Eagle Ford's Location is Long-Term Strategic Advantage

After spending much of the week at Bentek's Benposium, it is clear the Eagle Ford's position in the Gulf Coast energy complex is a long-term advantage.

"The Eagle Ford is exciting because of its location to the Gulf Coast. With rich gas in close proximity to Mont Belvieu, the Eagle Ford's NGL net backs are among the highest in the country" - Kristen Holmquiest, NGL Analytics at Bentek

Energy Isn't New to Texas

The state of Texas leads oil & gas development in the U.S. Almost 44% of active onshore rigs are running in the state. The state has been an energy leader for decades......

For the Eagle Ford, that means the oil companies are close, infrastructure is close, and the chemical complex is very well developed. Midstream operators have announced $5 billion plus in expansions in the past six months. They will collectively add more than 3.2 Bcf/d in processing capacity in the region.

Even that is dwarfed by what oil & gas operators are spending, and both are setting the stage for what's to come. We're only one year into true development and the play is just starting to roll. The half a million barrels a day of liquids the play will produce by the end of the year is clearly on a path to double or triple in the subsequent five.

The play's location also means operators realize better prices. Oil produced in the Bakken Shale, due to constraints and transportation costs, can be priced at a discount from $10 to $20 per barrel less than WTI. Compare that to the Eagle Ford where we're currently seeing positive differentials to WTI, and you see why being close to the refineries is important. $10/bbl makes a big difference on the bottom line.

Risks to Eagle Ford Development

As with all oil & gas plays, the Eagle Ford isn't without risk. Its location offsets the major risks to some degree, but we've seen prices and economies change in the past. $100/bbl oil has driven development to current levels, but if prices dropped below $80/bbl, you'd begin to see a slow down.

As production grows, there could be growing pains. There is only so much capacity for the light crude in the Gulf Coast. If refiners don't act quickly, we could have periods where there simply isn't enough demand for Eagle Ford condensate.