Wednesday, February 01, 2012

Shale Oil Revolution Comes to Eagle Ford Texas

Reuters reports that the shale oil-rich area of Texas known as the Eagle Ford is quickly becoming the country's new hot spot for oil, and could rival production in the Bakken region of North Dakota within a few years:

"Over the past two years, some 30 companies have moved in to a shale prospect in South Texas called the Eagle Ford that could add 420,000 barrels per day (bpd) to U.S. crude oil production, nearly matching the output of OPEC member Ecuador. The first phase of this latest boom has accelerated over the past year. Companies have hastened development of the estimated 3 billion barrels of shale oil across Eagle Ford by bringing in the horizontal drilling and hydraulic fracturing techniques that opened up North Dakota.

Eagle Ford output has risen from nil two years ago to 71,000 barrels of oil per day, and will leap fivefold by 2015, according to energy consultancy Bentek. To relieve a bottleneck producers say has begun to choke growth, pipeline companies in recent weeks committed more than $1 billion to add 940,000 barrels per day (bpd) of pipeline capacity by the end of 2012."

MP: Here comes more energy prosperity, shovel ready jobs, economic stimulus, and increased government revenue to the state of Texas from America's "shale revolution" that is changing the world energy map.  And it's all happening in the private sector without any taxpayer money.  Drill, drill, drill.....   
 

HT: Lyle Meier 

14 Comments:

At 2/01/2012 12:14 PM, Blogger Benjamin said...

They will bring up a lot of natural gas too.

CNG anyone? How about methanol? LPG?

We are seeing Peak Demand well before Peak Oil.

 
At 2/01/2012 1:04 PM, Blogger Bobtrumpet said...

Just for discussion:

Eagle Ford - 3 billion barrels at 420,000 barrels/day = 7142.86 days = 19.57 years

Bakken (low est.) - 3.65 billion barrels at 420,000 barrels/day = 8690.05 days = 23.81 years

Bakken (high est.) - 18.0 billion barrels at 420,000 barrels/day = 42857.14 days = 117.42 years

Bakken estimates from Wikipedia.

 
At 2/01/2012 1:06 PM, Blogger Don said...

Drove down to the in-laws in South Texas last Thanksgiving. Stopped counting field service and pump trucks on Hwy281 at about 100 (from San Antonio, stopped counting at Three Rivers, about 2/3s of the trip). Haven't seen this much activity since I was a kid in the 70's!

Good to see the boom days return!

Drill, baby, drill.

 
At 2/01/2012 1:10 PM, Blogger Don said...

Bobtrumpet, Eagle Ford is only one formation in this area. For instance, I know that I (on the south side of San Antonio) am sitting on shale as well (about 930' down, based on an exploratory well drilled about 30 years ago).

Obviously, I'll be talking to the folks at Baker-Hughes when they finish building their massive headquarters about a mile from my house ;^).

There's also at least 2 other formations being explored about 100-200 miles west of San Antonio.

If this keeps up, we're gonna look like spindle-top all over again. :^)

 
At 2/01/2012 1:14 PM, Blogger Bobtrumpet said...

Don,

That's good to hear. Good luck with Baker-Hughes!

I was just doing some calculations for my own interest to compare the two areas mentioned, and I thought I'd post the results.

 
At 2/01/2012 1:54 PM, Blogger Buddy R Pacifico said...

Mud motor, baby, mud motor.

 
At 2/02/2012 3:05 AM, Blogger Ron H. said...

Buddy: "Mud motor, baby, mud motor."

I doubt that will become a popular slogan. It's just not very sexy. :)

 
At 2/02/2012 10:25 AM, Blogger Buddy R Pacifico said...

"Buddy: "Mud motor, baby, mud motor."

I doubt that will become a popular slogan. It's just not very sexy. :)"


Ron, not sexy? Mud motor might bring up images of mud wrestling.

How about all the money it saves consumers? Mud motor, baby, mud motor. :>)

 
At 2/03/2012 3:03 PM, Blogger VangelV said...

MP: Here comes more energy prosperity, shovel ready jobs, economic stimulus, and increased government revenue to the state of Texas from America's "shale revolution" that is changing the world energy map. And it's all happening in the private sector without any taxpayer money. Drill, drill, drill.....

You know Mark, it was not all that long ago when you were posting about the shale gas boom in Texas and elsewhere. But with gas at less than $3 per Mcf and shale gas costs at around $7 per Mcf we are witnessing a massive destruction of investment capital in the sector. Given the fact that the estimates that you were pushing were so wrong about shale gas why should we expect the idea of profitable shale oil production to be any more accurate?

 
At 2/03/2012 3:10 PM, Blogger VangelV said...

I forgot to add this bit.

The Irving, Texas, company argued although it is doing its best to switch drilling to oil-rich areas, it still needs to keep drilling for natural gas to meet previously agreed-to contractual terms that let it retain expensive land leases. Raising some market observers' eyebrows, it also said drilling for natural gas in some areas is still profitable even at current prices.

Natural gas recently was trading at $2.53 per million British thermal units, sharply down from the nearly $14 per MMBtu it traded at in July 2008.

Regardless of the reasons behind the company's decision, some analysts noted Exxon's move has the potential to put smaller competitors out of business, contributing to a second-hand production decline and an eventual recovery for natural-gas prices in years ahead.

The decision could "drive out marginal operators, perhaps consolidate the industry and rationalize long-term production," Paul Sankey, an analyst at Deutsche Bank, said in a note to clients. That could turn Exxon into the Wal-Mart Stores Inc. of the U.S. natural-gas sector, he added, referring to the strategy of the world's largest retailer to keep sales prices lower than competitors' by reducing profit margins.


Got that? The glut is driven by the NEED to keep expensive leases, not by profit making opportunities. The problem is that such expensive activity leads to large losses and eventual bankruptcies in the energy sector.

 
At 2/04/2012 12:44 AM, OpenID stevemaley said...

Given the fact that the estimates that you were pushing were so wrong about shale gas why should we expect the idea of profitable shale oil production to be any more accurate?
Umm, could it be because the current price of oil is about 35-40 times the wellhead price of gas (per mmbtu)? Historically the ratio has been more like 10:1.

When do the questions get harder?

Gas prices are currently low precisely because of the success of the shale plays. Eagle Ford gas will continue to come on the market since operators make their money on oil, not gas.

 
At 2/04/2012 10:18 AM, Blogger VangelV said...

V: "Given the fact that the estimates that you were pushing were so wrong about shale gas why should we expect the idea of profitable shale oil production to be any more accurate?"

Steve: "Umm, could it be because the current price of oil is about 35-40 times the wellhead price of gas (per mmbtu)? Historically the ratio has been more like 10:1."


No. That would matter if the ultimate production is sufficient to cover the exploration and development costs. But there is very little evidence that other than core ares in the best formation the industry is capable making money in shale oil.

And keep in mind that the BOE reserve numbers being reported use a 6:1 energy content ratio, not a 30:1
price ratio. That means that the reserves being thrown around are inflated substantially and that the cash flow stream coming from shale production will be much lower than has been projected.

If you paid attention you would have found that the estimated ultimate recovery numbers given out by the shale gas producers were around half the actual ultimate production indicated by the production data. This was why the cash flow numbers were so much worse than we would expect given the earnings being reported. Now we could ignore the fact that true depreciation costs are much higher than what the company is reporting for some time. But the consequences cannot be ignored. The negative cash flows continue and the companies have to keep borrowing more and more money. If management cannot sell off enough pieces or sell the entire company to a conventional producer that needs the ability to report inflated reserves rather than the real cash flows shareholders may turn out all right. But eventually the capital destruction will have to show up on someone's books. And the expected production trends will not show up. At that point the direct investors, lenders, and consumers will get screwed.

 
At 2/04/2012 10:34 AM, Blogger VangelV said...

When do the questions get harder?

The questions are easy. But like most people I don't believe that you understand them.

Gas prices are currently low precisely because of the success of the shale plays.

Really? Do you think that shale gas producers would keep drilling if they did not have to in order to keep their licenses? They need $7 per MMBTU and are getting less than $3 per MMBTU. As a result many will wind up in bankruptcy and their investors will lose everything. If they are lucky enough to sell themselves off to a conventional player that can afford the losses (in order to avoid disclosing the depletion problem) the game can keep going for a while.

Eagle Ford gas will continue to come on the market since operators make their money on oil, not gas.

The reserve numbers use a boe conversion factor of 6:1 because of BTU content. Given the more than 30:1 price ratio the reserves are overstated. And the production data is indicating that the EURs being used are far too optimistic. This is why you need to look at the 10-Ks and ignore all of the hype. Go out and find how many companies are cash flow positive and do not need to rely on new borrowing to stay in business. If you can't then try to explain why that is still the case given that shale oil and gas production has been going on for quite some time.

 
At 2/04/2012 5:22 PM, Blogger Ron H. said...

Buddy: "How about all the money it saves consumers? Mud motor, baby, mud motor. :>)"

So they can afford to watch mud wrestling! OK, I get it now.

 

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