalla also said that "the heterogeneity of the rock means that this outcome can't be extrapolated to the entire play."

Their analysis concluded that operators working in areas of favorable geology and reservoir properties were likely to continue operations as they have been doing despite falling oil prices.

Abdalla said the sweet spots in the Eagle Ford are the Karnes trough and also the Maverick basin.

"For wells drilled in the middle of the Karnes trough, you could go well below $70/bbl and still remain above the economic threshold, but these are small areas," Abdalla said.

George said the Karnes trough is essentially an overpressured portion that contains high cuts of crude and condensate in the production stream. It extends through southern Gonzales County, northern Karnes County, and portions of Atascosa County.

"Directly south of the Karnes trough acreage is still quite good, but as you move south you are losing that liquids cut in the production stream, and production is becoming gassier and therefore less economic," GCA noted. "It is a balance between high production rates and medium to low gas oil ratios which lead to the best (most economic) wells within the Eagle Ford."

Separately, EnCana Pres. and Chief Executive Officer Doug Suttles in a May presentation said he considers the Karnes trough as the "the core of the core of the Eagle Ford."

The Maverick basin in the western Eagle Ford has some acreage in which there is also some overpressure but with a high-enough liquids cut that wells are still very economic.

"As you move north of the Karnes Trough, the Eagle Ford is significantly shallower, and although there is still large volumes of oil in place in the reservoir, production rates are much lower due to a normal pressure regime, and wells drilled there may be uneconomic at $80, $90 or even $100/bbl," George said.

GCA noted that while falling oil prices can slow drilling rates, many other factors also influence an operator's strategy regarding whether to sustain activity level, including improving drilling efficiency.

Many small- to mid-sized operators have shifted their assets to an essentially "pure play" unconventional focus, which requires large amounts of sustained capital expenditure to keep production output constant, George and Abdalla said.

"Tens of billions of dollars has been invested in unconventionals by all sectors of the oil and gas industry across the US. This analysis on Eagle Ford activity levels and production output can be readily extrapolated to other US onshore unconventional basins" said Abdalla.