Eagle Ford Shale: Who's Got The Best Wells?

by: Richard Zeits

Presenting at an industry conference two weeks ago, Pioneer Natural Resources (NYSE:PXD) provided a striking overview of the Eagle Ford Shale play evolution, from its inception in 2008 to today. A remarkable sequence of the play's maps, shown in historical progression, is a "must view" for shale industry followers and an instructive illustration of the highly differentiated well productivity across the play.

The Eagle Ford was discovered as a commercial horizontal play in 2008 when Petrohawk, now part of BHP Billiton (NYSE:BHP), successfully tested the first Eagle Ford discovery well in La Salle County (the Hawkville Field). The STS 241 #1H discovery well flowed at a rate of 7.6 million cubic feet of gas per day from a 3,200-foot lateral competed with 10 frac stages. Pioneer Natural Resources was another early pioneer in the Eagle Ford. In fact, Pioneer was in the process of drilling its own first Eagle Ford test in De Witt County, in the eastern part of the trend, at the time when Petrohawk announced its discovery (October 21, 2008).

The name Eagle Ford may appear somewhat of a geographic misnomer: the shale was originally named for the town of Eagle Ford, which is located approximately 6 miles west of Dallas, Texas. It is one of the areas where the shale's outcrop can be seen on the surface. Ironically, the shale has become world famous for a totally different area located over 300 miles to the southwest and is in fact much closer to the city of San Antonio, Texas. The major operators joining Petrohawk and Pioneer in drilling the Eagle Ford Shale play early on were Anadarko (NYSE:APC), Apache (NYSE:APA), Chesapeake (NYSE:CHK), EOG (NYSE:EOG), SM Energy (NYSE:SM), XTO (NYSE:XOM), Atlas, Lewis Petro and Geo Southern, to name just a few.

The play was proven up during 2009 and really took off in 2010 when approximately 500 wells were drilled. By the end of 2010, the proven play area expanded to include ~900,000 acres (the slide below).

(Source: Pioneer Natural Resources, September 19, 2013 Presentation)

During 2011-2012 the play continued to be very actively delineated, with ~2,350 wells added during the two-year period. As a result, the contour of the area proven prospective for the Eagle Ford, as it stood at the end of 2012, included approximately 7 million acres (the map below).

Drilling activity in the play continued to accelerate during 2013. In fact, the play has never been busier than it is today. As of September 2013, the Eagle Ford has ~6,400 producing wells and ~230 rigs operating. The relatively stable rig count masks the ever-increasing number of wells being turned in line each month as remarkable gains in rig productivity and gradual transition to pad drilling translate in a greater number of wells completed with the same number of active rigs.

(Source: Pioneer Natural Resources, September 19, 2013 Presentation)

Perhaps the most interesting part of Pioneer's overview is the EUR map that vividly identifies approximate distribution of sweet spots throughout the play (slide below). The map shows that the high-productivity corridor, a very narrow long band stretching across the play, in fact represents a tiny fraction of the 7 million acres that are prospective for the Eagle Ford, while fringe areas of the play are vast and, generally speaking, poor in productivity. The importance of a EUR map is that it captures not only wells with high IP rates but also wells that have lower IPs but shallower declines.

(Source: Pioneer Natural Resources, September 19, 2013 Presentation)

By its nature, a EUR map represents a lagging indicator of well productivity. It typically takes a significant number of months of production history to establish a meaningful EUR estimate for a new well. This is particularly true of the play's frontier areas where existing production histories and knowledge of the reservoir's subsurface properties is still scarce. The map below is based on data for 1,150 wells, which is less than a quarter of all wells currently producing in the Eagle Ford. It obviously does not capture the most recent wells (such as the high-productivity wells drilled on the play's eastern flank in Lavaca and Gonzales counties). Still the map offers a very useful visual interpretation of the general productivity distribution within the play.

It is important to note that the map above combines oil and gas reserves into a single figure on a barrels of equivalent (BOE) basis. Another map, which focuses solely on the oil component of production, shows the distribution of wells based on their oil productivity (cumulative oil and condensate production over the first eighteen months). Again, the map shows a very strong differentiation in terms of oil productivity across the play. However, it also suggests that the play's western part -- which so far has been less productive than the liquids sweet spot in the east -- has potential to deliver with time a strong upside surprise. As production techniques are gradually perfected, this generally shallower and lower-decline area may yield sufficient EURs to justify active development.

(Source: Pioneer Natural Resources, September 19, 2013 Presentation)

The oil productivity map above provides an interesting comparison against the leasehold map of the oil-rich eastern part of the play by operator. A simple cross-reference of the two maps provides a general idea of which operators benefit from the most productive leases in the play and which lands may be marginal.

(Source: Penn Virginia)

There is yet another slide that I would add as an extension to Pioneer's presentation. It is the most recent map from the Texas Railroad Commission that defines the extent of the Eagle Ford Shale play (counties coded in light blue color).

(Source: Texas RRC)

The map shows that the Eagle Ford's productivity is not limited solely to South Texas and has also been established by a significant number of successful wells in the area that represents a continuation of the Eagle Ford formation across the San Marcos Arch into East Texas. Strictly speaking, the East Texas Eagle Ford is a different play defined by a different depositional environment. However this early on in the North American Shale Oil Revolution, it is impossible to rule out the possibility that yet another significant productive shale is waiting next door for its time to be delineated and developed. The major question is, will its geology yield a sweet spot similar to the one that has made the South Texas Eagle Ford world famous.

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.