What is the Breakeven Oil Price in the Eagle Ford?

Eagle Ford Breakeven Oil Prices
Eagle Ford Breakeven Oil Prices

Breakeven oil prices needed in the Eagle Ford can range quite a bit by operator and by acreage, but we know the price need is much lower than where oil trades today. There are more rigs actively targeting the play than any other oil and gas development in the world.

A Baker Hughes official recently noted that the breakeven oil price needed in the South Texas Eagle Ford is somewhere between $50-57 per barrel. Read the full story at mysa.com

The $50-57 number is for liquids-rich areas of the play. We don't know the answer in the dry gas areas to the south. Gas prices haven't reached high enough to entice operators to target gas alone. Most industry analyst assume it will take $5/mcf natural gas prices before we see significant exploration in the dry gas window.

Breakeven Economics Are Deceiving

Breakeven oil prices are the price of oil per barrel needed for an operator to make a reasonable rate of return for the risk taken.

Typically, oil companies make decisions based on a 10-20% rate of return. It is the bare minimum price a company needs and is NOT necessarily the floor for what will sustain activity at current levels.

The Eagle Ford is the prime example of a play that can survive at much lower oil prices, but there would not be 200+ rigs running if oil was $50 per barrel. Yes, operators could make money, but their operating cash flow would be devastated. US operators are known for pouring capital back into developments and at $50 oil there would NOT be much cash to invest.

Now, don't get me wrong. The Eagle Ford is a best in class play. Even if oil prices were to fall, it would still be best in class and would still garner the lion's share of capital budgets. Very much like it is today.

On the other hand, there are also sunk costs that have been invested that would make single well economics or breakeven prices even lower in certain areas. Imagine if you've already built the pipelines, processing, and have an existing well pad. The breakeven economics for that well will be much lower. All that to say, even if oil dropped below $50 per barrel, you'd still see a few rigs active in South Texas.

Oilfield Job Creation is Outpacing Projections in Bexar County

Oilfield job creation is outpacing expectations in Bexar County. An economist at UTSA expected 4,000 direct jobs in San Antonio by 2020 and is revising his number UP to 6,000. The industry is going to reshape the economic climate in South Texas. Don't forget that San Antonio doesn't sit atop the Eagle Ford either. The number of jobs created across the shale play will be multiples of the Bexar County (San Antonio) number Check out available positions at the Eagle Ford Shale Jobs Board.

UTSA Senior Economist Javier Oyakawa, the author of the widely quoted Eagle Ford Shale economic-impact study, says he expects the oil and gas play to create at least 6,000 jobs here by 2020 rather than the originally forecasted 3,900.

“From what we’ve seen so far, it’s time to rethink our numbers,” he says. “Several companies are going to be opening offices here"

Read the entire article at bizjournals.com

Eagle Ford Tax Revenues Boosting the Texas Rainy Day Fund

At the San Antonio oil & gas conference, Texas RRC's Elizabeth Ames Jones touted the Eagle Ford's contribution to the economy and Texas. She reported the Texas Rainy Day Fund will get a deposit of $1.1 billion dollars in November. The bulk of the money comes from oil & gas revenue. That's a good boost to state coffers.[ic-c] She also made a political plea for the federal government to stay hands off when it comes to oil & gas activity and hydraulic fracturing. 

Here's an additional article on the conference mysanantonio.com

Small and Large Businesses in on the Eagle Ford

Businesses in South Texas all stand to be impacted by the Eagle Ford Shale. Many predict the development of the play will have the largest economic impact of any event in Texas history. This year alone, oil & gas development is expected to add $13.9 billion in direct impact and that number might grow closer to $50 billion by 2020. If you haven't already, you need to consider how your business will evolve with the Eagle Ford.

...It (Eagle Ford Shale) is having a major impact on small business opportunities in and around the 24 counties that sit atop the formation. The total impact is expected to be $13.9 billion this year and increase to $48 billion in 2020. By comparison, the annual GDP of the three county Corpus Christi metropolitan area is about $15 billion. Recovery of oil and gas from tight shale became possible about five years ago with the development of horizontal drilling and fracturing technology. Fracturing of the rock holding the oil and gas with high pressure water and sand releases it to flow to the surface. The Eagle Ford formation is about 50 miles wide and 400 miles long running roughly Northeast from Laredo.

Eagle Ford is expected to be the greatest single economic boom in Texas history. You need to figure out how your business can participate.


Small Eagle Ford Companies May Prove Good Investments

Companies with Eagle Ford exposure may prove to be good investments as the overall economy recovers. The economics of the play look promising, which in turn means companies will benefit from a better worldwide economy or in industry terms "better oil and gas demand". A few companies with Bakken and Eagle Ford assets are detailed below.

The world economy has come under pressure recently. The market has fallen as a result. Many of the small, high Beta, Bakken / Eagle Ford E & P oil companies have been hit hard. If the economy continues to go south, they could be hit some more. However, if they are, they will likely bounce back quickly as soon as the overall market begins to bounce. Small companies with good holdings in these prolific fields seem likely to be highly successful. How the EU credit crisis will resolve itself is anyone’s guess. It seems unlikely that everything will be allowed to fail. The European Commission President Jose Barroso is supposed to present options on Euro bonds soon. Perhaps that will help. The US equities markets have already taken into account a lot of the possible trouble. Yes, the situation could worsen to beyond even that, but it might also slowly resolve itself without a huge negative impact on the U.S. If you are a long-term investor, you can still make reasonable investments now. In fact you may make great ones.

Some of the stocks that have been unfairly beaten down during this time of crisis are the relatively young oil E & P companies. Their financial health is easily called into question in trying times. However, a number of the companies developing the prolific Bakken and Eagle Ford shale fields are almost certainly going to be successful. In the Bakken, 99% of the wells drilled find oil, and 90% are commercially viable. With good seismic and these odds, even small companies are going to eventually be highly successful. A few of the best looking candidates are Northern Oil and Gas Inc. (NOG), Goodrich Petroleum Corp. (GDP), Triangle Petroleum Corp. (TPLM), and Magnum Hunter Resources Corp. (MHR).

Read the full news release at seekingalpha.com