By Edward Klump – Mar 22, 2012 7:00 PM CT
Energy companies in search of oil riches rivaling the biggest finds from Brazil to Angola are flocking to Texas shale, where new wells have triggered a 230- fold increase in crude output in three years
More than 115 years after a gusher 55 miles (88 kilometers) south of Dallas ushered in Texas’ first oil boom, U.S. producers such as ConocoPhillips and Marathon Oil Corp. (MRO) are counting on the Eagle Ford Shale to boost crude output amid a glut-driven slump in natural-gas prices.
Drilling for oil in the brush-covered plains of south Texas is cheaper and less risky than exploration offshore Brazil, the largest oil find in the Western Hemisphere in 30 years, and more profitable than the remote, rougher terrain of the Bakken Shale in North Dakota and Montana.
“The Eagle Ford is the top basin we have in the world today,” David Roberts, chief operating officer at Marathon Oil, told analysts and investors on a conference call last month.
Surging production in shale formations has transformed the U.S. energy landscape, flooding the market with gas and boosting domestic oil production by 14 percent from three years ago after dropping by a third in the previous 17 years, according to Energy Department data. After worries of a global oil shortage drove prices to record highs above $140 a barrel in 2008, politicians and industry executives now are discussing the prospect of the U.S. weaning itself from dependence on imports.
Marathon Oil and ConocoPhillips (COP) both plan to double their production in the Eagle Ford this year. EOG Resources Inc. (EOG), based in Houston, calls the Texas shale play its biggest source of growth, and last month boosted its estimated recoverable reserves there by 78 percent.
Oil production in the Eagle Ford jumped almost sevenfold in 2011 to surpass 30 million barrels, still less than Bakken production in North Dakota that exceeded 128 million barrels. This year daily oil production in the Eagle Ford is forecast to expand by 200,000 barrels, roughly the same amount as the Bakken, according to estimates by Wood Mackenzie Ltd. cited by Hill Vaden, an analyst with the industry consultant.
The South Texas oil fields are winning a larger portion of producers’ investment because it’s easier and more profitable to drill there compared to many prospects in the U.S. and in the world. Wells are faster and cheaper to develop, and the formation is located closer to refineries on the U.S. Gulf Coast, lowering transportation costs.
EOG said it costs about $5.5 million per well in the Eagle Ford, compared with more than $8 million per well in the Bakken, because of different well configurations. An offshore Gulf of Mexico well can cost $100 million, said Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston.
Deep-water wells can take five months or longer to drill, compared to a couple of weeks for a well in the Eagle Ford, said Brian Cain, a spokesman for Anadarko Petroleum Corp. (APC)
Producers can get a higher price for their Eagle Ford output than they can in the Bakken. Prices for Texas and Louisiana (USCRLLSS) crude this week are as much as about $38 a barrel more than production in the Bakken (USCRLLSS), according to data compiled by Bloomberg.
“The economics there are absolutely stellar,” said Danny Brown, a general manager who helps oversee Anadarko’s Eagle Ford operations. Anadarko has said it is considering selling its exploration properties offshore Brazil.
Less Political Risk
Texas provides a more stable investment environment compared to many international projects, said Pavel Molchanov, an analyst at Raymond James & Associates in Houston.
“Clearly, there’s less political risk in Texas than in Libya, let’s say, or Kurdistan,” he said. Marathon Oil last year had output suspended in Libya during unrest in that country.
The Eagle Ford cuts across a 400-mile swath of southern Texas, according to the Railroad Commission, which regulates oil and gas production in the state. Producers have unlocked the resource using advances in horizontal drilling and hydraulic fracturing, which sends jets of water, sand and chemicals underground to break up rock.
Petrohawk Energy Corp., acquired by BHP Billiton Ltd. (BHP) last year, first drew attention to the Eagle Ford when it announced a gas find in 2008, a year when futures for the fuel in New York averaged more than $8 per million British thermal units.
Expanded use of fracturing, or fracking, across the U.S. caused a surge in gas output that drove prices to a 10-year low this month of $2.204 per million Btu. Meanwhile, crude in New York has climbed 15 percent since the end of 2010 and is trading for about $105 a barrel.
The Eagle Ford will help lead a surge in state drilling permits that’s on pace to reach 25,000 this year, the most since 1985, said Barry Smitherman, the commission’s chairman.
“It’s by far the most sought-after play anywhere — not only in this country, but anywhere around the world,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York.
A Sanford C. Bernstein report last August estimated Eagle Ford production would reach 1.2 million barrels of oil equivalent a day in 2015, with 750,000 of that being liquids.
“A long-time oil field axiom is that big fields tend to get bigger over time, and that’s certainly the case here,” EOG Chief Executive Officer Mark Papa told investors during a Feb. 17 conference call. “This continues to be the hottest and highest reinvestment rate-of-return play in North America.”
To contact the reporter on this story: Edward Klump in Houston at firstname.lastname@example.org
To contact the editor responsible for this story: Susan Warren at email@example.com
- Pioneer Bets On West Texas Shale Oil To Rival Bakken (mb50.wordpress.com)
- Marubeni Buys Eagle Ford Shale Assets (USA) (mb50.wordpress.com)
By Mia Lamar
The purchase of Go-Coil LLC, whose services are aimed at oil and gas exploration and production companies, helps boost Pioneer’s offerings in its production services division, noted Chief Executive Wm. Stacy Locke.
“After studying coiled tubing for the past couple of years, we believe this new service offering has expansion opportunities as well as cross-selling opportunities with our existing business,” Locke said.
Pioneer, which provides contract land drilling services to oil and gas operators, in November reported it swung to a third-quarter profit with help from a 38% jump in revenue.
Shares closed Friday at $9.68 and were inactive in premarket trade. The stock is up 51% in the past three months.
Consider this the Grammys for Rigzone (minus the red carpet, celebrities, movies, etc.). A special thanks goes out to our dedicated Rigzone readers for making this a wonderful year for the Rigzone team.
So without much ado, click through the slideshow below to view
Published: Sunday, December 18, 2011 at 6:01 a.m.
Last Modified: Sunday, December 18, 2011 at 1:24 a.m
New regulatory recommendations expected to be released by the Federal Aviation Administration soon could allow oil-and-gas companies to purchase light-weight unmanned drones akin to those used by the military.
Energy companies already use remotely operated vehicles to monitor and manipulate wells at extreme underwater depths, and unmanned aircraft companies hope that in the coming years, companies will be able to hire or buy aerial drones to survey pipelines, check on hard-to-reach parts of platforms and gather information after an offshore accident occurs.
The current federal regulations were first introduced in 2007, as production and development of unmanned aerial systems began to grow. The proposed regulation changes, which will be released in a few weeks, will be subject to a comment period and review, a process that generally takes 12 to 18 months.
“The concerns about these unmanned aerial systems, whether they’re operating in the Gulf of Mexico or over land, remain the same,” said FAA spokesman Lynn Lunsford. “We want to make sure that they’re used in such a way that the safety of other aircraft is not compromised.”
That could be particularly challenging in the Gulf, where, according to Lunsford, planes and helicopters traveling back and forth to offshore rigs make more than 800 trips per day.
California-based AeroVironment already had agreements with several oil-and-gas companies just before the 2007 regulations were introduced, according to Steve Gitlin a vice president at AeroVironment.
“We’re ready,” he said. “As soon as the FAA says ‘Go,’ we’re ready to provide capabilities to the customers who want it. These aerial systems will save money, save lives and allow for more effective use.”
Lindsay Voss, senior program development manager at the Association for Unmanned Vehicle Systems International, said that the FAA’s longtime complaint is that it needs more data, like a complete picture of the drone accident rate.
“You could say there’s a lot of operational time with Department of Defense,” she said. “We probably have about 6,000 hours a year in Iraq and Afghanistan. But it’s difficult to take that info and apply it to national airspace.”
BP spokesman Daren Beaudo said the company has been an industry leader in developing ways to deploy drone technology for pipeline inspection.
“We have been working cooperatively for over five years with other members of the oil-and-gas industry, the aviation industry and the FAA to enable eventual deployment of drones to assist us in leak and machinery threat detection once (new FAA) regulations are in place.”
Currently, BP and other companies use manned helicopters to survey their pipelines. But helicopters can run about $300 an hour, while renting a lightweight drone can cost as little as $20 an hour, said Voss.
Drone makers say their machinery has a range of applications beyond pipeline surveillance as well.
“The color and infrared video could be very useful if they want to check out the condition of an offshore platform. If there’s a disaster, people tend to be evacuated from a platform, but the operator will still want to have eyes on the target,” said Gitlin. “We’ve done some demos for offshore oil companies in the past and, using infrared, were able to detect oil slick in the water.”
Kevin Lauscher, who does industrial sales for the Canadian company Draganfly Innovations, said that in the past year, he’s already sold some drones that weigh less than 10 pounds for deepwater oil platforms in the Gulf of Mexico.
“They’re used for inspectional purposes. It gives them the ability to more easily view platforms, rather than putting people on cranes or scaffolding as they’ve had to do in the past.”
He attributed the boon in sales to the tightening of federal safety regulations in the past year as a result of the Deepwater Horizon disaster
“Safety has been brought to the forefront as a result of that,” he said.
Voss said that it could be a few years before drones under 50 pounds are flown over domestic waters.
“They’re still at the very beginning of this process,” she said. “It doesn’t look like the rule will be out until 2014. After that, I think we’ll start to see a pick up, but it’s still going to depend on how things go after the agencies put out the rule.”
Staff Writer Cara Bayles can be reached at 857-2204 or at firstname.lastname@example.org.
- Rupert Cornwell: Home on the range, where the spy drones fly (independent.co.uk)
- When Businesses Can Use Drones (blogs.forbes.com)
- Civilian use of tiny drones may soon fly in U.S. (seattletimes.nwsource.com)
- Drone makers seek out new drivers (theglobeandmail.com)
- Drones cleared for domestic use across the US (rt.com)
- US Military to get Kamikaze drones (inquisitr.com)
- The Future Of Drones In America (forbes.com)
U.S. oil & gas exploration and production company, ConocoPhillips, announced a 2012 capital program of $15.5 billion. The 2012 capital program for E&P is $14.0 billion and includes $2.2 billion for worldwide exploration, $0.4 billion of capitalized interest and $0.7 billion for the company’s contributions to the FCCL business venture and loans to other affiliates.
Approximately 60 percent of the E&P capital program will be spent in North America. This represents an increase in the U.S. Lower 48 and Canada compared with prior years, reflecting improved market conditions, with additional emphasis on liquids-rich resource plays and high-return investments.
Capital spending in Alaska is expected to be slightly down compared to 2011 levels, and will be directed toward development of the existing Prudhoe Bay and Kuparuk fields, as well as fields on the Western North Slope.
In Europe, Asia Pacific and Africa, total spending is expected to be approximately 40 percent of the E&P capital program.
In the North Sea, spending is planned for existing and new opportunities in the Greater Ekofisk Area, the Greater Britannia fields and development of the Jasmine and Clair Ridge projects.
“The 2012 capital program reflects our strategic emphasis on delivering value by investing in the most profitable opportunities,” said Jim Mulva, chairman and chief executive officer.
The company will continue its focus on accessing, testing and appraising material opportunities in both conventional and non-conventional oil and gas plays. ConocoPhillips plans further appraisal of the Poseidon discovery in the Browse Basin, offshore Australia, and the Tiber and Shenandoah discoveries in the Gulf of Mexico. The company also plans to test material prospects in the Gulf of Mexico and Kazakhstan. Delineation of the company’s position in the Eagle Ford shale play will continue, as will pilot programs in shale plays in the Canadian Horn River Basin, Australia and Poland.
- ConocoPhillips Sells $2B in Pipeline Assets (mb50.wordpress.com)
- Before Splitting, Conoco Reveals $25B In Spending And Buybacks (forbes.com)
- Conoco’s Brent Control (mb50.wordpress.com)
- ConocoPhillips to buy back $10 bln more in shares (marketwatch.com)
- ConocoPhillips selling pipelines for $2 billion (marketwatch.com)
The US oil industry is in a bit of a quandary. The Houston & Louisiana refining area is the largest in the world. It has just had tens of billions of dollars thrown at it, to prepare it to run heavy sour sources. These heavy sour grades are typically cheaper, and contain lots of secondary products during the refining process.
In simple terms, we have spent the last twenty years preparing to make more out of lower quality oil. It was a great idea, when the handwriting on the wall said these would be the only real sources of future growth in hydrocarbon volumes.
If they ran this stuff, they would have to turn off a significant number of units at their refinery’s that are designed to capture and crack the heavy sludge. This leave the US refining patch in a bit of a jam.
The new Eagle Ford shale oil is coming online in large volumes. Rumors are that Eagle Ford production will crack 500,000 barrels by the end of 2012, if they can get around localized shipping constraints.
Right now it is the gathering of the stuff in quantities that are easy to ship/export that is the issue.The crude is so light in some places, they need specialized trucks to collect it and bring it to a gathering location. There isn’t the capacity to pick up the crude and bring it to market available right now.
We are talking about 100,000 barrels of oil production behind pipe right now, and growing daily as people rush to install new smaller capacity pipelines around Texas to help haul it away.
The number of companies that believe they can growth their domestic production by 100,000 barrels of oil in the next couple of years is growing.
The irony is that the new supply is super light & sweet. A mix never expected in the US again.
Platts had an article on this exact topic in June of 2011.
The US could resume exporting some of its domestic crude oil production in 2012 when the output from Eagle Ford Shale in Texas ramps up.
But that’s the problem for US refiners: they aren’t built to process that type of crude. So the highest value for it may be outside the country.
The US exports may be to the US East Coast first. The refinery’s based on the east coast tend to have a higher sweeter demand over their Southern units.
In fact, the blow out in Brent prices has severely affected their profits due to sourcing costs increasing significantly this spring with the Libya revolution. There have been at least 3 refinery’s put up for sale or being put into mothballs until a cheaper source of crude is available.
“U.S. east coast refining has been under severe market pressure for several years. Product imports, weakness in motor fuel demand and costly regulatory requirements are key factors in creating this very difficult environment,” ConocoPhillips said when it put Trainer on the auction block.
If the three refineries on the block shut down, what does this mean for oil markets?
In the case of the US, if Texas starts to export light sweet crude by large barges to the east coast. You could see a Renaissance in US exports of refined products as these units produce above domestic demand needs.
The irony is that in the US we have removed the demand for the lighter sweet crude’s, so much so we will soon be exporting it from our primary refining center due to excess capacity in supplies. NOT DEMAND.
The energy crisis of 2005 is not the supply crisis everyone was looking for. I wonder how long it will take society to catch up to the new reality. The US is going to become an energy exporter, even if its Texas shipping crude to those Yankees up north.
Before you fall out of your chair laughing, look at this chart, conceptualize it, and then leave me a comment in the section below. I look forward to your thoughts on this chart.
It’s a chart of barrels of oil produced per year from a specific zone in Texas. It will double every year for the next few. Then think about other new zones like it coming online in the next few years. Its a small amount today, but a not so small amount by tomorrow.
- Platts Eagle Ford
- The Globe & Mail Bleak times for US Refinery’s
- Texas Railroad Eagle Ford Production Chart
- Alice considers building multipurpose convention center amid Eagle Ford boom (mb50.wordpress.com)
- “The Play”: Cuero awakens to new shade of green (mb50.wordpress.com)
- Keystone XL Pipeline: Just Build It – 24/7 Wall St. (mbcalyn.com)
- Ironically Texas May Be Forced To Export Unrefined Crude By 2012 Read (mb50.wordpress.com)
- Enbridge, Enterprise Products To Reverse Seaway Crude Oil Pipeline (mb50.wordpress.com)
- Seaway Pipeline gets turned around; oil markets react quickly (mb50.wordpress.com)
- Conoco’s Brent Control (mb50.wordpress.com)
- Enbridge buys 50% of Seaway pipeline (theglobeandmail.com)
- Oil in New York Surges Above $100 on Reversal of Seaway Pipeline (mb50.wordpress.com)