Eagle Ford Drilling - Regional Rig Count Falls 10 January 27, 2012

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The Eagle Ford Shale drilling rig count fell 10 rigs over the past week to 255 active units. The biggest declines were Karnes County, dropping 6 rigs, and Webb County, dropping 4 rigs. The natural gas rig count held flat on the week, while we lost 10 oil rigs. While considered commonly considered oil rigs, both Karnes and Webb county are parts of the Eagle Ford where wells produce a considerable amount of gas. Oil prices held around $100/bbl through most of the week.  Natural gas prices rebounded off ten-year lows to ~$2.77/mmbtu, with the market belief that other producers would follow Chesapeake's lead in shutting in production and moving rigs out of gas plays. Horizontal wells account for activity from 238 rigs drilling and we have 0 injection or service wells being drilled.

Karnes County kept its lead in drilling with 37 rigs. Webb (36), La Salle (34), DeWitt (28), McMullen (22),Gonzales (20), and Dimmit (18) lead the pack and are the only counties with double digit rig counts.

News in the Eagle Ford included:

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

Eagle Ford Oil Production to Eclipse 400,000 b/d by 2015

At the Argus Americas Crude Summit yesterday, Tradition Midstream CEO John O'Shea was quoted saying Eagle Ford crude production would eclipse 400,000 b/d by 2015.  It's an interesting quote coming from the Eagle Ford midstream company. The topic of the discussion was crude, but I believe he was including crude and condensate numbers in his numbers.

Eagle Ford Task Force Finds South Texas Water Supply Sufficient

Data shows Carrizo Wilcox Aquifer contains enough water to support oil and gas development The Eagle Ford Task Force (EFTF), appointed by Texas Railroad Commissioner David Porter, convened in San Antonio in November and December to discuss water quantity and usage as it relates to oil and gas production in the Eagle Ford Shale.

The 26-member group was presented with data and statistics concerning water usage from several sources, and subsequently met privately to discuss the data presented and consider its implications.

The task force came to the conclusion that, based on the information presented, the Carrizo Wilcox Aquifer in South Texas appears to contain enough water resources to support oil and gas drilling activities, including hydraulic fracturing, in the Eagle Ford Shale while meeting all other projected uses.

“I am pleased to announce, after exhaustive research, our task force has found water sourcing in South Texas is currently not an issue,” said Railroad Commissioner David Porter.  “We will continue to study best practices for water management in the region to help mitigate any future issues.”

South Texas Water is Sufficient for Fracking

The data presented to the group indicated that drilling and completions in the Eagle Ford Shale account for approximately six percent of the water demand in South Texas, while irrigation accounts for 64 percent and municipal uses account for 17 percent.

In addition, the industry as a whole has reduced the amount of water it uses to hydraulically fracture wells.  Currently, industry is reporting an average use of approximately 11 acre-feet of water used to complete each well, down from the approximately 15 acre-feet previously used.

Industry experts informed the task force that approximately 2,600 to 2,800 new wells are expected to be completed annually in the Eagle Ford Shale at peak demand, which translates into about 30,000 acre-feet of water per year during the heaviest point of development of the Eagle Ford Shale.  In 2008, the Carrizo Wilcox Aquifer contained 540,000 acre-feet of available water.

"I am pleased industry has made improvements in reducing the amount of water used in the hydraulic fracturing process, and we look forward to working in a cooperative manner with all task force stakeholders to continue improving the process,” said task force member Teresa Carrillo, Sierra Club, Executive Committee Member, Lone Star Chapter.  “However, there is still concern that this pumping may have localized impacts on water levels in the aquifer and on aquifer discharges to streams and springs.  We are hopeful that through this task force process our concerns will be addressed.  Texas is on a world stage and we can make this a model for all the nation and the rest of the world to follow.”

Future Water Sources and Monitoring

Several task force members also indicated their companies are looking into using brackish water for hydraulic fracturing versus fresh water, freeing up even more resources in the Carrizo Wilcox Aquifer.

“EOG is always looking for ways to conserve natural resources and we are taking significant steps to minimize water usage,” said task force member Steve Ellis, Senior Division Counsel, EOG Resources, Inc.  “In addition, we are expanding the use of brackish water in our completion operations to reduce the demand for fresh water.”

Presently, there are several mechanisms in place to monitor water usage in the region.  For example, local Groundwater Conservation Districts measure water levels monthly to determine whether levels are increasing or decreasing.  Historically, during periods of drought, like the one South Texas has recently been experiencing, water levels will decline until normal rain patterns return.  At which time, water levels tend to return to pre-drought levels.

“We have seen water levels drop this past year due to the drought, which has caused everyone to pump more groundwater,” said task force member Mike Mahoney, General Manager, Evergreen Underground Water Conservation District.  “However, we do not see groundwater pumping for oil and gas drilling and completions as a significant contribution to the decline in water levels, when compared to overall pumping.”

The EFTF will continue to meet monthly to examine issues pertinent to the region.

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.

Contact Lauren Willis at [email protected] for additional information.

ConocoPhillips Doubling Eagle Ford Production - 2012

Conoco US Production Chart
Conoco US Production Chart

ConocoPhillips' Eagle Ford production will double over the coming year. The company released fourth quarter earnings on January 25, along with more detail in regards to 2012. The company exceeded 50,000 boe/d in Q4 of 2011 and expects to grow production to more than 100,000 boe/d by the end of 2012. 

Output would already exceed 60,000 boe/d, but Eagle Ford pipeline and midstream constraints have limited production to date. As additional pipeline and gathering comes online, Conoco will add the 10,000 boe/d held back by constraints and add more than 40,000 boe/d from drilling in 2012. Current plans call for 16 rigs to drill 180 wells in 2012. ConocoPhillip's activity centers around its core acreage in the DeWitt County and Karnes County areas.

Conoco expects to reach peak Eagle Ford production of 140,000 boe/d later in the decade, but that number is likely conservative as the company begins to direct more capital to higher value liquids plays. If natural gas prices remain low, we expect additional capital will be directed to liquids plays in the Permian, Bakken, and Eagle Ford.

Chesapeake's Operating Plan | Natural Gas Loss = Eagle Ford Gain

Chesapeake Energy is planning to reduce the company's natural gas rig count across the U.S. and shut in natural gas production in response to low prices. The operated, dry gas, rig count will decrease by 50 rigs to 24 in 2012 from 75 in 2011. The company is also shutting in production of 0.5 Bcfd. That's a little less than 1% of U.S. supply, but it's a good start in helping remedy $2 natural gas prices. The rigs will be moved to liquids-rich areas that are supported by more valuable oil, condensate, and NGL production. The Eagle Ford is a likely beneficiary. While the change shouldn't be substantial, don't discount the value of the play's liquids production in times of low gas prices. Chesapeake is likely one of many that will make similar moves.

This reallocation will result in increased expenditures in certain of Chesapeake’s liquids-rich plays, including the Eagle Ford Shale, Utica Shale, Mississippi Lime, Granite Wash, Cleveland, Tonkawa, Niobrara, Bone Spring, Avalon, Wolfcamp, and Wolfberry. The company estimates that approximately 85% of its 2012 total net operated drilling capital expenditures will be invested in its liquids-rich plays.

The Barnett Shale and the Haynesville Shale are the two plays that will be affected the most by the changes. Chesapeake will only run six rigs in the Haynesville and six in the Barnett. The company will keep 12 rigs active in the dry gas portion of the Marcellus Shale

Read the entire news release at chk.com