The Eagle Ford Shale continues to hold enormous value, especially for companies that own premium acreage and are well-positioned in the play according to a recent analysis by Wood Mackenzie. The biggest three players – EOG Resources, BHP Billiton and ConocoPhillips – have a combined remaining value of US$30 billion.
"With US$28 billion in capex being spent in 2013 and development now in full swing, the excitement in the Eagle Ford Shale and value being extracted from the play continues to exceed expectations," explains Callan McMahon, Upstream Research Analyst for Wood Mackenzie.
"In terms of overall investment, from 2012 through 2015, Wood Mackenzie expects capital expenditure in the Eagle Ford to surpass the projected capex of the entire Kashagan project in Kazakhstan, the world’s most expensive standalone energy project." The latest figures show the Kashagan project will require a total capital investment of US$116 billion.
The counties with crude and condensate exposure will drive the growth as 74 percent of the future rigs operated are assumed to target these liquids areas. With all of this spending, liquids production has continued its rapid growth and is now projected to account for 15 percent of total onshore US oil production. Behind the Bakken, the play is currently the second largest tight oil play, while also ranking fifth in terms of shale gas production.
"The pace of growth in the Eagle Ford Shale shows no sign of slowing down, and our analysis indicates that Gonzalez, DeWitt and Karnes counties have established themselves as the sweet spots of the play, and now account for over 50 percent of daily liquids production," said McMahon.
Since the beginning of 2011, liquids production, including natural gas liquids (NGLs), has grown from around 100,000 b/d to 700,000 b/d. The Eagle Ford has become one of the top producing shales in North America, with average Q3 2012 production topping 1 million boe/d (including gas).
Wood Mackenzie emphasizes that the major growth has been driven by a number of factors, among them, operators have successfully delineated acreage, well productivity has increased thanks to both technology and experience, and depressed natural gas prices have continued the diversion of capital to liquid-rich plays such as the Eagle Ford. In tandem, the capacity constraints faced earlier in the play’s development have been eased, as midstream and service companies invest aggressively to capitalize on the growth in production.
According to Wood Mackenzie, there is no substitute for core acreage in resource plays, and the Eagle Ford is no exception. Today, most operators have moved into the development phase and the quality of acreage positions is being realized. The leading players not only hold core acreage positions, but hold a larger quantity of this quality acreage.
"Today, the biggest three players in the area – EOG Resources, BHP Billiton and ConocoPhillips – have a combined remaining value of US$30 billion and while outperforming companies in the Eagle Ford Shale achieve their success in different manners, all of them hold premium acreage and have quickly moved to large-scale development,” according to McMahon.
For North American Large Cap EOG, Wood Mackenzie estimates the Eagle Ford holds 38 percent of the company’s upstream value. "EOG was one of the first companies to shift its strategic focus to liquids, a decision that has been well rewarded in the Eagle Ford,” notes McMahon. Meanwhile, BHP Billiton's Eagle Ford Shale assets – acquired through the takeover of Petrohawk – now represent 20 percent of the company's entire upstream global portfolio. ConocoPhillips also targeted the liquids-rich core area of the play early on, enabling a substantial acreage position to be built at a lower entry cost.
Wood Mackenzie highlights that larger capital budgets have enabled these companies to progress further along in their development programs increasing overall valuations, while smaller players are able to leverage joint venture (JV) and cost-carry agreements to maximize on a value per acre basis.
There are high expectations for the Eagle Ford Shale and as impressive investment returns continue to attract capital.
"This is apparent in the massive amount of capital being deployed in the play, come 2013 the area will represent 27 percent of the total capital expenditure of the onshore Lower 48 total," concluded McMahon.