The Eagle Ford is considered the best US unconventional oil play. This play has higher production and lower well costs. There are several problems associated with making such comparisons. The first is geology. This can change significantly from one mile to the next. At times it can even be difficult to compare similar areas of the same play. Source rock depth, thickness, lithology, permeabilities and porosities are just a few items that can significantly effect production and costs.
Operators are another issue. Every oil producer has its own well design. This design is another large set of variables that can affect production. Lateral length and stages are very important. The longer the lateral, the less verticals need to be drilled, which saves costs. The only problem with longer laterals is the operator can lose some control as it gets farther away. More importantly, it can tax the pump trucks' hydraulic horsepower during fraccing. The more stages the better. A stage will average a specific number of feet, and the more stages the fewer feet. The tighter the stage is, the higher the pressure used to stimulate the source rock. The wider and deeper the fractures, the better the recovery. Amounts and types of proppant are also important. Sand, ceramic coated sand and ceramic proppant are all types. Each operator uses a different recipe. It is more cost effective to use sand with a ceramic coated sand or ceramic proppant tail. This is more widely used due to lower costs. Some operators like Kodiak (NYSE:KOG) use all ceramic proppant, which is more expensive but has proved to increase production substantially. The depth and pressures of the source rock are important in making proppant choices. As a general rule, depths of 7,000 feet or below can use just sand. The pressures are less so the sand probably won't crush under the weight of the formation. Water is also important. The more water used the deeper the proppant can be pushed into the fractures to prop it open. These are just some of the variables - all are difficult to compare from one well to the next.
EOG Resources (NYSE:EOG) is the leading producer in the Eagle Ford. When it initially announced the fantastic results in Gonzales County, many thought this was the best acreage in the United States. The map above provides Eagle Ford shale thickness. The dark blue area in Gonzales County is where EOG has part of its leasehold. The Eagle Ford has 300+ feet of shale thickness at this location. Below are its well results. It should be noted EOG has an average EUR of 400 MBoe net after royalty in the Eagle Ford. This is an average, as it recently stated its western wells have lower IP rates, but have total resource of 500 MBoe to 600 MBoe. My estimate for Gonzales County is 1,000 MBoe as an average for its sweet spot. These wells do not have large chokes. The IP rates are sound with chokes in the 20/64 to 32/64 range.
|Well||IP Oil||IP NGL||IP Gas|
|Baker-Deforest Unit 1H||3346||457||2.7|
|Baker-Deforest Unit 2H||4216||537||3.2|
|Baker-Deforest Unit 4H||4598||488||2.9|
|Boothe Unit 1H||5380||625||3.6|
|Boothe Unit 2H||3810||252||3.0|
|Burrow Unit 1H||5424||600||3.5|
|Burrow Unit 2H||6331||713||4.1|
|Henkhaus Unit 8H||4012||495||3.0|
|Reilly Unit 1H||3579||483||2.9|
The wells above are one mile laterals (5000 feet) with 20 stage fracs. In general, EOG uses 9 million pounds of sand and ceramic coated sand. It also uses 100,000+ barrels of water. EOG's completion technology is a game changer. If this is the reason for out performance, than it can be applied to the Bakken with similar results. The table below provides EOG's well design.
EOG's Completion Design
32473 - 32477
The above design uses between 1,500 to 2,400 pounds of sand per foot of lateral length. This is three to five times other operators. Better stimulation provides a larger void to fill with proppant. As EOG improves this technique, we will see larger amounts put down hole. EOG Resources isn't the only operator in this location. During the liquids rich unconventional land grab, several operators focused on this area. Magnum Hunter (MHR), Penn Virginia (PVA), Hunt and Marathon (MRO) are in this leasehold.
As a comparison, I have provided well results in the same vicinity as EOG's Gonzales County leasehold. This is not a perfect comparison, as IP rates are not a great indicator of future production. Since all of these operators use a tight choke, it does show how this completion style produces initially. Below is a list of Magnum Hunter wells.
|Well||IP Rate (Boe/d)|
|Elk Hunter 1H||1303|
|Elk Hunter 2H||1514|
|Elk Hunter 3H||1456|
|Leopard Hunter 1H||1333|
|Hawg Hunter 1H||2289|
|Zebra Hunter 1H||2145|
|Rhino Hunter 1H||2218|
|Kudu Hunter 1H||1590|
The above results by Magnum are very good, but it does not compare well to EOG's. It is currently using between 3 and 4 million pounds of sand. Magnum's acreage has EURs of 385 MBoe. EOG's acreage is in the general vicinity, only miles away to the southwest. Penn Virginia's acreage is also nearby. Its EURs in Gonzales County are 460 MBoe, and 590 MBoe in Lavaca. I have listed some of those results in the table below.
|Well||IP Rate (Boe/d)|
|Hawn Holt 9H||1877|
|Hawn Holt 2H||986|
Penn Virginia's results are much like Magnum's. It uses on average 4 to 5 million pounds of proppant for a one mile lateral. It continues to use a very tight choke (16/64). It uses between 90,000 and 100,000 barrels of water. Both are the result of an older completion style. This data shows that Penn Virginia is either not using enough water and proppant or isn't stimulating the source rock as well. EOG is better at stimulating the source rock, especially around the well bore. More and better fractures provide easier flow of resource. Again, Penn Virginia and Magnum have good results, but not as good as EOG. Marathon is also in Gonzales County. Its wells have an IP rate range of 700 to 6,275 Boe/d. This is a very wide range, but recently Marathon had a great completion. Burrow 2H had an IP rate of 4646 barrels of oil, 798 barrels of NGLs, and 5 MMcfd. It used 835,4420 pounds of proppant for a 7,208 foot 27 stage lateral. Marathon estimates for average EURs in its Eagle Ford acreage are 694 MBoe. These wells are 65% oil and 17% NGLs. I hope the Burrow well is a sign of things to come. If it has adopted a completion style that better fracs the shale closer to the well bore, we could see other operators follow suit producing better IP rates and EURs.
In summary, EOG has outperformed in the Eagle Ford and Permian using a new completion design. Using this technique, it has outperformed its competition. In some cases, these results are 200% to 300% better. This completion design focuses around the well bore as opposed to creating long fractures, which has been the industry standard. By focusing around the well bore, more surface area can be stimulated, increasing the total area fractured. This frees up more resource, and in turn is the reason for EOG's excellent results.
EOG's competitors are in the same area, and although no one mile is identical it should produce similar results. Only one well has. Marathon's Burrow 2H produced like many of the successful EOG wells in the area. It did this using over 8 million pounds of proppant. It is possible Marathon has figured out what EOG has been doing, and is repeating it.
EOG has moved this design to the Bakken. As a result, it is reporting triple digit rates of return on its new wells. EOG already has one very successful Parshall Field well. This well models in the top ten. This is more impressive given it was in a developed location and should produce 10% less than a single well. EOG is using between 1,500 and 2,400 pounds of sand per foot. This compares to just 300 pounds by current Bakken operators. It is important to note that it isn't just the initial production that is affected, but we are seeing the depletion curve flatten. This technique not only opens up more surface area of the source rock, it keeps these open. In part two, I will show how EOG is using this completion style to garner returns as good as in the Eagle Ford.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This is not a buy recommendation. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results, do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market or financial product does not guarantee future results or returns. For more articles like this check out my website at shaleexperts.com. Fracwater Solutions L.L.C. engages in industrial water solutions for oil and gas companies in North Dakota. This includes constructing water depots, pipelines and disposal wells. It also provides contracting services for all types of construction at well sites. Other services include soil remediation. Please contact me via email if you are interested in working with us. More of my articles and other pertinent information on the oil and gas sector, go to shaleexperts.com.