Bakken Update: Adding To The Oil Glut, Part 2 - Eagle Ford Production Increased 46.5% Per Well In 2015

| About: The United (USO)

Summary

Mega-Frac style completions are showing even bigger improvements in the Eagle Ford than the Bakken.

Operators are increasing the number of stages and volumes of frac sand and fluids with good results.

Completion design is still in its infancy, and we believe better technologies and design are on the way.

The Bakken and Eagle Ford improvements are nothing short of spectacular, and the reason breakevens continue to head lower.

Oil and gas received a bullish lift from the Trump upset. The drop in oil price since 2014 has created difficulty for levered E&Ps. Things could change. Trump's protectionist vision of US energy independence could provide relief. Reduced taxes, refiner credits, and decreased regulation are all possibilities. This could provide a more level playing field. If refiners are the focus, the WTI/Brent differential could change. US production would also increase. Depending on policy, there are disagreements on its effect. Some believe this will push down the price of oil. Oil production increases should increase the world glut, but we have a different vision. Protectionist policies may not decrease world oil prices because the biggest consumer would be self-sufficient (we would still need to import heavy sour crude).

WTI (West Texas Intermediate) would de-lever from Brent because the customer base would be different, as would be supply and demand. Trump believes he can get US refiners to switch to lighter grades of crude (this would require a significant investment to make the conversion to larger volumes of WTI). This should be a positive for the US Oil ETF (NYSEARCA:USO), but there's a low ceiling to prices. Trump's economic vision has US refiners using more WTI and Canadian crude as feedstock. Depending on legislation, we could see US oil prices increase and Brent decrease. Wider differentials could be problematic. We do not know how it will affect world oil markets. If the price of WTI increases, it would be a negative for crack spreads. This means refiners could have increased difficulty competing internationally. Without its number one consumer, OPEC will be more ineffective. Difficulties policing production of members could become chaotic. It would be every man for himself.

Unconventional production continues to improve. Opinions differ, as some believe there is limited upside. They believe we have maxed out our ability to recover more oil in place. Petroleum engineers would disagree. Unconventional well design is in its infancy. Recent changes have been effective. The move from cheaper sleeves to plug and perf has increased production per foot. There is a good chance it will continue.

Click to enlarge

(Source: Bill Barrett)

Bill Barrett Corp. (NYSE:BBG) has improved well design. It was using a 40-stage sliding sleeve, then moved to plug and perf. It increased the number of stages while maintaining lateral length. This effectively shortens each stage from 237.5 feet to 172.7 feet. The perf intervals tightened from 240 feet to every 60. Operators continue to increase the volumes of sand used per foot. Pioneer (NYSE:PXD), RSP Permian (NYSE:RSPP), Diamondback (NASDAQ:FANG), Concho (NYSE:CXO), Devon (NYSE:DVN) and Cimarex (NYSE:XEC) are just a few names increasing sand usage. Mega-Fracs have worked very well. In some instances, the completion uses sand only and no ceramics. EOG Resources (NYSE:EOG) has done this for years. This is bullish for sand producers like U.S. Silica (NYSE:SLCA), Fairmount (NYSE:FMSA), Hi-Crush (NYSE:HCLP), Emerge (NYSE:EMES), and Smart Sand (Pending:SND). It is bearish for ceramic proppant producers like CARBO (NYSE:CRR). Frac fluids usage is also increasing. This benefits Flotek (NYSE:FTK) and Newpark (NYSE:NR).

In our last article, we covered Bakken oil and natural gas production from 2013 to 2015. This comparison found that Mega-Frac style wells continue to show impressive production results, with an increase of 27.3% from 2013 to 2015. From 2014 to 2015, the number of completions decreased by 30% but oil production decreased just 16%. The trend is more production per location. More importantly, we are seeing more production per foot. This increase currently offsets approximately half of the production lost to decreased activity. The Bakken was the first major basin developed in the United States. It was followed by the Eagle Ford and Permian. We are analyzing oil data to show the differences by basin. It is possible these production increases are greater in areas with lower breakevens. If so, we could assume that other core acreage with less attractive economics also has greater upside to production.

(Source: Matador)

Data was pulled from the Eagle Ford's oil and condensate windows. The counties included were Gonzales, Karnes, DeWitt, Frio, La Salle, Atascosa, Zavala, Maverick, and McMullen. The top producers from 2013 through 2015 are:

Name

Well Count

CUM Gas (NYSEMKT:MCF)

CUM Oil (NYSE:BBL)

EOG RESOURCES, INC.

712

109,222,376

87,224,890

MARATHON OIL (NYSE:MRO)

367

132,475,256

35,041,900

DEVON ENERGY PRODUCTION

266

155,234,320

44,126,420

CHESAPEAKE OPERATING (NYSE:CHK)

183

26,202,192

13,157,459

EP ENERGY (NYSE:EPE)

179

30,560,808

15,116,425

PIONEER NATURAL

165

127,497,384

24,669,984

MURPHY EXPL. & PROD. (NYSE:MUR)

163

16,426,198

14,629,511

BURLINGTON RESOURCES O&G (NYSE:COP)

149

69,863,570

22,786,854

BHP BILLITON (NYSE:BHP)

136

86,807,170

13,618,246

STATOIL TEXAS ONSHORE (NYSE:STO)

118

82,903,730

8,481,459

CARRIZO (EAGLE FORD) LLC (NASDAQ:CRZO)

109

20,135,818

11,173,456

SABINE OIL & GAS CORPORATION

77

27,145,680

3,938,404

ENCANA OIL & GAS(NYSE:USA) INC. (NYSE:ECA)

57

8,499,149

6,857,940

ANADARKO E&P ONSHORE LLC (NYSE:APC)

54

16,132,588

5,803,203

EXCO OPERATING COMPANY, LP (NYSE:XCO)

52

1,442,935

4,991,495

STONEGATE PRODUCTION

49

4,781,635

1,834,716

CABOT OIL & GAS CORPORATION (NYSE:COG)

40

2,201,453

2,740,857

MATADOR (NYSE:MTDR)

35

4,662,261

2,440,491

PENN VIRGINIA OIL & GAS, L.P. (OTCPK:PVAHQ)

30

2,508,378

3,020,638

SN OPERATING, LLC (NYSE:SN)

29

2,538,441

1,837,358

Click to enlarge

(Source: Welldatabase.com)

As expected, EOG is the leader in well count and oil production. It isn't number one in natural gas production, but most its acreage is in the oil window.

Month

Oil MMBO

Gas Bcf

MMBOE

H2O MMBbl

Wells

1/31/2013

0.722

1.67

1.01

0.398

167

2/28/2013

2.28

4.62

3.08

1.18

331

3/31/2013

3.59

9.12

5.16

2.16

505

4/30/2013

4.58

12.8

6.78

3.08

712

5/31/2013

6.71

17.06

9.65

4.02

904

6/30/2013

8.15

22.07

11.96

4.42

1,114

7/31/2013

9.28

25.36

13.65

5.13

1,303

8/31/2013

10.86

29.43

15.93

6.36

1,406

9/30/2013

10.53

29.4

15.6

6.07

1,542

10/31/2013

11.49

31.14

16.86

6.53

1,654

11/30/2013

11.68

30.4

16.92

6.42

1,770

12/31/2013

13.44

35.29

19.53

6.21

2,002

Total

93.312

248.36

136.13

51.978

Click to enlarge

(Source: Welldatabase.com)

The Eagle Ford peaked in 2013. Horizontal oil and natural gas production was greater in 2013 than 2014. The number of locations were also greater. All data points provided a decline, which was not seen in the Bakken.

Month

Oil MMBO

Gas Bcf

MMBOE

H2O MMBbl

Wells

1/31/2014

0.653

1.47

0.906

0.345

119

2/28/2014

2.03

4.74

2.85

1.27

238

3/31/2014

3.25

9.92

4.96

2.21

373

4/30/2014

5.12

15.37

7.77

2.81

522

5/31/2014

6.11

18.66

9.33

3.54

619

6/30/2014

7.16

20.17

10.64

3.98

727

7/31/2014

8.4

23.11

12.39

0.833

1,342

8/31/2014

8.5

24.51

12.73

0.931

1,429

9/30/2014

8.54

24.46

12.75

0.889

1,552

10/31/2014

9.34

26.47

13.91

0.926

1,678

11/30/2014

10.12

27.53

14.87

0.859

1,784

12/31/2014

12.3

34.17

18.19

0.938

1,914

Total

81.523

230.58

121.296

19.531

Click to enlarge

(Welldatabase.com)

2015 oil and natural gas production increased year over year. 2013 production was greater than 2015. There was a very large decrease in the number of completions. This coupled with the production data provides a significant uptick in oil and natural gas per well. Enhanced completions and high-grading are influencing the Eagle Ford play.

Month

Oil MMBO

Gas Bcf

MMBOE

H2O MMBbl

Wells

1/31/2015

0.888

1.89

1.21

0

178

2/28/2015

2.23

4.9

3.08

0

275

3/31/2015

4.48

10.63

6.31

0

436

4/30/2015

5.86

14.82

8.42

4.68

585

5/31/2015

8.03

18.47

11.22

4.83

720

6/30/2015

7.95

19.38

11.3

4.54

812

7/31/2015

9.54

25.05

13.86

0.436

938

8/31/2015

10.35

27.91

15.16

11.34

1,161

9/30/2015

9.61

27.96

14.43

0

1,244

10/31/2015

10.74

31.89

16.24

0

1,290

11/30/2015

10.57

30.35

15.81

0

1,382

12/31/2015

11.93

33.69

17.74

0

1,468

Total

92.178

246.94

134.78

25.826

Click to enlarge

(Source: Welldatabase.com)

2015 saw a large decrease in the number of locations completed. We saw the number of wells also decrease from 2013 to 2014.

Eagle Ford

Month

Oil MMBO

Change

Gas Bcf

Change

MMBOE

Change

Wells

Change

Oil/Well

2013

93.312

248.36

136.13

2,002

2014

81.523

-13.3%

230.58

-7.2%

121.296

-10.9%

1,914

-4.4%

-8.5%

2015

92.178

13.1%

246.94

7.1%

134.78

11.1%

1,468

-23.3%

46.5%

Click to enlarge

Although total production seemed skewed, we still saw a large increase in oil production per well for 2015. After the decrease of 8.5% in 2014, a 46.5% increase was delivered in 2015. This compares to increases of 5.7% and 19.6% in North Dakota over that time frame.

Bakken

Month

Oil MMBO

Change

Gas Bcf

Change

MMBOE

Change

Wells

Change

Oil/Well

2013

104.417

110.12

123.41

1976

2014

120.365

+13%

137.4

+25%

144.06

+17%

2156

+9%

+5.7%

2005

101.22

-16%

135.39

-1.5%

124.57

-14%

1507

-30%

+19.6%

Click to enlarge

Although the production data varies some, both the Eagle Ford and Bakken are seeing production improvements. The 2015 increase in the Eagle Ford was greater. From 2013 to 2015, Eagle Ford oil production per location increased 34%. This compares to the 27.3% increase in the Bakken.

Better source rock stimulation continues to produce better oil production results. EOG was the first to experiment with the idea. We first highlighted these changes to well design in May of 2013. It has taken time for operators to see these improvements and implement. There was a big change to both design and where locations were completed in 2015. High-grading was just beginning, but the combination helped show industry improvement. Further improvements are on the way as we are just figuring out how to frac. If newer well designs are any indicator, we could see core play production increase significantly around $55/bbl to $60/bbl WTI.

Disclaimer: This article is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Well data is provided by Welldatabase. Accordingly, the publication of articles should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. This information is provided for guidance and information purposes only. This information is not intended to provide investment, tax, or legal advice. The information contained herein has been compiled from sources deemed reliable and it is accurate to the best of our knowledge and belief. However, I cannot guarantee its accuracy, completeness, and validity and cannot be held liable for any errors or omissions. All information contained herein should be independently verified and confirmed. Hartstreet LLC does not accept any liability for any loss or damage whatsoever caused in reliance upon such information. Readers are advised that the material contained herein should be used solely for informational purposes. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Welldatabase.com provided the data for this article.

Disclosure: I am/we are long APC, CRZO, CXO, DVN, ECA, EOG, FANG, FTK, MRO, MTDR, PXD, RSPP, SLCA, XEC.

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.

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