Texas’ second-biggest play, the Eagle Ford Shale, boasts five of the top 10 producing counties in the state, including numbers one through four. While it’s not expected to eclipse the Permian Basin, the Eagle Ford will approach the Permian’s numbers in coming years.
In less than six years, the Eagle Ford Shale in South Texas has gone from a prospect that started as a gas play to a world-class oil play that has become one of the nation’s top three oil-producing regions.
The prolific Permian Basin, of course, remains the king of North America’s crude oil-producing areas, producing more than a million barrels a day on the Texas side of the basin alone. In March, the Williston Basin in North Dakota and Montana, buoyed by horizontal drilling in the Bakken Shale, became the second region to top one million barrels a day in crude oil production.
The Eagle Ford is about to become the third region to reach one million barrels of crude oil production per day.
“In fact, we hit 1.3 million barrels of oil and condensate combined in October,” noted Haley Curry, director of external affairs for the South Texas Energy and Economic Roundtable (STEER).
“I am amazed,” admitted Mark Williams, chief operating officer of Comstock Resources in Frisco, Tx., in an interview a year ago in the American Oil and Gas Reporter magazine. Williams grew up Karnes City, a small town between San Antonio and Corpus Christi that has gone from the sleepy county seat of Karnes County to what Williams described as the “center of the [Eagle Ford] oil play.”
Statistics provided by the Texas Railroad Commission reinforce Williams’ assertion.
For years, the top 10 oil-producing counties in Texas were all in the Permian Basin. Today, half of the top 10 are in South Texas. In March, Karnes County was the leading producing county in the state with 5,436,082 barrels of production.
La Salle County was ranked second in crude oil production in March, followed by No. 3 Gonzales county, No. 4 McMullen County, and No. 9 Dimmitt County, all in South Texas. The five West Texas counties ranked in the top 10 included No. 5 Andrews, No. 6 Ector, No. 7 Martin, No. 8 Upton, and No. 10 Midland County.
Like Williams, Tony Sanchez III, president and chief executive officer of Houston-based Sanchez Energy Corporation, is a native of South Texas. He, too, is astounded by the rapid development of the Eagle Ford.
“It is unbelievable,” Sanchez marveled in an earlier interview. “I grew up in Laredo. The speed at which this play exploded and transformed South Texas is remarkable. The amount of oil produced from the Eagle Ford has gone from zero to 500,000 or 600,000 barrels a day—and is on its way to a million barrels a day—in a short time.”
Sanchez Energy continued its expansion in the Eagle Ford with a June 23 announcement of the acquisition of Eagle Ford acreage and assets from Royal Dutch Shell for $639 million.
The Eagle Ford is a shale play that trends across South Texas from near the Mexican border up into East Texas, roughly 50 miles wide and 600 miles long, with an average thickness of 250 feet. It is Cretaceous in age, resting between the Austin Chalk and the Buda Lime at a depth ranging from 4,000 to 12,000 feet, according to information provided by the Railroad Commission.
Remarkable Growth
Petrohawk drilled the first of the Eagle Ford wells in 2008, discovering the Hawkville (Eagle Ford) Field in LaSalle County. The discovery well flowed at a rate of 7.6 million cubic feet of gas of natural gas per day from a 3,200-foot lateral with 10 fracture stages.
“It was a gas play when it started, patterned after the Barnett Shale [in the Fort Worth Basin], which was the first shale play where the technology of horizontal drilling and hydraulic fracturing was pioneered,” offered Tom Tunstall, research director for the Institute of Economic Development at the University of Texas at San Antonio.
But as the play expanded and developed, it was discovered the Eagle Ford offered a dry gas window, a wet gas window that is rich in natural gas liquids, and an oil window, which is attracting most of the industry’s attention these days.
The growth of the Eagle Ford has been nothing short of phenomenal. In 2008, daily crude oil production in the Eagle Ford averaged 352 barrels a day. Last year, that number had grown to 715,850 barrels a day. In the first three months of 2014, daily production was up to 804,299 barrels a day, with Tunstall claiming South Texas will join the one-million-barrel-a-day club by the end of the year.
The Woods Mackenzie research and consulting firm recently did an analysis that claimed that by 2020 the Eagle Ford could be producing two million barrels a day.
“I put together the Bass model that included condensate, and came up with about the same number of two millions barrels a day,” Tunstall pointed out.
So how has the industry taken the Eagle Ford Shale from practically zero to nearly one millions barrels a day in crude oil production in just six short years? Tunstall claims there are several reasons.
“One, the shale is the most productive shale of any so far,” he replied. “The break-even point is so much lower in the Eagle Ford than other places. For example, the break-even point in the Bakken is roughly $65 to $70 a barrel. In the Eagle Ford, it is $50 to $55 a barrel. That is why you see so much capital investment in the region. There was $19 billion invested in the Eagle Ford in 2012 and $28 billion invested last year.”
Woods Mackenzie predicts investment in the region will be $25 to $30 billion in 2014.
Tunstall said the Eagle Ford has also benefited from a crude oil price that could support the growth.
“I think the lowest oil price was $77 since the industry began drawing oil out of the Eagle Ford, and that was only for a short time,” he stated.
He also said companies were able to make the quick transition from the gas window to the oil window when gas prices dropped to $2 in 2012.
Oil Exports
The Eagle Ford also has an advantage of being close to the refineries on the Texas Gulf Coast, according to Tunstall.
“If we ever legalize the export of crude oil, West Texas Intermediate prices will jump $10,” he contended. “Prior to the Eagle Ford, the Three Rivers refinery south of Karnes City was set up to process foreign crude oil. Now, it is one of the more profitable refineries. The crude oil doesn’t have to go through Cushing (the giant hub in Oklahoma where much of the nation’s crude oil is routed on the way to various refineries, including those on the Gulf Coast). The Eagle Ford will benefit from downstream effects.”
Limited export of Eagle Ford crude oil could soon become a reality. The Wall Street Journal reported on June 25 that the U.S. Commerce Department has given permission to Pioneer Natural Resources, a Dallas-based oil and gas producer, and Enterprise Products Partners of Houston, one of the country’s biggest pipeline operators, to export condensate, an ultra-light oil, to foreign buyers who could turn it into gasoline, jet fuel, and diesel. That appears to be the first step toward lifting a 40-year ban on oil exports. U.S. companies have been banned from exporting crude overseas since the Arab oil embargo in the early 1970s.
The Journal reported, “The shipments could begin as soon as August and are likely to be small, people familiar with the matter said. It isn’t clear how much of the oil the two companies are allowed to export the rulings, which were issued since the start of the year. The Commerce Department’s Bureau of Industry and Security approved the moves using a process known as a private ruling.”
Many U.S. refineries aren’t calibrated to handle light grades of crude such as condensate or light, sweet West Texas Intermediate crude. Producers such as Pioneer are getting lower prices for their oil, according to the Wall Street Journal, because there aren’t enough domestic refineries to process it.
Meeting the Challenges
Such remarkable growth has obviously brought many challenges for the cities and counties in South Texas that are impacted by the Eagle Ford Shale.
“This area has historically had high unemployment,” said Leodoro Martinez, chairman of the Eagle Ford Consortium, which held its initial meeting in November 2010. The Middle Rio Grande Development Council had four counties, including Dimmitt County, that were seeing Eagle Ford drilling activity.
“We contacted oil and gas companies, the Workforce Commission, and community colleges to try to identify occupational demands,” he recalled. “That was our initial focus. But a lot of other questions arose.”
Martinez, who lives in Cotulla but has his Middle Rio Grande Development Council office in Carrizo Springs, said about 40 people attended that first meeting. The second time the group met, more than 100 people attended, including university system representatives, elected officials, and city administrators.
“We designated committees to make sure in terms of community development that we were taking a sustainable approach to the impact of the Eagle Ford growth,” he added.
Martinez praised industry companies such as Anadarko, Pioneer Natural Resources, and Chesapeake that have been involved with the consortium since Day One. The Eagle Ford Consortium held its third annual conference in April, attracting a crowd of more than 300 to hear guest speakers.
“We are a rural area,” he said of the Eagle Ford play. “Except for Laredo in Webb County, it is all rural. We were not prepared for the buildup of human capacity with the influx of RV camps and man camps. That has leveled off, but it is still important for communities to do good, affordable planning. The impact on infrastructure such as water and sewer and the impact of traffic on our roads have been unbelievable. The safety issue with the number of accidents and fatalities has to be addressed, too.”
One thing that makes the development of the Eagle Ford unique, when compared to the other shale plays such as the Bakken or the Marcellus in Pennsylvania and West Virginia where there has also been rapid growth, is its close proximity to Mexico and the ports on the Gulf Coast.
Martinez said Mexico has just gone through constitutional reform of its energy policies that will allow for foreign investment into that nation’s oil and gas industry for the first time.
“There will be a lot of U.S. companies going into Mexico,” he stated. “There will be a lot of work going back and forth. There is a major move by the Mexican government to create strong partners with Texas.”
The Eagle Ford Consortium includes 14 South Texas counties where Eagle Ford drilling is taking place, but, because of the expansion of pipelines, transfer stations, holding stations, separation stations, and refineries, there are 20 counties, as Martinez pointed out, that are impacted by the Eagle Ford’s growth and are now participating in the Eagle Ford Consortium.
“For example, the Port of Corpus Christi has made a $22 billion investment,” he said. “A lot of companies are building the infrastructure to liquefy natural gas for export. If gas prices rise, I expect more drilling because it is a worldwide global market. That will increase activity.”
Martinez, who said there are currently 271 rigs operating in the Eagle Ford, noted that the county judges in Dimmitt and La Salle counties recently gave him an example of what the impact of the oil and gas industry has meant for their counties.
“They said the tax base in each county was about $285 million before the Eagle Ford development,” he continued. “Today, the tax base in each county is $6 billion to $7 billion. It is unbelievable. The sales tax is the same way. But there is the cost of infrastructure and the wear and tear of our roads, so it is a give and take.”
Trade Association
STEER is an oil and gas trade association that was formed just a year-and-a-half ago, according to Curry, who formerly worked for Chesapeake. She said many of STEER’s members are also involved in the Eagle Ford Consortium.
“We don’t lobby Austin,” she added. “We are concerned with economic development and public advocacy. The Eagle Ford is 600 miles by 50 miles, so companies don’t necessarily communicate. We act as a solid voice for the industry. I speak to chambers of commerce and civic clubs, and we are doing things with schools, such our South Texas Oil and Gas booklet that we have prepared for schools. We also work with colleges to make sure their curriculum will prepare students to go into the workforce. The land grab is over, and most of our companies’ acreage is held by production and they are in major development.”
Curry said STEER also allows companies to get together to discuss best practices and contractor relations.
Total Reserve Comparisons
Tunstall said that the new technology of horizontal drilling and giant hydraulic fractures started later in the Permian Basin compared to other shale plays, which is one reason why the Permian’s growth has not been as rapid as the Eagle Ford.
But he is quick to point out that the Permian Basin will remain the king of the nation’s crude oil production.
“The Permian Basin still has as much as 50 billion barrels of recoverable oil in the ground,” Tunstall claimed. “With the increase in new technology, there will be production in the Permian Basin for decades. Estimated ultimate recovery in the Eagle Ford is believed to be 10 billion barrels. Production is one thing, total reserves is another thing. The Permian Basin has a lot longer to drill.”
About 9,000 wells have been completed in the Eagle Ford so far, and Tunstall, who believes that number will eventually reach 40,000 wells, said he believes the Eagle Ford has at least 10 more years of drilling.
Al Pickett is a freelance writer in Abilene and author of four books. He also owns the West Central Texas Oil Activity Index, a daily and weekly oil and gas reporting service. For more information, email apickettc@sbcglobal.net.