Freeport-McMoRan & PXP Reach Deal for $6.9 Billion

December 6, 2012 R.T. Dukes

Freeport McMoRan Copper & Gold (FCX) announced plans to acquire Plains Exploration & Production (PXP) and McMoRan Exploration (MMR) on December 5, 2012. FCX will pay $6.9 billion (24% premium) for Plains E&P and will pay $2.1 billion (74% premium) for McMoRan Exploration. FCX said it is bullish natural gas prices post 2013, but will have to make good investment decisions with the amount of debt that will be carried. The company is combining the Gulf of Mexico interests of the two companies, gets long-lived assets in California from PXP, and gains exposure to the Eagle Ford Shale.

In the Eagle Ford, Plains Exploration has:

22 million boe of proved reserves
172 million boe of published resource potential
60,000 net acres
500 future well locations
James C. Flores, Chairman and Chief Executive Officer of PXP said:

“I am proud of the accomplishments of our team who have built a strong company and created the opportunity for our shareholders to participate in this exciting transaction. I believe that the addition of PXP’s U.S. oil and gas assets to FCX’s global mining business will establish a very significant, long-term commodities business positioned to generate meaningful returns over an extended period...”

Texas Oil Production Surpassed 1988 Levels in September 2012

December 5, 2012 R.T. Dukes

Texas oil production eclipsed 2,050,000 b/d in September of 2012. That's more than the state has produced in almost 25 years! It's no small feat. Production growth has been fleeting for more than a decade. The Permian Basin and the Eagle Ford account for almost all of the state's growth. Since September of 2008, production has grown from 31,661,000 barrels per month to 61,500,000 barrels in September 2012. I'll spare the science, that's almost double.

Oil prices recovered relatively quickly after the recession began in 2008 and exploration and production companies began shifting their focus to crude around the same time.

If anyone said Texas would double oil production in four years in 2008, he or she would have been laughed off the stage. Fast forward to today and the question is more like - Will Texas double production again?

It's great for Texas and it's great for the U.S. Production declines have reversed across the country. The U.S. produced almost 6.5 million b/d in September, the highest level in almost 15 years. You have to go back to September 1997 to find comparable figures. The low was September 2008 when the U.S. produced just under 4 million b/d. Production is up 62% since. Where it goes from here is largely dependent on commodity prices. The resource is there (e.g. Permian, Eagle Ford, Bakken, Offshore), but the question will shift to economics if oil prices were to fall considerably.

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Marathon Oil's Capital Budget Favors the Eagle Ford in 2013

December 4, 2012 R.T. Dukes

Marathon Oil's Eagle Ford assets will be the beneficiary of $1.9 billion in spending in 2013. Marathon released plans to spend $5.2 billion in 2013, with almost 40% of the total earmarked for South Texas.

Approximately 65% of the company's budget is allocated to "Growth" assets and you guessed it. The Eagle Ford is a "Growth" asset for the company. That's why $1.9 billion is allocated toward the Eagle Ford. Current plans call for the drilling of 275-320 gross (215-250 net) operated wells in 2013.

Ten percent of the budget, $190 million, will be spent on midstream infrastructure: central batteries and pipelines.

“About one-third of our overall budget, or $1.9 billion, is allocated to the Eagle Ford shale play in South Texas.”

— Clarence P. Cazalot Jr., CEO

The company has also increased its production guidance in the Eagle Ford to 85,000 boe/d in 2013. Marathon has mentioned multiple times that economics in the play make it very attractive and the shear size of the company's operations make it ripe for operational improvements over time.

Shale Plays Fuel Manufacturing Growth

December 3, 2012 R.T. Dukes

Shale plays are driving a surge in U.S. natural gas production. Production growth has pushed prices well below the peaks experienced in the 2000's. Natural gas at less than $4/mmbtu, as of the end of 2012. Cheap fuel means cheaper energy, cheaper manufacturing, and cheaper products.

Natural gas or by products are used for heating, power generation, and as a feedstock in multiple chemical and manufacturing processes. A recent BCG study noted that rising factory productivity will boost U.S. exports and lead to the growth of as many as 5 million jobs. Five million jobs added to a workforce that measures approximately 150 million would be almost 3% growth from one sector of the economy. Add direct oil and gas jobs and you see why what we're experiencing in the South Texas Job boom could translate to a widespread employment boom.

U.S. factory employment has grown by about 3.6 percent to roughly 12 million people from a 2010 post-recession low, a trend that could accelerate as the United States becomes a more competitive exporter, BCG said.

With lower manufacturing costs, the U.S. could potentially boost exports by almost $100 billion per year by capturing manufacturing that is currently done over seas. The wild card will be currencies. Europe's manufacturing sector is actually benefiting from a weak currency. Energy will be cheap in the U.S., but predicting major currencies is a wildcard in my book.

Read more about the study at reuters.com

Eagle Ford Regional Rig Count at 267 - Nov 30, 2012

November 30, 2012 R.T. Dukes

Eagle Ford Shale drilling dropped one rig to settle at 267 units running in the region. La Salle County was the biggest mover during the week. Five rigs moved in to make it the most active county in the play with 41 rigs.

During the week, we highlighted Chesapeake's improving wells. In the third quarter of 2012, the company brought 124 wells to production, with 115 of those reaching peak production rates greater than 500 boe/d. The company had 43 wells produce more than 1,000 boe/d. In the first quarter of 2012, only 8 of 60 wells produced more than 1,000 boe/d. That's a significant improvement in just six months. The better news is Chesapeake won't be alone. Companies will continue to improve well and completion designs.

Eagle Ford Oil & Gas Rigs

The natural gas rig count fell two rigs to 53. Natural gas prices reached a 2012 high last week, but fell to less than $3.60 on Friday. Natural gas storage numbers surprised the market on Thursday. An injection was reported when most expected withdrawal season to continue. Heating season is here, so injections are uncommon. Prices responded by falling almost $0.30.

The oil rig count gained one rig to reach 214 running in the area. WTI crude futures were almost unchanged for the fifth week in a row. Oil was trading at just over $88 per barrel on Friday. Eagle Ford crude priced at $100.50/bbl on the 30th of November. Light crude and condensate in the area traded at $85.50 and $84.50, respectively.

There are 254 horizontal rigs running in the region. La Salle County leads development with 41 rigs running. Karnes with 35 rigs, McMullen (28), Gonzales (23), Webb (23), Dimmit (21), DeWitt (20), Live Oak (12), Fayette (9) and Lavaca (8) round out the top Eagle Ford counties.

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Eagle Ford 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.

Eagle Ford Oil & Gas Rigs

Eagle Ford Rig Count by Operator

What is the Rig Count?

Eagle Ford Shale Drilling by County