Maps of the Day: Eagle Ford Shale Rigs
Here's some background information on Eagle Ford:
"The Eagle Ford has gone from obscurity in 2008 to now being the #3
play in all the United States (based on number of rigs drilling), after
the Permian Basin in southwest Texas and the Bakken in North Dakota.
Pioneer Natural Resources (PXD-NYSE) says they get a 70% pre-tax rate
of return at Eagle Ford. EOG Resources (EOG-NYSE) says it’s 80% for
them. Marathon Oil (MRO-NYSE) says it’s over 100% for them on some condensate wells (condensate is a Natural Gas Liquid that’s really more like a very light oil and often gets a better price than oil).
The formation is 400 miles long and 50 miles wide with an average
thickness of 250 feet—thicker than the North Dakota Bakken. It is
estimated that the Eagle Ford formation has a total recoverable resource
of roughly 3 billion barrels of liquids (that’s oil and some NGLs) with
a potential output of 420,000 barrels a day (bopd)."
8 Comments:
Sustainable?
Sustainable? Globally, if oil stays above $80, plays like this will emerge.
If oil can stay above $80.
Demand for oil has been falling for decades in Europe and Japan, and has started to fall in the USA.
Mark,
So the rigs stop at the border? Sounds like an interesting case study to me!
The rates of return noted seem to have more than a little creative accounting involved in them, given the actual costs involved etc.
Oil market expert Tom Whipple reveals the dirty secrets behind the Bakken shale oil miracle:
It took the production from 6,617 wells to produce North Dakota’s 546,000 b/d in January. Divide the daily production by the number of wells and you get an astoundingly low 82 b/d from each well. I say “astounding” because a good new offshore well can do 50,000 b/d. BP’s Macondo well which exploded in the Gulf a couple of years ago was pumping out an estimated 53,000 b/d before it was capped.
Now a North Dakota shale oil well is not in the cost class of a deep-water offshore platform which can run into the billions, but they do cost about three times as much as a classic onshore oil well as they first must be drilled down 11,000 feet and then 10,000 horizontally through the oil bearing layer before the fracturing of the rock can take place. The “fracking” involves at least 15 massive pumps that inject water and other chemicals into the well. Take a Google Earth flight over northwestern North Dakota. The fracked wells are hard to miss as there are now about 9,000 of them and they are each the size of a football field.
There is still more — fracked wells don’t keep producing very long. Although a few newly fracked wells may start out producing in the vicinity of 1,000 barrels a day, this rate usually falls by 65 percent the first year; 35 percent the second; and another 15 percent the third. Within a few years most wells are producing in the vicinity of 100 b/d or less which is why the state average for January is only 82 b/d despite the addition of 1300 new wells in 2011.
Sustainable?
The people drilling the wells certainly think so.
They are likely looking at the world, watching the industrialization of China, the declining reliability of the Middle East and Brazil and figuring oil will likely remain relatively high going forward. High enough to justify their investment, at least.
Baker-Hughes only tracks oil/gas rigs in the U.S., so that's probably why the rigs on the map stop at the border.
Sustainable?
The people drilling the wells certainly think so.
I wonder if they really do. Not that long ago Mark was hyping shale gas as a great success even though it was a huge mistake for most producers and let to huge losses if the accounting is done properly. What anyone 'thinks' is not that important when we have actual data to tell us what is going on. The data that interests me is the reported cash flows and debt levels on the 10-K statements filed with the SEC. That data is telling a different story than the promoters.
If oil can stay above $80.
It is a lot more complicated than that Benji. Only the core areas in the best formations are actually generating profits at $80 and those deplete very rapidly. The average price needs to be well over $100 just to keep many of the producers afloat. But given the very low production after the first year it is doubtful that that shale excitement can continue for much longer. Look to see how the debt issue gets resolved and see when the UR figures are finally adjusted to reflect reality.
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