Sanchez Energy Eagle Ford Wells - January 2012

Sanchez Energy is the latest Eagle Ford operator to provide an update on its activity. The company recently listed its equity on the NYSE, so I suspect we'll be hearing from Sanchez more and more. The company has Eagle Ford operations in several counties across the play. The majority of the company's acreage is located in Northwest Lavaca and Southeast Fayette counties, but recent drilling results were highlighted in the Gonzales County area. Two recent wells produced more than 1,200 boe/d each in the first 30 days. The company has a 50% working interest in the Barnhart #5H and the Barnhart #6H wells.  Watch for additional results in Fayette and Lavaca counties as the company delineates a more significant portion of its acreage position.

Sanchez Energy currently has a total of 91,000 net acres in the Eagle Ford shale trend in south Texas, with a specific focus on the volatile oil, black oil, and condensate windows of the trend. The company's acreage position is divided into three main project areas as follows:

Palmetto: approximately 9,400 net acres (18,800 gross acres) in Gonzales County, Texas where the company has 50% working interest;

Marquis: approximately 54,900 net (and gross) acres located primarily in Southeast Fayette and Northwest Lavaca Counties, Texas where the company has 100% working interest; and

Maverick: approximately 26,400 net acres (33,100 gross acres), located in southern Zavala and Frio Counties, Texas where the company has an average 80% working interest

Sanchez reports a many as 750 net drilling locations on its acreage at 120 acre spacing.

Industrial Space in Short Supply - Houston - San Antonio

Industrial properties are well occupied in Houston.  Energy Service (Oil & Gas) companies have quickly filled available space in order to meet demands from growing oil & gas plays like the Eagle Ford Shale.

Companies Are Expanding and Relocating to Houston

Many of my clients have chosen to remain (and even expand) in Houston as a primary hub, and then open up satellites in South Texas to take advantage of the Eagle Ford Shale Play in South Texas.  Given Houston is deemed as one of the energy capitals of the world, has a low cost of living and enjoys a quality labor pool, companies are oftentimes relocating to Houston.  Therefore, industrial space is being absorbed at a nice clip.  New development has started on 3 speculative projects for distribution space.  This hasn’t happened since 2007.  Also, over 2 MM SF of manufacturing space (buildings with cranes) is under development for both users and future occupiers.  Overall, we know of very little speculative projects underway in any other area of the country.  Notable companies expanding in Houston are National Oilwell Varco, Weatherford, and KBR.

Manufacturing and Distribution Space is Hard to Find

“What do you mean there isn’t an ample amount of industrial (distribution/manufacturing) space available?”  I’m often challenged by this question, especially from companies not in Houston.  Based on challenges in the national economy, it seems industrial property would be readily available in Houston.  Well, that is not necessarily the case, particularly for the West side of the city.  It’s a 94-96% occupied market – and even higher in the manufacturing sector. The Eagle Ford Shale in South Texas has driven demand for industrial space given the need for technology enhancements, manufacturing of products (particularly requiring a heavy crane), and assembly & distribution of those finished products -  such products including valves, tubing, cabling, drilling motors/tools, etc.

Companies Also Expanding into South Texas (San Antonio area)

In addition to the growth and expansion in the Bayou City, Weatherford and Halliburton have announced new locations in the San Antonio area.  Halliburton’s presence will create over 1,500 jobs.  Experts say we’re only in the 2nd inning of this “game”.  This is obviously a significant and positive driver to the San Antonio economy as well.

Oil India Eagle Ford Position Coming Soon?

Oil India is out wining and dining Eagle Ford operators. The company announced it is looking for a minority stake of 20-30% in U.S. shale acreage and is looking at the Eagle Ford. Gail and Carrizo Inked an Eagle Ford JV in September of 2011 and Reliance and Pioneer inked a shale deal in 2010, so it's no surprise to see Oil India might want to follow suit. Oil India has spoken with ConocoPhillips and word hit the news wire early Monday. While it is not out of the realm of possibility, a joint-venture between the two companies would likely include much more than the $200-300 million investment Oil India is looking to make. Oil India might have assets it is willing to trade, but if not the company is much more likely to find a suitable partner in a company with a smaller acreage position. Using the $25,000 per acre price paid in the Hunt Oil -Marubeni Partnership announced two weeks ago, Oil India is in the market to buy 10,000-15,000 acres of prime Eagle Ford acreage. That's much less than 20-30% of Conoco's 220,000+ acres in the play. If the two companies reach an agreement, it will include additional consideration or it will be limited to a much smaller area than Conoco's current footprint in South Texas.

India's state-run explorer Oil India is in talks with U.S.-based companies, including ConocoPhillips, to buy stake in shale gas assets in the U.S., its head of finance T.K. Ananth Kumar said on Monday.

"We are in talks with some of the US-based companies and ConocoPhillips is one of them. They have met us," Kumar told Reuters.

Read more at reuters.com

Cotulla Traffic Jams Becoming Commonplace

Officials in Cotulla believe the population has likely doubled from the 3,500 estimated not too long ago. The town is booming as more and more Eagle Ford workers move to town filling up RV Parks and the new hotel. The one hotel, a Holiday Inn Express, will have competition soon. Three hotels are currently under construction. It's all great news for the economy, but we'll just have to keep our fingers crossed that the city and county can keep up with the growing demands on infrastructure.

Natural Gas Rigs Falling - Eagle Ford Shale Drilling Holds Steady

Drilling Rig
Drilling Rig 9

The Eagle Ford Shale drilling rig count fell 1 rig to 263 this past week. The rig count hasn't moved much over the past month. It will be interesting to see if natural gas prices go low enough that operators cut back across the board. They might not want to, but without the capital you can't drill a well no matter how good the prospect is. Oil prices fell a couple of dollars to $98/bbl on the back of news that an EU oil embargo won't happen for at least 6 months. Natural gas prices continued a path to pain for operators. The February natural gas contract is bouncing around $2.70/mmbtu (Henry Hub) and the natural gas rig count is falling quickly.  We lost 8 gas rigs this past week, which means we've lost 15 in the past two weeks. The loss was almost completely absorbed by the addition of 7 rigs drilling for oil (185 total). Horizontal wells account for activity from 244 rigs drilling and we have 0 injection or service wells being drilled.

Karnes County retook the lead in drilling this week and leads the region with 40 rigs. Webb (39), La Salle (32), DeWitt (27), McMullen (25),Gonzales (23), and Dimmit (20) are the hottest counties.

News in the Eagle Ford included several corporate announcements and a lot of energy around the Laredo Eagle Ford Job Fair. We also have another Eagle Ford Job Fair next week in San Antonio. Other news over the past week included:

Cal Chapman, P.E. contributed an article addressing Corrosion Control in the Eagle Ford.

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Come back weekly for updates on the South Texas drilling 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 formation. 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