Utica Shale - Eagle Ford Shale Debate Pits Texas vs. Ohio

The Utica Shale vs. the Eagle Ford Shale debate has drawn a lot of attention since Chesapeake announced a 1.25 million acre position in the Utica Shale. Aubrey McClendon's comments have gotten a lot of traction:

As a result of its analysis, the company believes the Utica Shale will be characterized by a western oil phase, a central wet gas phase and an eastern dry gas phase and is likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas.

That quote sent many articles to the press touting the Utica Shale as the new great shale play and made many Texans wonder if we'd lose some drilling rigs to Ohio. You can track the rig count yourself with the Eagle Ford Shale Drilling Index that is updated each Friday, but if you don't have the time, the counties where the Eagle Ford is present have seen more than 40 rigs come into the play over the past three months. That's more than 10% of the total U.S. onshore rig count (230+ rigs) working in an area that is economically inferior. The catch, it's possible, but the Eagle Ford shouldn't lose much if anything.

We'd like to see an open debate between Chesapeake and other operators like Anadarko, BHP, EOG Resources, Petrohawk, and Marathon Oil. I doubt the guys that have poured billions into the Eagle Ford will agree. But if the hype is true, you'll see rigs working in both plays and will not have to worry about the Utica pulling resources away from Texas.

While the Utica Shale likely has areas that provide better economics than parts of the Eagle Ford, it is hard to imagine any drilling rigs leaving for Ohio. Natural gas rigs deployed in other parts of the country are far more likely to make the move. Natural gas is trading below $4 per mcf as of August 2011. That's not what most plays need to make an economic return and you'll see more drilling shift to liquids plays like the Utica and Eagle Ford.

Not every acre in any play will be economic. We've seen how a highly touted play can do a 180 in the Haynesville Shale and we've even experienced a little of that in South Texas. Most recently, Petrohawk abandoned its Red Hawk Field in Zavala County. That means that Zavala County might face more challenges than we thought, but Dimmit County, DeWitt County, Gonzales County, Karnes County, LaSalle County, and Webb County will likely benefit as rigs move within the Eagle Ford.

In summary, I don't think the entire Utica will prove to be economically superior to the entire Eagle Ford, but I do believe you could read between the lines and say that Chesapeake's Utica Shale acreage looks to be better than Chesapeake's Eagle Ford Shale Acreage.

In short, the Eagle Ford and the Utica look to be big resource wins for the U.S.

R.T. 

Marathon Petroleum and Valero Refineries are Adding Eagle Ford Oil

Marathon Petroleum and Valero Energy refineries are expanding to accept more Eagle Ford Shale crude oil. Both companies have expansion plans that will allow greater volumes of oil to flow through the refineries and the companies want Eagle Ford crude because it is easier to refine than the heavy crudes that are imported from South America. On the back of Marathon Oil's Eagle Ford Shale acreage acquisition, Marathon Petroleum might stand to benefit the most if refining margins hold. 

For Marathon Petroleum, there are some promising developments that could boost future operations in a big way. The company’s Garyville refinery in Louisiana has been performing above expectations. A capacity of 436,000 barrels per day last year to a current output of 464,000 bpd indicates the company’s appetite for expansion. However, a higher capacity doesn’t seem to have whetted its appetite.

In fact, Marathon has already received the approval from state regulators to increase the refinery's overall capacity to 545,000 bpd. This is very promising. Distillate exports from this refinery have gone up in the second quarter to 70,000 bpd from 65,000 bpd earlier.

Additionally, with the advent of shale plays, sweet crude processing should see growth. The company's Texas refinery is, in fact, looking to increase crude oil processing from the Eagle Ford shale play. This region will witness a significant ramp up in production by next year, when most upstream companies will have their wells flowing.

Valero Energy (NYSE: VLO ) has already ramped up its Eagle Ford crude inputs, with its Corpus Christi refinery processing 25,000 bpd. It is also planning to increase its Three Rivers refinery capacity from 40,000 bpd to 60,000 bpd. Valero seems to have a head start here. Marathon, which has plans to increase its sweet crude intake at its Texas City refinery, should stand to benefit.

Read the full news release at fool.com

Texon Petroleum Olmos Well a Success

Texon Petroleum's latest Olmos well came online at 370 barrels of oil equivalent per day. The well is part of Texon's Olmos and Eagle Ford development plans in McMullen County, TX. The Peeler #3 was the 11th well in the Leighton field and all have been successful. This is the second announcement in as many weeks for successful Olmos wells. Swift Energy announced positive results from a horizontal Olmos well just over a week ago.

Texon advises that its recently drilled Peeler #3 (refer to Texon release of 21 July 2011) has begun to flow oil and gas at the gross combined rate of 370 boepd from the Olmos reservoir (comprising 325 bopd and 268 mcfgpd). This is the eleventh well in the Leighton Olmos oil and gas field, all of which have been successful producers. The well will be connected for production to oil tanks and the gas pipeline in the next 2 weeks.

This is a good result as the closest three Olmos production wells, Peelers #1 and #2 and Tyler Ranch #5 tested at initial rates of 170 to 445 boepd. P#3 is the northern most well drilled to date in the Leighton field.

This positive result confirms that the productive Olmos reservoir extends across the northern part of the field and that it contains good quality reservoir further de-risking the 24 undrilled Olmos well locations in the field. The Company has an average 50% working interest (37.5% net revenue interest) in the well.

ZaZa Energy - Toreador Resources Merge

ZaZa Energy and Toreador Resources have agreed to a merger that will create a new public company that will trade on the NASDAQ under the symbol ZAZA. This is an interesting merger in that both companies are rumored to have joint venture agreements with Hess - ZaZa on its Eagle Ford acreage and Toreador on its Paris Basin acreage. The new ZaZa will bring the two partnerships under one roof. ZaZa's Eagle Ford Shale properties will provide a drilling inventory that gives the new company time to fully assess Toreador's Paris Basin assets. The French aren't real excited about hydraulic fracturing and the current fracking ban makes drilling in the Liassic shale more of a question than a plan. 

Toreador Resources Corporation (NASDAQ:TRGL) (Paris: TOR) (“Toreador”) and ZaZa Energy, LLC (“ZaZa”), a privately held oil and gas company based in Houston, Texas, today announced that on August 9, 2011, they signed a definitive agreement to combine the companies. The combined portfolio comprises three areas – the Eagle Ford core and the emerging Eagle Ford/Woodbine (“Eaglebine”) resource plays in Texas and the Paris Basin in France with a current total of 423,000 net acres. Both the Eagle Ford and Paris Basin businesses have strategic partnerships with subsidiaries of Hess Corporation. Based on the closing share price of Toreador on Tuesday, August 9, 2011, the implied market capitalization for the combined company is approximately $294 million

In the Eagle Ford core, ZaZa holds 123,000 gross acres; the joint venture work program forecasts over 280 wells drilled by the end of 2013. In the Eaglebine, leasing is underway to expand the existing 70,000 gross acres to over 100,000 gross acres within the next 12 months. ZaZa has been in discussions with potential joint venture partners for the Eaglebine acreage and plans to spud a first well by the first quarter of 2012

GreenHunter Energy Plans Commercial Water Facility in Wilson County

GreenHunter Energy has leased acreage and plans to build a commercial water facility in Wilson County, TX. The facility will house at least one disposal well, a frack tank yard, and a treatment plant for produced water, frack water, and drilling muds. Now, if we can just get some rain, so there is water to treat......

GreenHunter Water, has executed a long-term agreement to lease approximately five acres of surface and mineral rights in the Eagle Ford Shale region of South Texas where it will develop a new commercial service facility.

This lease and development project will establish GreenHunter Water's presence in and around Wilson County, Texas. The highly active Eagle Ford Shale drilling in South Texas extends predominantly throughout fourteen counties to the north-east and south-west of the facility's location. The planned use for this location includes one or more salt water disposal wells, a treatment plant for oilfield produced water, frac water and drilling mud and a frac tank lay-down yard. The leased property is strategically located in a high drilling activity region with approximately 90 exploration and production drilling rigs currently active in the immediate area.

This location is the first of multiple planned locations for GreenHunter Water in the Eagle Ford Shale and is a direct response to a request from a number of operators active in the region to provide a "Total Water Management Solution."