Eagle Ford Shale Drilling Rig Count - October 14, 2011

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Drilling Photo

The Eagle Ford Shale drilling rig count increased six more rigs to 247 active drilling rigs. That's jump from the Eagle Ford era record of 241 hit last week and the 239 we hit twice over the past two months. The number of natural gas rigs working increase one to 125, while adding five oil rigs (122). Horizontal wells account for 215 of the 247 rigs drilling in the South Texas region. La Salle and Gonzales counties added two rigs each and no other county added or dropped more than one rig.

Chesapeake Energy (29) and EOG Resources (23) are the only operators with more than 20 rigs active in the play.  68 companies have an active drilling crew in the region.

The Eagle Ford oil and gas conference in San Antonio brought more than 4,000 people to the convention center. Here are my notes from the conference- H2S, Labor & Pipeline Shortages, Rising Service Costs Define 2011

Stay tuned each week for an update on the South Texas rig count.

Drilling Rig Count by Operator

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.

Drilling Rigs by County

Not Enough Pipelines, Railcars, or Trucks for U.S. Crude

West Texas Intermediate (WTI) crude is trading at a more than $25 discount to Brent Crude. Brent prices are used as the benchmark for two-thirds of the international crude trade. WTI is used as the U.S. benchmark. More than $25 per barrel is an amazing spread when you consider WTI is priced in Cushing Oklahoma and the U.S. accounts for almost 25% of worldwide oil demand. How can oil be cheapest where demand is the highest? When you have a moment, look at Bakken and Eagle Ford drilling levels.

Shale Plays Adding Production Outside of the Gulf Coast

Shale plays like the Bakken and growing plays in West Texas along with an influx of Canadian oilsands production in the midwest have pushed a surplus of oil all the way to Oklahoma. In a perfect market, we could move oil quickly and easily to take advantage of the arbitrage or "free money". Oil needs to penetrate the Gulf Coast refining market to recognize higher prices. Sounds simple.

Pipelines, Railroads, and Trucks are Stressed

We need more pipelines delivering crude in the Gulf Coast. We don't have capacity, so oil marketers resort to railroad agreements. When rail terminals and railcars run at capacity, trucking becomes the last option. For you guys with a truck and trailer, there's a margin waiting to be made between Cushing, OK, and the Gulf Coast.

The idea of trucking crude sounds great, but no one is doing it because they are already working in the shale plays. Trucks are making as much as $5 a barrel to move crude from tanks to pipelines or storage facilities and those are short hauls. If you can make $5 a barrel three to four times in a day ($3,000-4,000 per day) , there is no incentive to make long hauls that would only pay $7.50-10.00 per barrel ($1,500-2,000 per day). The math is simple, so don't expect truckers to fill the gap as long as there is high demand for short haul trips.

The shortage of pipelines, rail facilities, and now trucks has led to the historic spread between foreign brent crude and WTI (the futures spread was $27 on October 14). As the Bakken and other oil plays continue to grow, the problem will only be answered by major pipeline expansions. Some of those are already in the works, but more are likely on the way.

R.T. Signature]

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Eagle Ford Tax Revenues Boosting the Texas Rainy Day Fund

At the San Antonio oil & gas conference, Texas RRC's Elizabeth Ames Jones touted the Eagle Ford's contribution to the economy and Texas. She reported the Texas Rainy Day Fund will get a deposit of $1.1 billion dollars in November. The bulk of the money comes from oil & gas revenue. That's a good boost to state coffers.[ic-c] She also made a political plea for the federal government to stay hands off when it comes to oil & gas activity and hydraulic fracturing. 

Here's an additional article on the conference mysanantonio.com

Infrastructure Issues Addressed by the Eagle Ford Task Force

The Eagle Ford Task Force met in Cuero Sept. 28 to discuss the impact oil and natural gas production in the Eagle Ford Shale is having on local community infrastructure. The task force announced today its adoption of several advisements related to truck traffic and pipeline development.

Rapidly Increasing Truck Traffic

The rapid increase in truck traffic on local roads in the Eagle Ford Shale region has led to the deterioration of roads and an enhanced concern for public safety. The 24-member task force, created by Railroad Commissioner David Porter, listened to presentations and concerns from the Texas Department of Transportation, the Association of Energy Service Companies, the Texas Motor Transportation Association and the general public in an effort to determine solutions.

“We are seeing an overwhelming increase in traffic in these small communities and citizens are concerned,” said Commissioner Porter. “So we brought together the trucking industry, oil and gas industry, state and local government and the general public to engage in a productive dialogue, and as a result, we were able to come up with real, tangible solutions.”

Billions in Pipeline Investment

Also on the task force agenda was pipeline infrastructure. Currently several billion dollars worth of pipeline projects are under development in the region, and local communities have expressed concern with how the development of these massive projects will affect them. Representatives from pipeline companies and legal experts addressed the task force, detailing impending projects and outlining their commitment to partnering with local governments and communities.

“The construction of a 20-inch crude oil line running 50 miles through a county can take the place of 1,250 tank truck trips per day, so it is imperative that we get these pipes in the ground; however, we must ensure local communities are protected” said Porter. “Our task force members, including representatives of pipeline companies, have agreed upon guidelines that will hold the pipeline industry accountable.”

Housing Options Limited

Finally, the task force addressed the housing issue currently facing the region. The Texas Department of Housing and Community Affairs spoke about the many programs they offer to combat rent increases and displaced families. Private developer, Bob Zacaraiah, also spoke about what local governments and communities can do to spur more private investment in the region. Several task force members expressed their desire to see builders develop more permanent housing, to foster community building, rather than temporary housing fixes.

As a result, the task force adopted the following advisements:

Pipeline Advisements

  • The placement of pipelines should avoid steep hillsides and watercourses where feasible.
  • Pipeline routes should take advantage of road corridors to minimize surface disturbance.
  • When clearing is necessary, the width disturbed should be kept to a minimum and topsoil material should be stockpiled to the side because retaining topsoil for replacement during reclamation can significantly accelerate successful revegetation.
  • Proximity to buildings or other facilities occupied or used by the public should be considered. Particular consideration should be given to homes.
  • Unnecessary damage to trees and other vegetation should be avoided.
  • After installation of a new line, all rights-of-way should be restored to conditions compatible with existing land use.

Road and Truck Advisements

  • The task force supports trucking companies partnering with the Texas Department of Public Safety to develop a program that would alert companies when their drivers receive moving violations or drivers license suspensions.
  • The task force supports the creation of road use agreements or trucking plans between operators and local authorities. These agreements could include parameters such as:
  • Operators must avoid peak traffic hours, school bus hours and community events.
  • Operators must establish overnight quiet periods.
  • Operators must ensure adequate off-road parking and delivery areas at all sites to avoid lane/road blockage.

David J. Porter was elected to the Texas Railroad Commission on November 2, 2010. A Certified Public Accountant and successful small business owner, Commissioner Porter has worked with oil and gas producers for nearly three decades providing strategic financial advice and tax counsel. He has a long record of pro-business, free market, conservative credentials. Visit www.rrc.state.tx.us for additional RRC information.