Comparing Large Oil And Gas Names Working U.S. Land Plays, Part I

Includes: APA, CXO, EOG, OXY, WLL
by: Michael Filloon

The United States is going through a change with respect to land oil production. Technology has allowed access to shale oil. These shales were tested for decades using conventional (vertical) techniques. Many of these wells were successful, but did not produce enough resource to be commercial. Horizontal techniques first became profitable when used in natural gas plays. It was not long before oil and gas companies were able to use this technology to obtain liquids. Now that natural gas supply is much greater than that of demand, prices have pulled back significantly. Liquids prices have only pushed higher, which easily substantiate unconventional methods to obtain resource.

I recently wrote a series of articles that identified oil and gas names increasing liquids production quicker than gas (click here to read part 1). The series not only had the physical numbers of production, but more importantly, addressed the number of rigs drilling for liquids versus gas in the United States. This increased number of rigs shows a dynamic that will affect several sectors in United States liquids plays from oil service, to proppant producers and companies that purify frac water.

The North Dakota Bakken and Eagle Ford of Texas are just two areas being worked for liquids production. Both have some of the largest oil companies in the world buying up acreage. To convey which liquids plays have the most upside, one must look to these large oil exploration and production companies. If the best operators have large acreages, it is my guess this would indicate these companies have faith in possible production of these particular plays. This list will focus on large oil and gas companies, and its activity in U.S. shale plays.

EOG Resources (NYSE:EOG) is my favorite large oil and gas name. The main reason is the ability to increase liquids production. Its assets include:

  1. Eagle Ford-610000 Net Acres (49000 In Dry Gas Window)
  2. Bakken/Three Forks-600000 Net Acres
  3. Ft. Worth Barnett Shale Combo-195000 Core Net Acres
  4. Wolfcamp-131400 Net Acres
  5. Leonard Shale-108000 Net Acres
  6. Niobrara (DJ Basin)-220000 Net Acres
  7. Marmaton-34000 Net Acres

EOG is the biggest oil producer in the Bakken and Eagle Ford. EOG is also the largest producer in the Barnett Combo, and the acres listed above is its core acreage in south Montague County only. EOG has significant acreage in both the oil and gas portions of this play.

EOG's liquids development program for 2011 is:

  1. Eagle Ford (88% liquids)-22 rigs and approximately 250 wells
  2. Bakken (97% liquids)-10 rigs and 106 gross wells
  3. Barnett Combo (67% liquids)-8 rigs and 230 net wells
  4. Wolfcamp (72% liquids)-2 rigs and 14 wells so far this year
  5. Bone Springs (72% liquids)-1 rig and 19 wells so far this year
  6. Niobrara (94% liquids)-2 rigs and 45 wells planned
  7. Marmaton(67% liquids)-3 rigs and 26 gross wells so far this year

EOG has other plays in North America and abroad. It was quick to buy acreage early, and cheap. In 2010, EOG Resources had total company liquids growth of 33%. In the first half of this year, it saw growth of 47% and plans the same for the second half of 2011. Estimates for 2012 are 27% total liquids growth, and 74% of its revenue mix in North America will come from liquids. EOG is the best example of a company converting from natural gas to liquids production. Look for further divestitures of natural gas assets to pay for an increased development of liquids production.

Apache (NYSE:APA) is increasing its U.S. land liquids production. In Top Gas Producers are Growing Liquids Production Part 3, I covered its large increase in rigs drilling in the United States. Apache's land production can be divided into two areas, the Permian and Central acreages. It has over 3 million acres in the Permian. Apache has 24 rigs drilling this basin, an increase from just 5 in 2010. It has approximately 5000 remaining locations. Apache plans to ramp up production by increasing its number of rigs to over 50. Because of its size, and major differences in pay zones, it is difficult to provide average statistics. I will try to break these areas down for a more concise description. Apache estimates its Permian acreage is 68% liquids. Eleven of Apache's rigs are located in Deadwood targeting Wolfcamp, Cline, Strawn, and Fusselman formations. This play is Apache's focus.

The Central Basin Platform has had a long history of production. Apache is working this as its base waterfloods business. It will drill 42 wells this year and estimates an additional 512 from 2012 to 2016. Apache estimates IP rates of 400 Boe/d. EURs of 160 Mboe with 85% liquids are expected here. Average well costs are $4 million/well.

91 locations were drilled in the Eunice area of New Mexico this year. Apache estimates an additional 900 locations will be drilled from next year through 2016. IP rates have averaged 95 Boe/d. The EURs in the Eunice area are 102 MBoe, with 54% liquids. Estimated well costs are $1.5 million.

Apache has 103000 gross acres in the Deadwood Wolfcamp. In 2011, 150 locations were drilled. From 2012 to 2016, Apache estimates it will drill 1000 more. IP rates of 105 Boe/d are expected in Deadwood, with EURs of 141 Mboe (77% liquids). Well costs average $2 million.

Apache has 518000 acres in the BP & Mariner Spraberry and will drill 63 locations this year. From 2012 to 2016, it estimates 943 more locations will be drilled. IP rates of 75 Boe/d are expected. EURs of 125 Mboe will be produced with 83% coming from liquids. Well costs average $1.7 million.

In the Empire Yeso, 55 locations were completed in 2011. From 2012 to 2016, 1569 more locations will be drilled. Apache has a JV with Concho Resources (NYSE:CXO) here. IP rates have averaged 118 Boe/d. EURs are 83 Mboe, with 82% coming from liquids. Well costs are $1.6 million.

21 wells were completed in the Empire Abo this year. Apache estimates an additional 550 will be drilled from next year through 2016. IP rates have been 70 Boe/d. EURs are expected to be 115 Mboe with 88% being liquids. Well costs are $1.2 million.

Apache's Central has 1 million acres located in Oklahoma, North Texas and East Texas. Much of this is centered around its Granite Wash holdings. It currently has 14 rigs, and will drill 119 locations this year. From 2012 to 2015 it will complete 562 more locations. Apache has 200000 gross acres in the Granite Wash. 40 locations were completed in 2011, with 200 more from 2012 to 2015. The 30 day IP rate is 6.6 MMcfe/d. The EURs are 4.0 Bcfe with 15% coming from liquids. Well costs of $9 million are expected.

Apache's Hogshooter Wash will see 14 locations drilled in 2011. 100 more locations will be completed between 2012 and 2015. The 30 day IP rates have been 1175 Boe/d. EURs are quite high with 350 Mboe, and 57% coming from liquids. Well costs are estimated to be $8.2 million.

Apache is targeting 3 plays in the Anadarko Shelf. 39 locations have been completed here in 2011. Apache estimates another 128 will be drilled from 2012 to 2015. 30 day IP rates have averaged 275 Boe/d. EURs of 210 MBoe are expected with 60% coming from liquids production. Apache has averaged well costs of $4 million.

Apache has built a very large, and centralized exposure to U.S. liquids. The Permian has produced a significant amount of oil over the years, and now that horizontal applications can be used, I would guess there will be a lot more.

Occidental Petroleum (NYSE:OXY) has been increasing its domestic exposure to oil through divesting international acreage. On December 10th of last year, it announced the sale of its Argentine oil and gas operations for $2.6 billion. After the sale it announced the purchase of $3.2 billion in Texas and North Dakota oil and gas properties. This increased its domestic percentage of total company value to 68%. 59% of Occidental's domestic company value comes from the Permian and 34% from California. Since the first quarter of 2010, it has increased its number of rigs in California from 5 to 14. The rig number in the Permian increased from 11 to 26 over the same time frame. Occidental is the number one oil producer in the Permian with 16% of total production. Like Whiting (NYSE:WLL), it garners a large portion (66%) of its Permian production from enhanced oil recovery. Occidental will spend $850 million and drill 300 wells here in 2011.

Occidental is the largest acreage holder in California with 1.6 million acres. 73% of its reserves in California are oil. It has 78% interest in Elk Hills, which has the largest field production of natural gas and NGLs in California. Occidental will spend $1.5 billion in California this year, with over 50% of exploration wells drilling for conventional development. The reason Occidental's California acreage is exciting has to do with its shale plays. Of these 870000 acres, 200000 have been de-risked. With 10 acre spacing, each well has an EUR of 400 to 700 Mboe. According to Occidental, these shales have thicknesses between 500 and 3500 feet.

Occidental's $3.2 billion acquisition of North Dakota and Texas acreage is also important. It has 92800 net acres in South Texas. Costs are low in this area, with 30% of revenue coming from condensate and NGLs. These variables allow for this acreage to be profitable even at current NYMEX pricing. Its Williston Basin purchase added to its current Bakken acreage. Its initial acreage is in southeast Burke County, with the new acres located in southwest Dunn County (174000 net acres). Occidental now has over 200000 net acres in North Dakota. It plans to drill 60 Bakken wells this year. Occidental currently has 8 rigs running, and plans to increase to 12 by the end of this year.

I like what these three corporations are doing domestically. It shows unconventional domestic plays can be as good as international areas. I think we will continue to see large oil and gas names add acreage in unconventional U.S. plays, while quickly ramping production through the addition of drilling rigs. The pullback in the price of oil has provided an opportunity for many of these large companies to buy smaller companies at a discount.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: This is a list of large oil companies active in U.S. shale plays. It is just a list and not a buy recommendation.