EOG Accelerates Eaglebine JV With ZaZa by Electing Into Phase II

ZaZa Energy Eaglebine Map

EOG Resources joint venture with ZaZa in the Eaglebine is moving into phase two of three. EOG is expected to complete the first three wells this year and was expected to elect into phase two in early 2014. Instead, the company has accelerated its plans.

The deal includes several forms of consideration, so we'll break it out by company:

EOG receives the following:

• 20,000 net acres as part of agreeing to phase II
• The companies also agree that EOG will receive an additional 6,000 net acres if the company elects into phase II on or before January 31, 2014

ZaZa receives:

• $17 million
• Interests in 15 wells outside the current AMI in Madison County, with a PDP present value of $3 million
• Costs carry on 1 vertical well, two horizontal wells, and a $1.25 million credit toward land & operational expenses
• As part of phase III, ZaZa will receive additional interests in the Southern Madison County wells valued at $9 million
• Additionally in phase II, ZaZa retains 14,000 net acres that EOG can elect into on or before January 31, 2014

ZaZa also receives a 25% interest in approximately 19,000 net acres that have been acquired by EOG in exchange for $2 million plus additional acreage. ZaZa is assigning a 75% working interest in approximately 18,500 net acres in Walker and Madison counties.

“This is a significant step forward for our company as we establish our production base and create the right platform for growth. Through this transaction we’ve successfully increased our contiguous JV acreage footprint, established $16.1 million in PDP value across interests in 23 producing wells and will see an influx of $16.5 million in net cash.”

— Todd A. Brooks, ZaZa’s CEO

While two wells are still waiting to be completed, I believe this deal signals that EOG is confident in what they've seen from operated and non-operated wells in the area. There would not have been a reason to accelerate the timeline without an optimistic outlook.

Watch to see if EOG elects into phase three later in the year or in January 2014. If they do, I believe we'll see the companies planning for development instead of exploration at some point in 2014.

Read the full press release at zazaenergy.com

Shell's Eagle Ford Acreage Is For Sale

Dimmit County Eagle Ford Shale Map

Shell's Eagle Ford acreage is on the figurative auction block. The company plans to sell over 106,000 acres and more than 190 gross producing wells targeting the play.

Unlike many other companies, Shell's Eagle Ford position simply hasn't met internal targets for size and profitability.

Shell leased more than 200,000 acres in South Texas from 2008-2011, but has evidently been selling off chunks or letting leases expire over the past two years. The current announcement relates to the company's single largest lease holding in Dimmit County, TX. Shell is rumored to have made Dan Harrison an Eagle Ford billionaire when the company paid ~$10,000/acre in signing bonuses for his 106,000 acre Piloncillo Ranch.

“My guess would be Shell hopes to raise more than $2 billion in the sale.”

Shale plays have proven difficult for the super-majors. Plays like the Bakken, Eagle Ford, and Marcellus are dominated by independent operators. Smaller operators have often leveraged their companies to the success of shale plays. Those smaller companies (independents) have to make the shale plays they invest in profitable or they shrink. The super majors like Shell have significant investments around the globe and can try something and walk away if it doesn't perform as well as other investments.

Based on recent acreage transactions, this acreage should sell for ~$10,000/acre or more plus the value of production. My guess would be Shell hopes to raise more than $2 billion in the sale.

Shell has 192 wells producing in the Eagle Ford and reports gross production of approximately 32,000 boe/d (Fuelfix interview).

Eagle Ford Regional Rig Count 269 - Plains & Enterprise Expanding - Sept 27, 2013

Plains All American Eagle Ford Assets

The Eagle Ford Shale rig countdecreased by two rigs from 271 to 269 running this past week. This marks the last full week in September and the Eagle Ford region has seen an average of more than 265 rigs running each week throughout the first nine months of the year.

Eagle Ford production growth hasn't stopped and with production growth we'll get pipeline expansions. Plains All American and Enterprise Products announced plans to expand the companies' Eagle Ford JV pipeline that moves light and medium crude grades to Corpus Christi. The companies will spend $120 million to expand capacity from 350,000 b/d to 470,000 b/d. They'll also add more than 2 million barrels in storage capacity in the region. For more information, read the full article Plains & Enterprise Announce Eagle Ford JV Pipeline Expansion

The U.S. rig count increased 13 rigs from 1,761 to 1,774 running over the past week. A total of 376 rigs are targeting natural gas (10 less than last week) and 1,362 are targeting oil in the U.S. The remainder are drilling service wells (e.g. disposal wells, injection wells, etc.). 825 rigs are running in Texas.

Baker Hughes rig count is quoted here. Baker Hughes also releases its own Eagle Ford Rig Count that covers the 14 core counties (229 rigs). The rig count published on EagleFordShale.com includes a 30 county area impacted by Eagle Ford development. A full list of the counties included can be found in the table near the bottom of this article.

Eagle Ford Oil & Gas Rigs

[ic-l]The natural gas rig count fell one from 39 to 38 rigs running over the past week. Natural gas prices fell a little more than 5% during the week and futures were trading around $3.50/mmbtu on Friday afternoon. Even though prices are down over the past week, natural gas prices seem to be settling in at the $3.50-4.00 range.

The oil rig count decreased by one rig from 231 to 230 running. WTI oil prices were trading just below $103/bbl. Oil prices have been above $100 for 12 weeks nowl. Eagle Ford light crude traded at $99.50/bbl on Sept 26th.

A total of 228 rigs are drilling horizontal wells, 28 rigs are drilling directional wells, and 13 rigs are drilling true vertical wells. McMullen and Karnes counties lead development with 35 and 31 rigs running, respectively. See the full list of drilling by county below.

South Texas Oil & Gas News:

• Enterprise Completes Its 7th NGL Fractionator at Mont Belvieu
• Eagle Ford Facts That Might Surprise You
• Port of Corpus Christi Oil Exports Are Exceeding Oil Imports
• Plains & Enterprise Announce Eagle Ford Pipeline Expansion
• Valero Files to Create Logistics MLP - Valero energy Partners

Be sure to visit our South Texas Oilfield Job Listings to search openings and come back weekly for updates or sign up for alerts - Daily or Weekly Email Alerts

Eagle Ford Shale Drilling by County

Eagle Ford Operated Rig Count By Company

SmithBits no longer reports its operated rig count, but we'll have updated number for you from a new source soon. Until then, you can reference our numbers from mid-April. There has not been a significant change in the overall rig count since this date:

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 Baker Hughes 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.

Valero Files To Create a Logistics MLP - Valero Energy Partners

Valero Logistics Growth Investments

Valero has filed a registration statement with the SEC for the initial public offering of Valero Energy Partners (VLP).

VLP will serve as a vehicle for dropping down (selling) logistics assets from Valero. Logistics assets include everything that helps Valero delivery quality crude to its refineries: pipelines, rail cars, rail unloading, barges, ships, docks, tanks, etc.

Logistics MLPs trade at 10-15 times EBITDA (earnings before interest, taxes, depreciation, and amortization), while refineries trade at just 3-5 times EBITDA. That alone provides for incentive to spin off the assets to create value. Add the fact that more than 40% of Valero's investments are in logistics assets and its easy to see why VLP could easily be a stand along company.

Eagle Ford assets will likely be included in the initial transaction:

Valero Energy Partners LP expects its initial assets to include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States that are integral to the operations of Valero's refinery located in Port Arthur, Texas, its McKee refinery located in Sunray, Texas, and its refinery located in Memphis, Tennessee.

Before the company can go public, the Valero board will need to approve the spin off and a management team will need to be assembled.

Enterprise Completes 7th NGL Fractionator at Mont Belvieu

Mont Belvieu Fractionator

Enterprise Products brought its seventh fractionator online at the company's Mont Belvieu Complex earlier in September.

The new unit adds 85,000 b/d of fractionation capacity and expands the company's capacity at Mont Belvieu to 570,000 b/d.  An eighth plant will be online at the end of the year and will add another 85,000 b/d of capacity.

NGL fractionation capacity is important for shale plays like the Eagle Ford where high BTU gas is produced. Without fractionation capacity, the value of the individual NGL components, ethane, propane, butane, etc., can not be extracted from a mixed stream of NGLs.

“Our eighth fractionator is also running ahead of schedule and should be in-service by mid-fourth quarter 2013. Fractionators seven and eight will increase total capacity at the partnership’s Mont Belvieu complex to 655,000 BPD, compared to 400,000 BPD just three years ago.”

— Michael A. Creel, CEO

Enterprise operates the units and Western Gas owns a 25% interest in the 7th and 8th fractionators at Mont Belvieu.

Read the full press release enterpriseproducts.com