EAGLE FORD Briefs

July 1, 2013

Carrizo targets growth in Eagle Ford shale

Carrizo Oil & Gas has raised its 2013 crude oil production growth target to 40% based on its Eagle Ford results exceeding the company's expectations. Decline rates from a number of its wells have been flatter than expected. The company's oil production averaged 9,500 b/d through the first two months of the quarter, the company said in a press release.

Carrizo increased its second quarter 2013 oil production guidance to 10,800–11,200 b/d from the previous estimate of 9,600–10,000 b/d of oil. It also has announced plans to increase drilling activity by three wells in 2013, with an increase in net completions by 35 net frac stages. Citing its Eagle Ford results as the main driver for its capex increase, the company plans to spend $530 million to $540 million this year.

EOG ramps up Eagle Ford drilling activity

EOG has announced that it now has 27 wells online with production rates greater than 2,500 b/d of oil in the Eagle Ford. Eighteen wells produced more 2,500 b/d of oil and nine additional wells produced 3,500 b/d, the company said in a press release. As a result, the operator has updated its drilling plan to 425 net wells compared to its previous 400. The company improved its year-over-year oil production by one-third with its results from its Eagle Ford operations.

EOG also has entered into a manufacturing-type of development in the Eagle Ford with its current development planned on a 40- to 65-acre well spacing. Should oil prices hold at current levels or better, the company plans to increase its 2014 drilling activity even further.

New NGL pipelines serve Gulf Coast

DCP Midstream has announced that the Sand Hills and Southern Hills pipelines are now in service. Covering more than 1,500 miles, the pipelines are delivering natural gas liquids to Gulf Coast markets. The 720-mile Sand Hills NGL pipeline is delivering production from the Permian basin and Eagle Ford to fractionation facilities along the Texas Gulf Coast and the Mont Belvieu, Tex., market hub. The pipeline will have a 200,000 b/d capacity after completion of initial pump stations, and this could be increased to 350,000 b/d with the installation of additional pump stations, the company said in a press release. The 800-mile Southern Hills pipeline is transporting NGLs produced in the Mid-continent region.

DCP Midstream, Phillips 66, and Spectra Energy each own a one-third interest in both pipelines. Both lines began accepting flows in the fourth quarter of 2012 and first quarter of 2013 and are on budget and ahead of schedule, DCP Midstream reported.

Eagle Ford supplies Canadian refineries

Valero has announced that its Quebec City refinery successfully processed its first cargo of Eagle Ford crude oil in mid-April. The company transported 100,000 bbl from Texas using a low-cost, foreign-flagged vessel, it said in a press release. The company also reported it is investing in more logistics projects to get cost-advantaged crude oil into its refineries using front-end flexibility to process more volumes of light crude. Valero also is focusing on expanding its hydrocrackers at the Meraux, St. Charles, and Port Arthur refineries to produce more diesel and jet fuel.

Eagle Ford development extends into East Texas

Halcón recently announced its continued effort to develop its El Halcón development in East Texas. The Eagle Ford play is in Brazos and several other East Texas counties, the company said in a press release. Halcón has 55,000 net acres leased with a target of 100,000 to 150,000 net acres. It is allocating capital from its Woodbine assets for the remainder of 2013 to support delineation of the play.

The company is operating five rigs at El Halcón and has reported that the average lateral length for the two most recently drilled and completed wells was 8,349 ft. Both wells produced an average of 1,116 boe/d (with 94% oil) on a 16⁄64-in. choke, which was an 18% increase above average initial rates for all previously company-owned wells in the area. The company's third well, the Bison 1H, also in Brazos County, was drilled in 10.75 days with a 9,157-ft lateral. The company batch set surface casing in 9 days on all three wells on its first three-well pad. According to the company, there are nine Eagle Ford wells producing in East Texas, with five wells currently undergoing or awaiting completion. Another five wells were being drilled.

The company first unveiled its East Texas Eagle Ford prospect in mid-April. At the time, it expected to spend $100 million drilling 15 to 20 wells in the play in 2013 using one to three rigs. The company's early stage estimates for reserves per well were 350,000 to 400,000 boe, with an estimated cost of $7 million to $8 million per well.

Condensate pipeline expansion planned

Kinder Morgan Energy Partners LP has announced plans to invest $107 million to expand its Kinder Morgan Crude and Condensate pipeline system deeper into the Eagle Ford shale play in Karnes County, Tex. The expansion will extend the 178-mile pipeline by 31 miles from the DeWitt Station in DeWitt County to the ConocoPhillips Central Delivery Facility near the town of Helena in Karnes County. The expansion will be supported by a long-term contract with ConocoPhillips. The company also will build receipt tanks and a truck unloading facility adjacent to ConocoPhillips' facility. It expects to begin construction on the project in July 2013, the company said in a press release.

Statoil takes reins in South Texas operation

As of July 1, 2013, Statoil has assumed operatorship for all activities in the eastern part of its Eagle Ford asset. Primarily, Statoil operations will fall within Live Oak, Karnes, DeWitt, and Bee counties.

The company entered the play through a 50/50 joint venture with Talisman Energy USA Inc. in 2010, with Talisman acting as operator. Talisman is to maintain operational responsibility for the western portion, which resides in McMullen, La Salle, and Dimmitt counties, the company reported in a press release.

Statoil also has assumed responsibility for producing wells, processing facilities, pipelines and infrastructure, and a field office located in Runge, Tex. The company holds 73,000 net acres in the Eagle Ford with a net production of 20,200 boe/d from approximately 300 producing wells. The company is operating three drilling rigs in the play.

UTSA, Shell Oil to assist local communities

The University of Texas San Antonio (UTSA) College of Public Policy and the UTSA Institute for Economic Development Rural Business Program have partnered with Shell Oil to assist rural communities located in the heart of the Eagle Ford shale to prepare for future development. The UTSA-Shell Municipal Capacity Building program promotes socioeconomic growth by helping the towns focus on current challenges and identify future needs by looking for potential opportunities arising from Eagle Ford development.

The program, which culminated in mid-June, included municipal government officials and citizens in Dimmit, Uvalde, and Zavala counties. Participants were consulted on working toward refining and realizing action plans that included a sustainable community project proposal eligible for up to $15,000 of grant funding by Shell. The program began in March and involved monthly training workshops focusing on fundamental aspects of municipal governance, including municipal structure, social capacity, land use and planning; and communications, e-government, and public relations. According to officials at UTSA, the program is proving successful and many of the participating communities are now laying foundations conducive to economic and social development. The program's second phase is currently in the planning stage and will target cities along Interstate 35 and in La Salle County beginning in September. The program will then continue through to February 2014.

Chesapeake sells stake in northern Eagle Ford

EXCO Operating Company LP, a subsidiary of EXCO Resources Inc., has announced an agreement to purchase northern Eagle Ford shale and Haynesville shale acreage from Chesapeake Energy Corp. for an estimated $1 billion, 90% of which will be paid upon closing. The company expects to finalize the purchase in the third quarter of 2013.

In the northern Eagle Ford, EXCO's acquisition includes 55,000 net acres in Zavala, Dimmit, La Salle, and Frio Counties, Tex. The acreage also contains 120 producing wells that showed an average net production of 6,100 boe/d during the month of May, the company said.

As for the Haynesville asset, EXCO will acquire Chesapeake's operated and non-operated interests in approximately 9,600 net acres in DeSoto and Caddo Parishes, La. The transaction includes 11 units operated by Chesapeake and 42 units operated by EXCO. During May, the Haynesville property displayed a net daily production of 114 MMcfe/d of natural gas.

Eagle Ford production raises utility demand

Oil production in the Eagle Ford shale averaged 536,117 b/d for the first four months of 2013 according to data from the Texas Railroad Commission. At nearly a 40% increase over the same period from 2012, operators are scrambling to access additional electric capacity to keep pace with production.

According to AEP Texas, a unit of American Electric Power, a company that operates high-voltage transmission lines with a distribution network covering much of South Texas, power sales into the Eagle Ford region have increased fourfold since 2011. Marathon Oil Corp. recently announced that it has saved time and additional expenditure through the installation of its own power lines. Despite the heavy upfront investment, the new lines will reduce utility costs at some of the 5,000 wells drilled in the Eagle Ford, the company said.

The Eagle Ford may produce more than 1 MMbbl/d by this time next year, which would place it as the largest onshore oil play in the US. Power supply is not the problem, but limited access to the power grid in the rural portion of South Texas in the prominent portion of the Eagle Ford shale is limiting the abilities of some operators to lift and separate resources prior to sending oil and gas to market. Drilling and hydraulic fracturing include power generation as part of the package, but it takes additional utilities to transform a wellhead into a production outlet.

While drilling can be completed in less than 30 days in most cases, it can take more than 6 months for a utility provider to install heavy-duty, double-circuit power lines (69-kv or larger 138-kv). Installation for these systems can cost up to $150,000/mile. SandRidge Energy Corp. recently announced that it has saved $100,000/month per well after installing its own distribution lines, which allowed the operator to deploy electric submersible pumps that induce three times more fluid from each well compared to typical wells in the region.

While most companies estimate power to be less than 10% of total production costs, the intensity of Eagle Ford activity has provided a focused target for many operators to save as the play moves into its production phase. Several operators are now working closely with utility firms to develop permanent solutions increasing power supply to Eagle Ford shale developments.