Let the Eagle Soar
The Eagle Ford Shale is located in South Texas, runs under many different counties and is centered on the Edwards Shelf trend, a 250-mile long Cretaceous age formation. The Eagle Ford Shale lies under the Austin Chalk, and above the Buda formation at depths ranging from 4,000-14,000 feet, depending on the location.
The wells drilled to the Eagle Ford Shale vary in content, from dry gas wells to those with high amounts of natural gas liquids and condensate, to wells that produce mostly oil.
There are important differences in the revenue realized from wells in different areas. Pioneer Natural Resources (NYSE:PXD) provides an example of this with one of its recent completions into the Eagle Ford Shale.
The Sinor #5, completed in October, 2009, had an initial production rate of 11.3 million cubic feet of natural gas equivalent per day. The word equivalent is the key here, as this production consisted of 6.6 million cubic feet of natural gas per day, 790 barrels per day of natural gas liquids and 500 barrels of condensate per day.
Since Pioneer Natural Resources realizes a different price for natural gas, liquids and condensate, a well that is rich with liquids and condensate can produce more revenue than a well with just dry gas.
Petrohawk Energy (NYSE:HK) has started to develop a part of the Eagle Ford Shale in the "oil window" that it has dubbed the Red Hawk prospect. This prospect is to the north of current development, and Petrohawk Energy has 89,000 acres here and spud a well in December, 2009. The company may have results when it reports earnings.
Opening the Gates
Another exploration and production company with a high condensate yield on a well was Rosetta Resources (Nasdaq:ROSE), with the Gates Ranch 5D-9H well. The well was completed in October, 2009, and came in at 3.5 million cubic feet per day of natural gas and 337 barrels of condensate per day. Management called it the "one, if not the highest condensate yields in the area."
El Paso Corporation (NYSE:EP) is at an early stage of its development of its Eagle Ford Shale acreage. The company has accumulated 132,000 net acres and just drilled and completed its first well, which came in 7-8 million cubic feet per day.
El Paso will operate one rig here in 2010, and spend $62 million in capital on 10 gross wells. The company's acreage is mostly in the dry gas area of the play, but according to the company, its wells here will earn an internal rate of return as high as 45%.
The Bottom Line
The vast differences between and within different shale plays make it imperative that investors drill down to see what each exploration and production company actually has in its inventory, as it may impact investment returns. (Not sure where oil prices are headed? This theory provides some insight. Oil As An Asset: Hotelling's Theory On Price.)
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