When the U.S. Geological Survey published its updated resource estimate for the Wolfcamp Basin in the Permian a couple of years ago, it added fresh fuel to an already major rush to the Permian. Now, the authority has updated its resource estimate for the Eagle Ford, which could spark a similar rush for those whose pockets are deep enough.
The USGS said it now estimates undiscovered, technically recoverable oil and gas resources in the Eagle Ford to be around 8.5 billion barrels of crude and 66 trillion cu ft of natural gas, plus 1.9 billion barrels of natural gas liquids.
Undiscovered resources are those that are estimated based on geological data and existing reserves in exploitation. They may or may not be commercially viable, unlike technically recoverable resources, which are considered extractable economically with existing technology. In other words, the numbers don’t necessarily mean much in reality.
They still sound pretty impressive though, and with Eagle Ford’s long-standing reputation as part of America’s oil heartland, the update is bound to garner attention from drillers with spare cash to tap new resources to see if they are indeed technically recoverable at a low enough cost.
This attention will be all the stronger because of drillers’ pipeline woes in the nearby Permian. The star of the U.S. shale revolution is panting under the weight of too much crude pumped and not enough pipelines available to carry it to the Gulf Coast refineries.
In the Eagle Ford, the situation is, for the moment, better, and, as Pioneer Natural Resources’ chief executive Scott Sheffield said last week, some drillers will stop drilling in the Permian, but others will pack up and leave. The destination that would make the most sense will be the Eagle Ford.
The Eagle Ford is currently the second-largest producing shale play, with an estimated daily average of 1.364 million bpd in EIA’s latest Drilling Productivity Report. This is expected to rise to 1.396 million bpd next month. The number of active rigs is also rising, from a trough of just 32 at the height of the oil price crisis to 90 today.
At the same time, production costs are not all that much higher than the average in the Permian, and let’s not forget that this average covers a wide range of cost levels. In the Eagle Ford, this average is less than US$50 per barrel, and although this is higher than the break even of the Permian, the fact that there is more spare pipeline capacity is tempting for drillers having to sell their Permian oil at a steep discount to WTI because of the pipeline constraints.
In fact, drillers are already focusing more on the Eagle Ford. This is what ConocoPhillips executive vice president Alan J. Hirshberg said during an earnings call in April: “There’s just been less competition for goods and services in the Eagle Ford and better netbacks because there’ve been less people trying to jam their barrels down the same takeaway capacity. So, everything about the Eagle Ford is really hitting on all cylinders for us.”
Colorado drillers are moving into the Permian, there is a pickup in M&A activity in the area, and there are new pipelines being built in the Eagle Ford as well. Could we see an exodus from the Permian into the Eagle Ford?
By Irina Slav for Oilprice.com