Eagle Ford Shale Rig Count - August 5, 2011

This week the Eagle Ford Shale rig count is up from 227 to 229 active drilling rigs. The number of natural gas rigs working dropped down by 5 from 109 gas rigs drilling to 104, while the oil rig count jumped from 117 active rigs to 124. One rig is drilling a storage well in Milam County, TX. Horizontal rigs account for 206 of the 229 rigs drilling in the South Texas region. In a week full of earnings releases, we had several interesting developments. Bentek reported that Eagle Ford Shale production doubled between May and July and now tops 160,000 barrels of oil per day. EOG Resources was happy to report promising "consistency" across its 535,000 acres in South Texas. SM Energy increased its capital budget and now plans to spend over $800 million in the Eagle Ford this year. And on the opposite side of the coin, Petrohawk abandoned the Red Hawk prospect in Zavala County, TX. The stock market took a turn for the worse this week, but we should see strong Eagle Ford Shale drilling levels going forward.

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Drilling Rig Count by County

What is the Rig Count?

The Eagle Ford Shale Rig Count is an index of the total number of oil & gas drilling rigs running across a 30 county area in South Texas. The South Texas rigs referred to in this article are for ALL drilling reported by SmithBits and not solely wells targeting the Eagle Ford Shale.

All land rigs and onshore rig data shown here are based upon industry estimates provided by the Baker Hughes Rig Count and/or Smith Service Co's (Schlumberger) Smith Rig Count.

NuStar, EOG Agree to Rail Offloading in St. James, LA

St James, Louisiana will be home to a rail facility that EOG Resources and NuStar will use to offload crude from the Eagle Ford Shale and other oil plays. By using rail, EOG will be able to market its crude outside of South Texas Gulf Coast area and will likely get better prices as Eagle Ford production grows. EOG was proactive in getting agreements to ship crude in the Bakken Shale and it looks as if they're on the same track in the Eagle Ford. 

The project will facilitate movement and storage of crude oil production from the Bakken, Eagle Ford and other developing shale plays in the United States.

The new project will include the addition of new rail and unit train unloading facilities. Two new storage tanks with a combined 360,000 barrels of capacity will also be built in conjunction with the project. The new facility will be equipped to receive at least one 70,000-barrel train per day and will have enough track and other infrastructure to stage an additional train to await offloading. The rail project is expected to be completed in the first quarter of 2012, and the tanks are expected to be completed and in service in May 2012.

RRC Tackling Eagle Ford Issues

The Texas RRC is taking great measures to assure landowners and stakeholders are well informed across South Texas. For a resource the size of the Eagle Ford Shale, it is important that people understand the impact of the play. The RRC developed an Eagle Ford Task Force to help avoid the issues faced in the North Texas Barnett Shale where landowners and citizens weren't prepared for full scale development. With production on the rise and the rig count climbing, you can bet each day the Eagle Ford impacts more people.

Commissioner David Porter has created an Eagle Ford Task Force to head off the kind of public backlash that has troubled the Barnett Shale area in North Texas.

Porter is on target with his diagnosis of what went wrong in North Texas: too little information about the development process, which has been near populated areas, and a perception that the energy companies doing the work were calling the shots while the Railroad Commission was largely AWOL or doing the minimum to direct the process to ensure that public and environmental interests were protected.

To his credit, Porter is trying to avoid a repeat of that situation in South Texas and the public backlash that could hinder development of the region's immense resources. He has assembled a group of 22 stakeholders that includes representatives of drilling, pipeline and trucking companies, green energy experts and environmentalists, county and economic development officials, landowners and those who represent landowners, according a report by Vicki Vaughan of the San Antonio Express-News that ran in last Thursday's Chronicle.

Read the full news release at Chron.com

Magellan Pipeline to Corpus Christi Loses Interest

Magellan might have been a little late to Eagle Ford Shale Pipeline party. The company mentioned in its earnings release that momentum had been lost in getting an $80 million project planned to move Eagle Ford crude to Corpus Christi. The company says it is working on a quicker solution to connect Corpus Christi, but this might be the first sign that the initially proposed pipeline will not be built.

"With regard to the Eagle Ford pipeline project we previously announced, we are no longer working with momentum but we are in discussions with other third parties with regard to a much more cost efficient and faster market solution to transport Eagle Ford production to Corpus Christi," a company spokesman said during the second-quarter conference call.

The Eagle Ford Shale formation in south Texas holds about 3.35 billon barrels of crude oil.

In July, the Eagle Ford formation produced 160,000 barrels per day, up from the 71,000 bpd in May, according to oil consultants Bentek, with some analysts expecting production eventually to ramp to as much as 420,000 bpd.

"Again we are talking to third parties about a project that will get us to Corpus Christi at a lower cost and much quicker than a new build from the production area to the Gulf," the company said.

Read the full news release at Reuters.com

BHP - Petrohawk's Red Hawk Zavala County Acreage Abandoned

Petrohawk has terminated any further investment in Zavala County's Red Hawk field. We've heard this was a possibility. Eagle Ford Shale Oil wells in the county have not outperformed expectations like many other areas of the play and Petrohawk has now stepped away from the asset. BHP is not expected to continue drilling, but I'm sure the company will consider whether or not the Zavala County Eagle Ford assets fit the company's overall portfolio. Watch for well results from Chesapeake in the eastern part of the county. It will be interesting to see if Chesapeake's acreage provides better returns. Petrohawk and Chesapeake were two of the earliest movers in the county.

Petrohawk announced Results in the Red Hawk prospect in Zavala County, Texas, failed to meet minimum expectations during the quarter. As a result, capital spending at Red Hawk will be terminated and capital budgeted for 2011 will be reallocated to other operating areas.