Drought Gets Worse as the Eagle For Picks Up

The drought and the renewed call on water resources from the Eagle Ford Shale has been a concern since the beginning of the year when South Texas fell below normal rainfall levels. Water needed for hydraulic fracturing or fracking is now a pull on resources in what is officially the second worst drought on record. Operators are working to limit the impact on South Texas and are beginning to recycle, as well as drill deep water wells. The problem is, in today's world of enormous frack jobs, oil & gas companies use millions of gallons of water to complete each well. Water wells, that are often drilled on the well pad itself, can cost as much as $500,000. That can make completions cost prohibitive in areas with lower economic returns. What was bad a few months ago has only gotten worse, but you can bet the industry is already tackling how to best handle the drought. This isn't the first place water has been an issue. The town of Big Spring is already treating recycled wastewater and you can bet more local towns in South Texas will begin doing the same.

In the midst of the second-worst drought in Texas history, towns across the state are going to extreme measures to cope, capping residential water use, and limiting the number of days households can water their lawns. Earlier this week, the West Texas town of Kemp ran out of water. In Big Spring, the local water district is building a plant to recycle treated wastewater back into the drinking supply.

Swift Energy Olmos Wells Add Another Drilling Target

Swift delivers promising Olmos formation results. The company might have stumbled upon two prolific plays if the results listed below continue across the company's acreage. Both the Eagle Ford Shale and Olmos will be horizontal drilling targets going forward. It will be interesting to see if the Olmos is localized or a true resource play.

In McMullen County, one Eagle Ford horizontal well and two Olmos horizontal wells were completed during the quarter.  The SMR EF 3H, with a lateral length of 4,850 feet was completed in the Eagle Ford shale and had an initial production rate of 1,230 barrels per day (“bbls/d”) of oil, 0.78 million cubic feet of gas per day (“MMcfg/d”) and 60 bbls/d of natural gas liquids, with flowing casing pressure of 1,975 psi on a 18/64” choke.

To date in the third quarter, Swift Energy has fracture stimulated five horizontal wells in South Texas. The R Bracken 40H Olmos well had an initial production rate of 6.2 MMcfg/d, 480 bbls/d of natural gas liquids and 12 bbls/d of oil, with flowing casing pressure of 5,800 psi on a 20/64” choke. The Siddons 3H Olmos well had an initial production rate of 5.1 MMcfg/d and 398 bbls/d of natural gas liquids, with flowing casing pressure of 5,400 psi on a 20/64” choke. The Whitehurst 3H Olmos well had an initial production rate of 608 bbls/d of oil, 1.4 MMcfg/d, and 106 bbls/d of natural gas liquids, with flowing casing pressure of 2,685psi on a 20/64” choke

EOG's Eagle Ford Shale Investment Paying Off

EOG is reaping the benefits from being an early mover in the Eagle Ford Shale. The company was able to build an over 500,000 acre position for $450 per acre, while industry deals are now trading above $20,000 per acre. After assembling its acreage position, EOG drilling operations commenced and the company has gone for 0 to 23,000 barrels of oil per day in just 18 months. The company did a recent interview on its Shale Oil operation with CNN and you get a taste for how early the company began moving into liquids plays.

This "wall of disbelief" -- Papa's term -- did have one benefit. It allowed EOG to acquire mineral rights at bargain-basement prices, even after the cloak of secrecy surrounding the Parshall discovery had lifted. EOG holds 600,000 acres in North Dakota, leased at an average cost of $190 an acre, and another 595,000 acres in Texas's Eagle Ford Shale at a cost of around $450 an acre. Similar properties in the Bakken are now leasing for anywhere from $800 to $6,000, according to Papa, while Eagle Ford acreage goes for as much as $20,000.

Papa believes Bakken and Eagle Ford will wind up as the fifth- and sixth-largest oilfields ever discovered in the U.S., each with about 4 billion barrels in recoverable reserves. To put that into perspective, the largest offshore oilfield, Gulf of Mexico's Thunder Horse, is expected to produce 1.2 billion barrels, and drilling offshore is more expensive. "It was pretty darn uncanny for them to sneak in and carpet-bomb all that acreage," says Parker.

The challenge for EOG going forward will be replicating its North Dakota success elsewhere. Papa maintains that 70% of what his crews learned in the Bakken can be applied to the Eagle Ford and other shale oilfields where EOG has acquired land, such as New Mexico's Leonard Shale, West Texas's Wolfcamp, and Colorado and Wyoming's Niobrara. "Our learning curve is now months rather than years," he says.

Analysts seem impressed. EOG's Eagle Ford operation has grown "from zero to 23,000 [barrels per day] of oil in less than 18 months," gushes Wunderlich Securities oil analyst Irene Hass in a recent report. She thinks Eagle Ford will surpass Bakken as EOG's top oilfield by 2013. One obstacle is the high cost of drilling. Rigs are scarce, and workers are in such demand that North Dakota roughnecks are earning $60,000 a couple of years out of high school, according to Frank Mosely, an energy economics professor at Minot State University. Another bottleneck is transportation. The cost of accessing existing pipelines is so high that EOG is able to save in the range of $5 to $10 a barrel by moving oil by rail rather than by pipeline.

Read the full news release at CNNMoney.com

Shell Reversing Houma-Houston Pipeline?

Shell's Ho-Ho or Houma to Houston Pipeline could be reversed to help move Eagle Ford Shale crude oil east of Houston and further into the Gulf Coast refinery complex. If agreed, the reversal will add 300,000 barrels per day of flowing capacity from Houston to Louisiana by early 2013. 

Shell Pipeline Co LP (RDSa.L) said on Thursday it was considering reversal of the Houma-to-Houston pipeline system to ship Eagle Ford crude and other oils eastward to the U.S. Gulf Coast refining hub.

The reversed so-called Ho-Ho line would flow 300,000 barrels per day of crude from the Houston and Port Arthur, Texas, markets to the Louisiana markets by early 2013, the company said in a release.

"Shell Pipeline's Ho-Ho reversal would provide pipeline access to additional crudes across the 300 miles (483 km) of the U.S. Gulf of Mexico refining complex," a news release said.

"Those crudes include the domestic crude oil production increases in Texas and the midcontinent including the Barnett, Eagle Ford and Bakken Shale plays, as well as the growing crude supplies in the Cushing, Oklahoma, area," the release said.

Read the full news release at Reuters.com

Rosetta Resources Down Spacing Test at 50 Acres per Well

Rosetta Resources will be able to provide real production data on the down-spacing potential in the Eagle Ford by the end of 2011. The company is drilling a three well down spacing pilot program to test the potential of 50-acre spacing on the company's Gates Ranch lease in Webb County, TX. If this pilot proves successful, it means the Eagle Ford might have a well inventory that is three times greater than most people expected.

The Company also initiated two separate infill drilling pilot programs at Gates Ranch to test the feasibility of 50-acre spacing. The first pilot program has been drilled and both pilots are expected to be drilled and completed by the end of the year.