In the discussion that followed my recent analysis of EOG Resources (NYSE:EOG), two interesting questions were raised. First, how realistic is EOG's "premium location" paradigm, or whether the economics of the wells actually being drilled are close to the marketing ideal. Second, whether EOG's best wells were in the Permian or in Eagle Ford. In this article, I will attempt to develop answers to both questions. The results are not quite what one might expect based on EOG's presentations.
EOG's Permian program compared to recent Austin Chalk wells: setting up the analysis framework
The key parameters, regardless of the basin, are as follows:
- Well productivity, assessed via a manually constructed decline curve based on historical production data, including the most recent results, if available
- Differentials applicable to each of the three streams: oil, natural gas and natural gas liquids (NGL)
- The tax rate on wellhead revenue
- Lease operating expense, usually reported per barrel of oil equivalent (BOE)
- The split between NGLs and natural gas itself. NGL separation is handled by each oil producer after the volume of natural gas (i.e., everything that is not oil) has been measured and reported.
Wells drilled in Karnes county, included in Eagle Ford reports, have been mentioned as being particularly prolific. Hence this county's 2016 EOG wells (rather than EOG wells in all counties of Eagle Ford) will be analyzed. In contrast, EOG wells in all of the Permian basin will be included in the Permian part of the analysis.
The comparison of production decline curves yields the following insights:
- Austin Chalk wells are less prolific, yielding 630 MBoe in estimated ultimate recovery (EUR) compared to 780 MBoe in the Permian.
- The crucial source of Austin Chalk's advantage is brought about by a dramatically higher oil content. It is worth noting that the company's
