Eagle Ford’s BHP Billiton Seeks to Export Condensate

First Minimally Processed Eagle Ford Condensate Exports Began in Late July 2014
Petrohawk Eagle Ford Shale Map

Hawkville Seen Here Extends into Webb County | Click to Enlarge

Houston-based BHP Billiton may soon get the green light to export condensate from the Eagle Ford Shale.

According to the Houston Chronicle, BHP President Rod Skaufel confirmed the company has applied for an export permit with the U.S. Commerce Department (US DoC).

Read more: Oil Exports to Foreign Buyers Begins

In June 2014, Pioneer Natural Resources Co. and Enterprise Product Partners LP were granted permission by the US DoC in a private ruling to export minimally processed Eagle Ford condensate. In late July 2014, the first exports began.

The US DoC’s ruling in June 2014 was the first sign the United State’s oil export ban, which has been in place for nearly 40-years, could be subject to change. Following the Arab oil embargo of the early 70s, in 1975, President Gerald Ford signed into law the Energy Policy and Conservation Act, which in effect bans most U.S. oil exports (refined products are not included in the ban). The minimally processed condensate currently being exported by Pioneer and Enterprise is considered a refined product by the US DoC.

With the U.S. slated to become the top oil producing country in the world by 2015, according to the International Energy Agency (IEA), the necessity of the ban is puzzling to some, but still viable to others. In recent months, there’s been a push from industry leaders for the federal government to relax and even lift the ban, including Continental Resources CEO Harold Hamm. Continental Resources is the second largest producer in the Bakken Shale in North Dakota, which also produces light oil and condensate.

BHP Billiton Eagle Ford Position in Condensate Window

Due to its position in the play, among other factors, the company is in an attractive position for exporting condensate should it get the go-ahead from the US DoC.

“Our position in the Eagle Ford is right in the heart of the condensate window, and the economics of the wells average a 70% rate of return,” said Skaufel, in an interview for Unconventional Oil & Gas Report.

BHP plans to spend $3-billion of its $3.9 billion budget for onshore U.S. in the Eagle Ford in 2014. The company entered the Eagle Ford Shale in 2011, with the acquisition of Petrohawk for ~$12-billion.

Read more: BHP – Petrohawk Deal Brings Australia to the Eagle Ford 

Read more at chron.com and ogj.com

Texas Oil Production Reaches Levels Not Seen Since the 70s

Texas Oil Production Exceeds that of Iraq
U.S. Oil Production

U.S. Oil Production | Click to Enlarge

The “good ol’ days” for the oil and gas industry are back in Texas! The Energy Information Administration (EIA) recently released data showing the state produced just over 3 million b/d of crude oil in April of 2014, reaching production levels not seen in the state since the 70s.

Many Texans remember well the oil bust of the early 80s, when the price of oil fell drastically, and what followed was a blight on the states’ economy. A steady decline in oil production, which began in 1972, and fell sharply after the bust, signaled the state’s oil boom days were likely over for good. But now Texas along with the rest of the U.S. is on track to become the top oil producer in the world by 2015, according to the International Energy Agency (IEA). The EIA said in the month of April, Texas and North Dakota, which encompasses the prolific Bakken Shale play, made up nearly half of U.S. oil production (48%).

The rise in Texas’ oil production is thanks in large part to the tight oil and shale gas revolution in the Eagle Ford, and made possible by advancements in horizontal drilling and fracking technology. The Permian Basin in West Texas, a major oil producing area in the state for years, has also seen an increase in horizontal drilling since the end of 2013, and many of the areas untapped oil reserves are being accessed by the technology.

Read more: Why Horizontal Drilling is Important to Texas Oil Production

Texas Surpasses Iraq’s Oil Production

The EIA’s data is yet another indication of America’s re-emerging prominence as a leader in world-wide oil production. In June of 2014, Iraq’s production fell 400,000 b/d to 2.9 million, due to violence and civil unrest flaring up in the country, according to Bloomberg. That means Texas has likely surpassed Iraq’s oil production, since Texas’ production has increased on a month-to-month basis since 2011. Iraq was rated as the second largest OPEC producer in April at 3.2 million b/d.

Read more at bloomberg.com

Why Horizontal Drilling is Important to Texas Oil Production

Horizontal Drilling Ramps Up in West Texas' Permian Basin and Dominates Eagle Ford Activity
HorizontalDrillingUS

Horizontal Drilling in the U.S. | Click to Enlarge

The tight oil and shale gas revolution has been made possible largely by horizontal drilling and fracking technology. Although the controversial process of fracking tends to dominate the headlines, advancements made in horizontal drilling have allowed operators to precisely access more of the shale rock layer than was thought possible even a decade ago.

As of this writing, 237 rigs in the Eagle Ford are drilling horizontal wells, which accounts for 88% of all rig activity in the play. Without a doubt, horizontal drilling dominates the Eagle Ford play, not to mention the next most significant shale play, the Bakken Shale, where horizontal drilling also reigns supreme. On our sister site, BakkenShale.com, horizontal drilling in our coverage area accounts for nearly 90% of all active rigs.

Horizontal Drilling Ramps Up in the Permian Basin

Although the Eagle Ford is by far the top producer in the state of Texas, it is not the top dog for horizontal drilling. Rather, its the Permian Basin that currently wears that crown. For years, much of the oil produced in the state came from West Texas, and although the spotlight has recently shifted to the Eagle Ford, the Permian appears to be ramping up for a revolution of its own.

According to the U.S. Energy Information Administration, since the end of 2013, the number of horizontal rigs in the Permian Basin have increased dramatically. From December 27, 2013, to the week ending on May 9, 2014, the number of horizontal, oil-directed rigs in the Permian Basin rose by 63 rigs, which accounts for 50% of the total increase in the United States.

“A change in the horizontal, oil-directed rig count of the scale seen in the Permian indicates a significant rise in activity in its tight oil plays relative to recent developments in other major production areas,” said officials with the EIA .

At the beginning of 2013, both the Eagle Ford Shale and the Bakken Shale, exceeded the Permian Basin in the number of oil-directed horizontal drilling rigs. By the end of 2013, the Permian Basin’s 215 rigs surpassed both the Eagle Ford and Bakken, which at that time had 173 and 164 rigs, respectively. During the first quarter of 2014, the increase in oil-directed horizontal rigs in the Permian Basin was more than four times the combined increase in the Eagle Ford and Williston Basin.

Read more at eia.gov

Natural Gas Production Soars in U.S.

Record Low Storage Levels Persist Despite Increased Production
EIA Dry Shale Gas Production

EIA Dry Shale Gas Production | Click to Enlarge

Natural gas production in the U.S. was the best it’s ever been in April of 2014 according to estimates from Bentek Energy, an energy market analytics company based in Denver, CO. Production for the onshore Lower 48 last month averaged 67.3 Bcf/d, which was about .5 Bcf/d higher than March of 2014 production levels of 66.8 Bcf/d.

In 2014, Bentek predicts that average U.S. production for natural gas will be 67.5 Bcf/d, due in part to a higher overall price environment for producers and continued growth in liquids-rich plays like the Eagle Ford Shale and dry gas plays like the Marcellus Shale.  Currently, natural gas is trading at 4.53/mmbtu, which is a higher price point than some analysts expected due to the increased production volumes.

Jack Wiexel, Bentek director of energy analysis, said in a company statement,”natural gas producers are enjoying a relatively robust price environment despite substantially increased output the past two months.”

Despite the increase in production, the natural gas market is facing record low storage levels. While the EIA predicts storage build for the upcoming injection season (Apr – Oct) will be record breaking, total Lower 48 end-October inventories in 2014 would still be at their lowest level since 2008.

Wiexel said, “U.S. consumers need the production levels seen in March and April to continue throughout the summer to avoid high prices in the winter.”

Natural Gas Production in the Eagle Ford

Not surprisingly, gas to oil ratios (GOR) indicate there is a greater focus on oil in the Eagle Ford, but since significant activity began in 2009, there has also been a tremendous spike in natural gas production. According to the Energy Information Administration (EIA), gas production in the Eagle Ford accounted for nearly 4,000 MMcf/d in June of 2013, compared to only 5.8 MMcf/d in 2009. The Eagle Ford accounts for about 5% of total natural gas production in the onshore Lower 48.

WoodMac: Eagle Ford to Hit Two-Million b/d Mark by 2020

Potential for Eagle Ford Production Constraints by end of Decade
Eagle Ford Shale Well Map

Eagle Ford Shale Well Map – May 2013 | Click to Enlarge

According to the oil and gas research and consulting firm Wood Mackenzie, the Eagle Ford will reach two-million b/d of crude and condensate production by 2020. Compared to the next most significant liquids-rich shale play in the U.S., the Bakken Shale, in North Dakota, the Eagle Ford is expected to produce 16% more crude and condensate production during the same year combined.

The Eagle Ford Shale is really on a roll. In June of 2014, analysts at the Bentek Energy Benposium Conference, in Houston, TX, said the Eagle Ford had the highest internal rate of return (IRR) among all other U.S. Shale plays. According to Bentek Energy Senior Analyst Catherine Bernardo, the Eagle Ford is sitting at just over 70% IRR.

Read moreEagle Ford Rate of Return Higher than Other U.S. Shale Plays

Potential for Eagle Ford Production Constraints

Currently, there aren’t  any production constraints in the Eagle Ford. That’s due to a number of factors, but namely an already existing midstream infrastructure in Texas, the completion of multiple midstream projects since the boom began and the Gulf Coast refining markets ramping up to accommodate Eagle Ford production.

At Benposium, analysts predicted the Eagle Ford market would not see a lot of production constraints near the end of the decade; however that could change if Eagle Ford production reaches a certain threshold.

Bentek Energy Sr. Analyst Erika Coombs, said in a presentation, “if the Eagle Ford reaches two-million b/d by 2019, there would be production constraints in the play.”

Should Eagle Ford production reach two-million b/d of crude and condensate production by 2020, that means industry players essentially have a one-year pad to accommodate for the anticipated increase.

Eagle Ford Rate of Return Higher than Other U.S. Shale Plays

Small Eagle Ford Producers May Feel Pinch by End of Decade With Declining Oil Prices
Eagle Ford Shale Well Map

Eagle Ford Shale Well Map | Click to Enlarge

At the annual Benposium Conference in Houston, TX, in early June of 2014, the Eagle Ford ranked highest for internal rate of return* (IRR) among all other U.S. Shale plays. According to Bentek Energy Senior Analyst Catherine Bernardo, the Eagle Ford is sitting at just over 70% IRR. Compare that to a 20% IRR, which Bernardo said is generally the rate at which producers move rigs into plays.

As development in the Eagle Ford continues, drilling efficiency is a primary goal for producers. According to Bernardo, the average number of drilling days has decreased 34% from 23 days to 15 days between 2010 – 13.

Small Eagle Ford Producers May Feel the Pinch by End of the Decade

The Eagle Ford is a very oily play, and with the price of oil over the $100/bbl mark, drilling is very active in the area. EagleFordShale.com tracks activity in the Eagle Ford, and currently, there are 269 rigs running across our coverage area. In the years to come however, small producers in the Eagle Ford Shale may feel the pinch as the price of oil begins to fall.

Read moreEagle Ford Shale Rig Count Increases by Seven to 269

In her presentation, Bernardo said, “Bentek predicts the price of crude oil will fall to $82 by 2018 – 19… That will have some cash flow impact on the smaller producers from being as low as that.”

Bernardo continued, saying that its not until oil falls between $80 and $60 dollars does it become uneconomic for some producers.

Tight Oil vs. Shale Gas

While the Eagle Ford Shale is proving to be very lucrative for producers, unconventional gas plays like the Haynesville Shale in Louisiana, are not seeing as much activity, with an IRR of just over 20%. The primary reason is attributable to the price of natural gas, which is around $4.50/mmbtu.

Producers will need to see gas prices go up and stabilize in order to have confidence in re-entering U.S. shale gas plays. Between 2010 – 11, the rig count in the Haynesville Shale was close to 140; however, the price of natural gas at that time was around $12/mmbtu.

Bentek’s annual Benposium conference is held in Houston each Spring.

internal rate of return (IRR)* – IRR calculations are used to evaluate the desirability of investments or projects. The higher a project’s IRR, the more desirable it is to undertake the project.

MENU