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Eagle Ford Update Thru December 2017

The Eagle Ford shale play, one of America's three largest shale oil plays, is over the hump. It peaked years ago and short of $100 oil, sustained, will struggle to maintain 1MM BOPD going forward and will, in my opinion, not reach anywhere close to 5.5 billion barrels of recoverable oil as the EIA and others predict. Some 21,000 Eagle Ford shale oil wells have already been drilled for approximately 2.2G BO of production. Now all the good production in the Eagle Ford comes from just two counties and sweet spots in those two counties are getting the snot drilled out of them.

In the two charts above, from realized production data filed at the Texas Railroad Commission, we see that 2014 Eagle Ford wells, after 4 years of production life, struggle to make 40 BOPD and the 220K BO of production they achieved after 4 years is not sufficient to reach payout of well costs at $50 dollar gross oil prices. Wells drilled in 2015 and 2016, are not better. In fact they are worse. 2017 wells indicate higher initial productivity rates, from longer laterals and bigger frac's (costing more money) but it remains to be seen if that higher initial productivity will result in increased UR. I think not.

Many public shale oil companies now operating in the Permian Basin migrated there from the Eagle Ford where they amazed enormous long term debt drilling what is clearly very lousy wells. At 40 BOPD it is hard to pay back $7M well costs. Pioneer, Conoco, Devon; lots of these companies are trying to dump their Eagle Ford assets for clear reasons. BHP screwed the pooch, badly, in the Eagle Ford. What those companies cannot "dump," however, is the debt and they will now have to make enough profit in the Permian Basin, to pay for their messes in the Eagle Ford.

If you love the shale oil business, enjoy cheap gasoline prices, or can make a few dollars here and there on day trading shale oil E&P's, most this kind of stuff will not matter to you. Its not your debt, and you don't have to write any checks. In the long run, however, this shale stuff is simply NOT going to work, financially, and the chickens will come home to roost.

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