Potential for dual-horizon development has been an important emerging theme in the Eagle Ford Shale play. The most recent report of highly successful test results in the Upper Eagle Ford zone came from Marathon Oil (NYSE:MRO) during the company's Analyst Day last week.
Marathon disclosed that it has been testing the Upper Eagle Ford as well as the Lower Austin Chalk, which is deposited right on top of the Eagle Ford formation, to evaluate the opportunity to co-develop these two zones alongside with the primary Lower Eagle Ford horizon.
The company has recently initiated two Upper Eagle Ford / Lower Austin Chalk pilots. The pilots are located in the Karnes County as indicated on the map below with light-blue dots.
(Source: Marathon Oil's December 11, 2013 Analyst Day Presentation)
The horizontal laterals have landing position in the Lower Austin Chalk, immediately above the Eagle Ford top, and access both zones via fracture stimulation. Marathon is testing the Austin Chalk and Upper Eagle Ford directly over Lower Eagle Ford wells to see the performance of all the wells in the system as a co-development. The pilots' configuration is shown in the upper right of the slide below.
(Source: Marathon Oil's December 11, 2013 Analyst Day Presentation)
According to Marathon, well performance from the four Upper Eagle Ford / Austin Chalk wells, which had lateral length of ~4,000 feet, is very similar to the company's Eagle Ford type curve for the condensate window in the same area, normalized for lateral length. The graph on the slide above shows composite cumulative production for Marathon's four pilot wells over a 90-day period, which tracks the type curve very closely.
Marathon also highlighted an older Upper Eagle Ford well, the Weston 118-1H, that has produced cumulatively in excess of 470,000 barrels of oil equivalent since February 2010, confirming longer-term productivity of the Upper Eagle Ford.
Importantly, early results of the pilots indicate that the Lower Eagle Ford wells underneath are performing as expected and similar to area offsets, a key aspect of testing the productivity of the entire combined reservoir system. The result suggests that wells in these two horizons - the Lower Eagle Ford and the Upper Eagle Ford/Austin Chalk - are in fact draining separate volumes of a continuous hydrocarbon column.
The Austin Chalk is not a new play: the formation has been extensively tested by the industry and successfully developed in various areas via horizontal drilling for many years. According to Marathon, however, the Austin Chalk in the company's core area is quite different from analog Austin Chalk fields such as the Giddings in East Texas. While the Austin Chalk is charged via direct contact with the Eagle Ford, which is the primary source rock and a potentially productive reservoir, TOC in the Austin Chalk indicates that a self-sourcing mechanism is also present. The Austin Chalk is fractured more than the Eagle Ford, but at lower intensity than analog fields. Marathon believes that hydrocarbons are being retained in the reservoir without a need for a conventional trapping mechanism.
The results reported by Marathon are highly encouraging, particularly given the early stage of the upper intervals' delineation. Assuming continued testing success, the Upper Eagle Ford / Austin Chalk may add meaningfully to the inventory of drilling locations, particularly in those areas where the Eagle Ford is thicker and risk of interference between the two horizons is lower. The co-development should leverage the existing extensive infrastructure and lead to lower development costs per barrel.
Particularly encouraging is the fact that the upper zones may compete in productivity with the Lower Eagle Ford. Marathon anticipates further improvements in well performance as it drills longer laterals and continues to improve the stimulation design for the Upper Eagle Ford / Austin Chalk zone.
The overall tenor of Marathon's commentary with regard to the Upper Eagle Ford results was very confident. It is important to note that the Upper Eagle Ford / Austin Chalk pilots can be correlated to the detailed and extensive log data that Marathon obtains while drilling in the Lower Eagle Ford, accelerating the delineation.
The company will be delineating the productivity of these upper horizons more widely in the first half of 2014.
Upper Eagle Ford Tests By Other Operators
Marathon's report confirms positive results reported last month by Pioneer Natural Resources (NYSE:PXD) and Penn Virginia (PVA).
Pioneer's first Upper Eagle Ford well that the company announced a month ago had a very strong 24-hour IP rate of 1,620 Boe/d, which according to the company is very similar to its existing offset wells in the Lower Eagle Ford. Pioneer commented that the well was choked back (currently producing on an 8/64 choke) and had potential to show an even higher rate if tested on a wide choke. Pioneer believes that ~25% of its acreage is prospective for dual-zone development and expects the Upper Eagle Ford to add a substantial amount of incremental locations, most importantly in its liquids-rich areas in Karnes and DeWitt area.
(Source: Pioneer Natural Resources' November 2013 Investor Presentation)
Penn Virginia is another operator to have successfully tested the Upper Eagle Ford. During its Analyst Day, the company disclosed the results of its first successful Upper Eagle Ford ("Marl") test, the Fojtik #1 well, in the northeastern Lavaca County (the map below). This short-lateral well (~4,200-foot lateral, 17 frac stages) was brought on production earlier this year with an IP rate of 1,209 Boe/d. During the first 6.5 months, the well cumulatively produced ~70,000 Boe. The company also highlighted a well drilled by Sabine Oil & Gas LLC on offset acreage, the Sustr #1H well, which cumulatively produced 108,750 Boe during the first year, despite its modest 320 Boe/d IP rate. Both results are encouraging. Based on existing well control, Penn Virginia's management believes that over half of the company's acreage is prospective for the Upper Eagle Ford.
(Source: Penn Virginia's November 19, 2013 Analyst Day Presentation)
Penn Virginia also commented that based on the thickness and porosities of the Upper Eagle Ford, as well as open hole information that has been obtained drilling for the Lower Eagle Ford target, as well as legacy logging information, there are reasons to believe that the Lower Eagle Ford and the Marl are separate reservoirs and, based on volumetric analysis, well productivity in the Marl may be similar to the Lower Eagle Ford.
This month, Penn Virginia will spud a pilot to test combined performance of an Upper Eagle Ford and Lower Eagle Ford well pair in the southern portion of its Lavaca County acreage. In the event of success, the company will likely initiate a comprehensive five-well pilot of both the Lower and Upper Eagle Ford Shale during 2014.
The Upper Eagle Ford is also being actively tested by Rosetta Resources (NASDAQ:ROSE). The company has recently initiated two Upper Eagle Ford pilots on one of its larger properties, the Gates Ranch (shown below), in an area where the Eagle Ford is thick (250 to 350 feet).
(Source: Rosetta Resources' November 2013 Investor Presentation)
The Upper Eagle Ford pilots are located one on the east and one on the south of the block. The pilot on the east has been on production for approximately six months; however, Rosetta has not released any data with regard to the performance of its Upper Eagle Ford tests, commenting that it is still too early to provide any updates and it will report results when the data is meaningful and conclusive. However, the company has recently indicated that it plans to test "a few more pilots," which is an encouraging signal.
Rosetta is currently drilling a third pilot, also at Gates Ranch, which will be the company's largest yet.
During the fourth quarter, Rosetta plans to drill its first Upper Eagle Ford test on the Lasseter & Eppright lease. In addition, management has indicated that it probably will "look to have a pilot very soon" in Briscoe Ranch. Similar to the Gates Ranch, both Briscoe Ranch and most of the Central Dimmit assets that include the L&E lease have a thick Eagle Ford section in which Rosetta is trying to determine the proper spacing, both laterally and now vertically with Upper Eagle Ford pilot programs. In each of the pilots, Rosetta will be simultaneously monitoring production from the lower wells relative to its type curve and production from the upper well relative to the type curve and relative to the lower wells.
2014 Will Be The Year Of "Vertical Downspacing" In The Eagle Ford
The consistently positive early evaluation results for dual-horizon development reported independently by several companies indicate that vertical density testing will likely kick into a high gear in the Eagle Ford next year as operators will try to determine optimal development patterns in the entire system of reservoirs, including the Upper Eagle Ford and Austin Chalk.
Should the results of the Upper Eagle Ford pilots prove conclusively positive, the play may quickly transition into dual-horizon development mode, particularly in those areas where the formation is thick. Given the scale of the play, a very substantial number of drilling locations may be gained as a result in areas where infrastructure is already well established.
The development is very similar to the spike in the Lower Three Forks evaluation activity currently seen in the Bakken.
Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.
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.