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Pioneer Bets On West Texas Shale Oil To Rival Bakken

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Two wells drilled by Pioneer Natural Resources have already exceeded expectations. The company has 900,000 acres under lease.

By MARILYN ALVA, INVESTOR’S BUSINESS DAILY Posted 01:41 PM ET

U.S. oil production is enjoying a renaissance, thanks to new technology that has made oil recovery possible in tight shale rock.

The busy Bakken formation in North Dakota and Montana is the largest and best-known oil shale play.

The Eagle Ford in South Texas and the Barnett “combo play” (gas and oil) in North Texas are also fairly famous unconventional plays.

But the Wolfcamp Shale?

“Over the next two or three years, everybody is going to be making a beeline to the Wolfcamp,” said Scott Sheffield, chief executive of Pioneer Natural Resources (PXD).

Spanning numerous counties across West Texas, the Wolfcamp formation is located below the long-plied Spraberry field, which helped make Midland, Texas, oil-central starting in the early 1950s.

Its location in the Midland Basin is within the larger Permian Basin.

Sheffield and other oil experts say the Wolfcamp is probably the thickest of any onshore U.S. oil shale play, with up to 1,000 feet of potential payout across hundreds of thousands of acres.

Biggest And Thickest

“It will be the biggest, and it is already the thickest,” Sheffield said. “So it’s got the most pay zones of any oil shale play in the U.S. I call it the third or fourth coming of the boom in West Texas.”

If Wolfcamp does turn out to be the next big oil shale play, Pioneer is on the ground floor. With 900,000 acres under lease in the Spraberry, it has the largest land position.

Pioneer believes that more than 400,000 of those acres are ripe for horizontal drilling.

Its game plan: drill 10,000 feet down through the Spraberry to the Wolfcamp and then out 7,000 feet horizontally.

For now, it’s targeting 200,000 acres in the southern portion of the Spraberry field.

Pioneer’s two completed wells in the Wolfcamp have already exceeded expectations, each producing 800 to 1,000 barrels of oil a day, and they’re still early in production.

EOG Resources (EOG) started drilling in the Wolfcamp earlier and is now seeing higher output from its 35 or so wells.

But Sheffield says Pioneer will be a bigger operator in the Wolfcamp in the sense that it has 400,000 prospect-worthy acres to EOG’s 100,000.

“We are going to drill 80 wells in 2012 and 2013,” he said.

EOG’s wells in the Wolfcamp are producing 2,000 barrels a day, says Dan Morrison, analyst with Global Hunter Securities.

“Even if Pioneer’s don’t get to 2,000 barrels a day, at 800 barrels a day the play is incredibly economic,” Morrison said.

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Marubeni Buys Eagle Ford Shale Assets (USA)

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Marubeni Corporation announced that Marubeni Eagle Ford Limited Partnership, a U.S. subsidiary of Marubeni, has entered into an agreement with Dallas based Hunt Oil Company, one of the world’s largest privately-owned independent oil and gas companies, to acquire a 35% working interest in the Eagle Ford shale oil and gas play covering approximately 52,000 net acres of oil and gas leases located in Texas.

The Project has plans for several hundred wells to be sequentially drilled for 5 – 10 years, with total development costs (including acquisition costs on Marubeni’s share basis) of approximately U.S.$ 1.3 billion. In addition, Marubeni and Hunt have agreed to jointly acquire additional acreage in the Eagle Ford shale oil and gas area.

The Eagle Ford oil and gas shale play currently produces high-quality light crude oil, and is one of the most attractive and promising shale oil and gas resource plays in the U.S. Marubeni said that it believes that this Project, including future expansion and the potential new businesses associated with it, will become a solid base for Marubeni providing a strong cash flow and profit on the mid- to long-term basis. The company’s position in the Eagle Ford is believed to be prospective, and Hunt, the operator of this Project, has extensive experience and expertise in the development and operation of a number of oil and gas shale plays including the Bakken located in North Dakota in the United States.

Marubeni has positioned its energy and mineral resources business, including oil and gas exploration and development, as a strategically important business area, and has already been involved in projects in the Gulf of Mexico, the North Sea (U.K.), India, Qatar and the Niobrara Shale Oil (U.S.), which started its initial oil production in October, 2011. As the result of this Project, Marubeni’s total acreage for shale oil play is approximately 72,000 net acres, which makes Marubeni the largest acreage holder among Japanese firms.

Articles

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Shale Drilling boosts South Texas sales tax revenues

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By Mike D. Smith
Posted January 2, 2012 at 6:32 p.m.

CORPUS CHRISTI — Cities across South Texas are coasting atop rising sales tax revenues strongly driven by two factors: retail and shale.

The Texas Comptroller‘s Office allocated more than $4 million to Corpus Christi in December.

The payment brings the city’s yearly total to more than $62.7 million, or 12 percent higher than what the city received by late 2010, figures show.

Monthly sales tax revenue payments are staggered. The December figures reflect taxes collected in October, which vendors reported in November.

Retail activity has shown an increase, but the totals also show impacts of Eagle Ford Shale drilling more than 50 miles away are rippling into the city, interim Finance Director Constance Sanchez said.

“That would be the different companies that are needed for the Eagle Ford Shale and they’re buying equipment and things they need for that,” Sanchez said.

For the city’s fiscal year, which began Aug. 1, the city has collected 11.9 percent more revenue than what was collected during the same time in 2010 and 7.4 percent above what the city budgeted, Sanchez said.

While the city is happy with the positive difference, the windfall doesn’t mean officials can relax headed into the next budget season.

Property tax revenue increased at a much lesser rate than in previous years, Sanchez said. Preliminary property values will arrive in April.

Even with cuts, some city expenses have also increased such as utilities and contractual obligations, Sanchez said.

“We have to take all this into account,” Sanchez said. “It’s really too soon to say things are looking good because of the overall big picture.”

Eagle Ford’s effects are more pronounced in some of the cities at or near the heart of production.

George West in Live Oak County, for example, received a monthly allocation of more than $57,000, which is 56 percent higher than December 2010’s payment.

Through the December payment, George West is up 54 percent with more than $616,000, figures show.

Beeville‘s monthly allocation increased about 40 percent over December 2010, and the city is up 26 percent in collections with about $3.4 million.

Alice, away from the heart of drilling activity in Jim Wells County, continues to enjoy the retail and other side benefits of drilling as hotels are built and stores expand.

Alice’s allocations top $15.3 million, which is 44 percent higher than by the same time in 2010.

Statewide, the Comptroller‘s Office remitted $478.3 million to local governments in December — a year-to-year increase of 9.7 percent.

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Ironically Texas May Be Forced To Export Unrefined Crude By 2012

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.

This is now a problem for some companies, as their own refinery’s need the heavy sour crude’s to fuel these their product runs. What are they to do with a flood of light to super light sweet crude’s?

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.

Eagle Ford shale crude’s gravity ranges from 42 API to 60 API with very low sulfur content, which in the US Gulf Coast refining terminology is considered a super light crude.

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.

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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.

Alice considers building multipurpose convention center amid Eagle Ford boom

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By Mark Collette

ALICE — For a city that always has lived and died by the oil field, life is good right now.

Flush with cash generated from sales and hotel occupancy taxes — all bringing in money associated with the oil and gas boom — the town is planning something most South Texas cities couldn’t contemplate even a few years ago: paying for a new event center without dipping into reserves and without taking on debt.

In the past two fiscal years, Alice set aside more than $4 million in seed money for the project, envisioned as a multipurpose convention center and natatorium. It has committed $70,000 to an assessment to determine the type and scale of facilities the community wants.

This phase included a town hall meeting Tuesday night, dominated by the community’s swimmers, including swim team coaches and student athletes lamenting the practice time lost on hourlong bus rides to and from Corpus Christi, site of the nearest pool that serves their training needs

Years from now, Alice swimmers may not draw a connection between the convenience of a modern, hometown pool and the heavy oil field trucks that lumber to and from town with loads of sand, water and drilling equipment. But to project planners and city leaders, that connection is everything.

Alice sits just south of the Eagle Ford Shale, a 400-mile long underground rock formation in Central and South Texas unleashing ancient stores of natural gas and crude oil with new technology called hydraulic fracturing. In the past two years, oil field service companies have expanded their Alice facilities, brought hundreds of jobs and filled up every hotel room in Alice, prompting more to to be built.

“If Eagle Ford Shale was not in play to the level it is, there would still be a need (for a multipurpose center), but it would not be as big,” City Manager Ray De Los Santos said. “There would still be funding available, but it would not be as much.”

For the fiscal year ending Sept. 30, Alice budgeted $650,000 a month in sales tax revenue. Only one month came in under $1 million, giving the city a $6 million surplus.

The event center project was being considered even before the Eagle Ford boom started in earnest in 2009. But the facility almost surely will be larger than what was initially imagined because the city can afford it, and because it anticipates the demand will be there to support it for years to come.

Oil boom and bust cycles notoriously are unpredictable and, at least in the past, short-lived on the boom end. But with Eagle Ford, analysts are expecting a ramp-up in production to last as long as 10 years, with production remaining steady at least another decade.

“This has changed the model for communities in South Texas because they have a long-term horizon where they can plan for capital improvements,” said John Michael, project engineer for Naismith Engineering. Naismith is conducting the needs assessment in Alice and has contracts with governments throughout the region.

Michael said there has been a dearth of new swimming pools in South Texas in the past 30 to 40 years because the last bust cycle drained the financial resources of communities and they never fully recovered.

De Los Santos said Alice isn’t taking Eagle Ford longevity for granted. Other South Texas cities have struggled with keeping convention centers and similar venues afloat. Last fiscal year, the American Bank Center convention center and Selena Auditorium in Corpus Christi posted a $1.3 million loss. And in Aransas Pass, the convention center has become a political football as officials try to figure out how to make it profitable.

It’s unclear how much the Alice multipurpose center would cost, where it will be built or exactly what it will entail. Project planners want to spend more time gathering input before making decisions.

The $70,000 study includes market analysis, financial projections, economic impact analysis, and aquatic and convention center complex conceptual analysis, De Los Santos said.

The general vision is a campuslike setting with meeting facilities, room for a privately-developed hotel, walking trails in a parklike area, and, of course, the pool.

Swim team coaches, members and athletes told the planners Tuesday that the city, with only one six-lane municipal pool that’s at least 30 years old, sorely needs a facility ready for competition, for family relaxation and for general health in a community suffering high obesity rates.

The town has a nonprofit swim group of more than 100 participants in the summer, and its school swim teams regularly compete at the state level.

Alice High School‘s senior class president, Horacio Rangel, said he rides two hours on the bus every day to keep up his swim training, but the bus isn’t the best environment for homework. He recently dropped to No. 22 in academic ranking in his senior class.

“I’d be top 20,” he said, “if I had more time to study.”

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South Texas enjoys boom while it lasts

Eagle Ford area knows economic ups and downs.

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By John MacCormack
jmaccormack@express-news.net
Updated 01:21 a.m., Wednesday, April 6, 2011

KARNES CITY — It was almost a half-century ago that John Braudaway had his first encounter with the hydrocarbon-soaked, deep shale formation that is turning a large swath of South Texas into one crazy boomtown.

“In 1962, I was roughnecking on a crew north of town. And when we drilled through the Eagle Ford shale, it kicked back on us with a lot of pressure. It took us three days to choke it off,” he recalled.

“I told the geologist, ‘You’ve got a good well here. Let’s run ’er out.’ But he said, ‘Naw, it’s that old Eagle Ford shale. It will produce for four or five days and then seal off,’ ” said Braudaway, 71, who’s still in the oil business.

But about a year ago, a new extraction technology called hydraulic fracturing began unlocking the mineral riches held in the deep shale vault that runs from the Mexican border northeast for hundreds of miles.

These days, the Eagle Ford is the hottest play in the country, with some South Texas oil wells producing several thousand barrels a day as well as abundant flows of natural gas.

The play is creating jobs and sudden wealth in a chronically depressed region that long survived on cattle and agriculture, between periodic oil and gas booms.

In some areas, mineral leases that a few years ago went for a few hundred dollars an acre now are commanding $10,000 and up. For the very fortunate few, monthly royalty checks can run to six figures and lease bonus checks are even larger.

“This place went from desolate to booming. There are quite a few millionaires now in Karnes County. They are being made every day,” Braudaway said during a recent tour of the county. “As soon as they flare a well, you can become a millionaire, and some of them have become millionaires just off the oil and gas lease bonus.”

Trip Ruckman, 66, president of the Karnes County National Bank, said deposits rose by $2 million a month last year, and now may be double what they were five years ago.

“What’s good is that a lot of mineral interest around here is owned by small landowners and farmers,” he said. “The wealth is getting spread around pretty well.”

Ruckman said that after decades of lean times, no one is throwing the money around.

“It’s fun. We’re enjoying it, but a lot of people are not used to being flush. It’s kind of unbelievable for most of them, and they are sitting on it to a large extent,” he said.

The drilling figures kept at the Railroad Commission tell the production story.

In 2008, the state issued 33 drilling permits for the Eagle Ford shale. In 2009, it jumped to 94, and last it year it exploded, to 1,229 permits. While figures for the first quarter of 2011 aren’t available, the furious pace of drilling continues.

Correspondingly, sales tax collections are climbing by double digits in areas most affected by the play.

According to a recently published economic impact study by experts at the University of Texas at San Antonio, the long-term regional implications of the boom are staggering.

“Under modest assumptions, by 2020 the Eagle Ford shale is expected to account for close to $11.6 billion in gross state product, $21.6 billion in total economic output impact and support close to 67,971 full-time jobs in the area,” according to the executive summary.

‘No Vacancy’

At ground level, the first fruits of the boom, which already has brought thousands of new workers — most of them driving white pickups — to South Texas and uncounted millions in oil company investments, are everywhere.

In Kenedy, the State Motel has been booked solid for two years to oil company workers, and it likely will keep the “No Vacancy” sign up awhile longer.

“We’re gonna be full for the next five years,” said Maria Munoz, the manager.

Just down the road is the Pecan Grove RV Park, one of the many cropping up on empty lots almost overnight around the play.

“The bonus money built this park. I’ve got a little over 100 acres leased, and they have nine months left to drill,” said owner David Brodsky, 48, of Kenedy, one of the new Eagle Ford millionaires.

With the Pecan Grove already full, Brodsky is building two more RV parks. And he just finished signing another lucrative mineral rights deal.

“I just leased another 14 acres, and I got $10,000 an acre plus 25 percent royalty. It’s nice to be able to do some of the things I’ve wanted to do all my life,” he said.

In Gonzales, the city has rented out 100 RV pads at the rodeo grounds to oilfield workers and plans to add 100 more, according to Charles Winwehand, the acting city manager.

“We continue to get requests weekly for places for new RVs, but the town is pretty much full and there are no housing vacancies,” he said.

In Cuero, officials are planning a new 300-home subdivision to house oil field workers, as oil companies are quickly buying real estate and setting up shop.

“Geo Southern has bought a building. Petro Hawk, which was the first company to drill, is also here. And Pioneer Natural Resources just purchased 134 acres in our industrial park,” DeWitt County Judge Daryl Fowler said.

Even in tiny, long-snoozing Tilden, things are hopping.

“It’s hard to get in to eat at any of the cafés or restaurants. And it’s hard to get gas because so many vehicles are waiting. I don’t think I can ever remember that. And right now, we’re in the early stages,” McMullen County Judge Jim Teal said.

In Carrizo Springs, Lee’s Steakhouse — like most restaurants in the play — is regularly jammed with free-spending newcomers.

“These people work 16 to 18 hours a day in the field, and they are hungry. They’ve got money and they pretty much order whatever they want. We’re packed every night,” said owner Lee Vallejo, who now has expanded both his menu and his business hours.

Everywhere, there is a shortage of skilled workers. And there is money to be made in the most improbable ways.

Because the “fracking” process requires tremendous amounts of water, cities such as Carrizo Springs are trying to figure out how to turn treatment plant effluent into cash.

“We’re talking about it up for bids to see what comes in. The oil industry is paying about 50 cents a barrel right now for gray water, and we generate about a half-million gallons a day,” City Manager Mario Martinez said.

The competition for mineral rights among the “lease hounds” who now are swarming over land records in county courthouses across South Texas has driven lease prices sky-high and caused some to take unusual risks.

“We’re getting a lot of ‘top-leasing,’ where one company leases on top of another, betting that the first one won’t be able to perform before the lease expires,” said David Phillip, 61, a veteran Karnes County oil and land man.

And because most leases lapse if drilling doesn’t occur within three years, the landowners are hoping to cash in twice by signing a second lease with a company that’s willing to gamble.

“And the landowner hopes the first lease lapses because the royalty on the second one will be better,” he said.

Strain on the system

But the sudden influx of thousands of new workers and fleets of heavy oil field equipment also is taking a toll in lightly populated rural South Texas, causing traffic jams and ruined roads.

“We have constant traffic, day and night, big trucks and oil tankers. At the H-E-B and Wal-Mart, it’s hard to find parking, and by 4 p.m., practically everything is gone from the shelves,” said Carrizo Springs Mayor Ralph Salinas, who quickly noted that he isn’t complaining.

Other problems are more serious and expensive.

“We have a lot of road damage, and while some of these oil companies are very good about working with us, others are not,” said La Salle County Judge Joel Rod8riguez, adding that county bridges also have been damaged. “We have a lawsuit with some of these oil companies over damage for $5 (million) to $7 million. I think there is damage everywhere.”

In Karnes County, traffic problems caused by 18-wheelers running wild prompted county officials to call in a state police task force this year.

“We weren’t prepared for this. Starsky and Hutch couldn’t do this job unless we gave them the tools,” said County Judge Barbara Shaw, adding that the increased tax revenues needed to hire more deputies are a year or two away.

“We had many citizens calling to complain about speeding and safety problems. So the DPS brought a task force to town, and they were highly visible. I’m sure they wrote a lot of tickets,” she said. “The big joke in town was that my husband got at least one ticket. He runs water trucks.”

Alfred Pawelek, 81, a former Karnes County judge and businessman, said the Eagle Ford play is lifting a region that seemed on a relentless slide toward poverty.

“We have been orphans here in Karnes County ever since I can remember. When I went into drive-in movie business here in 1950, we had 25,000 people in the county. When I got out in 1975, we were down to 12,000,” he said.

About 16,000 now live in Karnes County, and many were just getting by before the boom.

“It’s long past due. Our landowners have just been holding on,” Pawelek said. “Once every three years they’d get a crop. Now, with the good leasing going on, I can see they are building hay sheds and new fences, and buying new trucks.”

But, as anyone who has spent a lifetime in South Texas wells knows, the good times always end.

“There’s always a dark side. Every oil boom becomes a bust,” said Fowler, the DeWitt County judge. “They keep talking about this being a 20-year shot for us, but the economy could crater or we could run into environmental problems.

“Right now we’re in the glory days, and as long as we watch our budget, we’ll be safe.”

As originally published, this story contained an error.

Original Article

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