What Lower Oil Prices Mean for Texas and Eagle Ford

Oil Exploration and Production Accounts for ~10% of the Texas Economy

With oil now below $70 per barrel, oil industry workers in Texas should anticipate a decline in exploration and drilling in certain areas and hence a slowdown in employment.

Oil exploration and production accounts for about 10% of the Texas economy. At lower sustained oil prices, some operators will scale back their drilling programs in development areas across the state, which will in effect reduce spending in the oil sector, and have an impact on industries connected to the oil patch (i.e. steel and transportation).

Currently, the vast majority of Eagle Ford operators do not appear to be changing course next quarter, but last month, at least one Eagle Ford player, Clayton Williams, indicated it’s considering scaling back its drilling program in 2015 due to the “pullback” in oil prices.

Read more: Clayton Williams May Reduce Eagle Ford Drilling Program – 2015

The good news is there are many areas in the Eagle Ford Shale where drilling and exploration are profitable well below the current benchmark price (West Texas Intermediate or WTI) of ~$67.00 per barrel.

Analysts predict the Karnes Trough, one of the best areas of the play, would be profitable, even if oil prices fell into the $40s range. In certain other liquids-rich areas of the play, breakeven oil prices are between $50 – $60 per barrel.

Read more: Worried About Oil Prices? What to Expect in the Eagle Ford

But there is a large variance in the well qualities across the Eagle Ford, with breakeven prices in several places above the current price of WTI.

Why the Price of Oil is Falling

Since June of this year, oil prices have been falling for a variety of reasons. The shale oil boom, for instance, has increased the supply of oil worldwide, while demand has gone down in China, the world’s second largest oil consumer. But the main reason oil prices are dropping can be traced back to OPEC, which announced last week it would not cut its oil production to shore up oil prices.

Worried About Oil Prices? What to Expect in the Eagle Ford

Breakeven Oil Prices Between $50 - $60 in Certain Areas of the Play
Eagle Ford Contour Map

Eagle Ford Depth Map | Click to Enlarge

There’s been a lot of talk about the price of oil lately. With WTI now below $80, we’re seeing the first shoes begin to drop among in North American oilfields, as some producers announce plans to scale back their drilling programs.

Just this week, Conoco Phillips, announced it would be cutting back drilling in West Texas’s Permian Basin, and last month, Eagle Ford-focused Clayton Williams indicated it may scale back its drilling program in the play by the first of the year.

Read more: Clayton Williams May Reduce Eagle Ford Drilling Program

However, lower commodities prices for crude oil aren’t likely to stop new drilling in the Eagle Ford. With breakeven oil prices between $50 – $60 per barrel, in certain liquids-rich areas of the play, operators will continue to drill, even if prices inch closer to this range.

Read more: What is the Breakeven Oil Price in the Eagle Ford?

Eagle Ford Slow Down

Should prices drop to $70 per barrel, experts believe the Eagle Ford will likely experience a slowdown, but not an all out bust. And some producers will fare better than others, depending on their position.

According to the consultancy Wood Mackenzie, the Eagle Ford is still expected to reach two-million b/d of crude and condensate production by 2020. Analysts predict the Karnes Trough, one of the best areas of the play, would be profitable, even if the price of oil fell into the $40s range.

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