Cabot - Osaka Pearsall Shale JV Agreed - $250 Million

June 25, 2012 R.T. Dukes

Cabot Oil & Gas and Osaka Gas have announced a joint venture (JV) agreement in the Pearsall Shale. Cabot is selling a 35% interest in 50,000 acres prospective for shale across Atascosa, Frio, La Salle and Zavala counties. Osaka will pay $125 million at closing and will carry 85% of Cabot's drilling cost until the remaining $125 million is paid. Cabot plans to run two rigs in the play through 2012, three in 2013, and four in 2014. At that rate, the drilling carry will be fulfilled by year-end 2013. Cabot keeps full rights to the Eagle Ford.

The deal follows successful exploration wells proving the Pearsall Shale has better liquids yields east of the Maverick basin. The JV is beneficial for both parties. Cabot secures the capital needed to begin development sooner than would be possible on its own and Osaka gains natural gas assets in the U.S. Osaka has been in negotiations to take LNG from the U.S. Owning supply is a natural hedge.

Cabot's CEO commented:

"We believe the Pearsall Shale could prove to be an additional liquids-rich catalyst in our portfolio and are pleased with the results we have seen to date--both internally and from neighboring peers. This transaction will provide the capital necessary to accelerate drilling of this formation, while still maintaining Cabot's 100 percent interest in our Eagle Ford leasehold."

Osaka Gas is a Japanese energy supplier with a focus on natural gas. Natural gas is more important than ever after Fukushima accident.

Eagle Ford Shale Regional Rig Count at 271 – June 22, 2012

June 22, 2012 R.T. Dukes

The Eagle Ford Shale drilling rig count dropped to 271 this past week. That's down from 278 the past two weeks. Losing seven rigs is noticeable, but not significant. Watch the rig count for the next few months to get an idea of what becomes normal. Many analyst are beginning to predict lower activity across the U.S. Some expect declines of 20-25%. That won't likely happen in the Eagle Ford, but don't be surprised if activity does slow. Capital budgets simply weren't planned with $2/mcf gas and less than $80/bbl oil.

Murphy Oil is up for review this week. The company is relatively new to shale plays, but entered when commodity prices were low during the recession of 2008-2009. The company quickly assembled more than 200,000 acres across eight counties in the play. Murphy has 14 rigs active in North America and 10 of those are active in the Eagle Ford Shale. The company has three rigs in Karnes, three in McMullen, two in Atascosa, and two in Dimmit County.

Eagle Ford Oil & Gas Rigs

The natural gas directed rig count (Smithbits) rose by two to 74 this past week. Karnes and Webb counties are the only counties with more than ten rigs targeting natural gas. Henry Hub futures prices traded down during the week, but recovered by the end of Friday. Prices were trading at $2.62/mmbtu on Friday afternoon. Oil prices lost even more ground this week. WTI was trading just over $80/bbl Friday afternoon, but had dipped below $78/bbl at one point. During the past week, oil directed activity fell to 196 rigs. That's the first time we've fallen below 200 since the beginning of April.

248 horizontal rigs are running in the region down from 256 last week and one water well is being drilled in McMullen County. Karnes County still leads development with 40 rigs and La Salle is up to 37 rigs this week. McMullen (30), Dimmit (29), Webb (25), DeWitt (22), Gonzales (18), Live Oak (11) and Atascosa (10) make up the top Eagle Ford counties.

News items this week included:

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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

Kinder Morgan's Eagle Ford Crude & Condensate Pipeline in Service

June 22, 2012 R.T. Dukes

KinderMorgan-Logo

Kinder Morgan's Crude/Condensate (KMCC) pipeline from the Eagle Ford Shale to the Houston Ship Channel went in service last week. The $215 million pipeline has capacity of 300,000 b/d. The pipeline's construction included converting 113 miles of natural gas pipeline and 65 miles of new pipeline. The line is a direct tie from the Eagle Ford into the Gulf Coast refining complex.

KMCC will also connect the line to a future condensate processing facility planned by near Galena Park. The $200 million facility will have 50,000 b/d of initial capacity, expandable to 100,000 b/d.

BNSF & U.S. Silica Plan Frack Sand Storage in San Antonio

June 21, 2012 R.T. Dukes

BNSF and U.S. Silica have plans to build a silica sand storage facility in San Antonio for the Eagle Ford Shale. The facility will have capacity to store 15,000 tons of frack sand and should be operational by early 2013.

U.S. Silica expects to make 3-4 shipments per month of 10,000 tons of frack sand from Illinois to Texas. The company will ship three grades of dry sand, as well as resin coated proppants from a new facility in Rochelle, IL.

BNSF will run a 100 car train between Ottawa Illinois and San Antonio.

Swift Energy Inks Gathering Deal - Reports Austin Chalk Results in LA

June 20, 2012 R.T. Dukes

Swift Energy Eagle Ford Shale Acreage Map

Swift Energy signed a gathering agreement with Eagle Ford Gathering, LLC. Swift will have 40 mmcfd of firm capacity on the system in LaSalle County by the fourth quarter of 2012.

Eagle Ford Gathering, LLC is a 50/50 midstream partnership between Kinder Morgan (KMP) and Copano Energy (CPNO).

On a side note - the company reported a successful Austin Chalk well in Vernon Parish, LA. The well produced 744 b/d of oil and 7.2 mmcfd of natural gas.