A Million a Day

Peter-FallonTexas Eagle Ford Shale: One Million Barrels Per Day… and Counting

Oil production in Texas is on fire (figuratively of course). According to data recently released by the Energy Information Administration (EIA), Texas’ September production was more than 2.7 million barrels of oil per day.

That’s more than double the Lone Star State’s output of three years ago and its highest monthly output since January 1981. It’s total is up 30% in just one year.

The state’s new oil boom is due to advances in hydraulic fracturing and horizontal drilling. At its current pace, Texas oil output will likely top 3 million barrels per day in early 2014.

Let’s look at how we can profit from this…

Texas has two of nine fields currently producing over 1 million barrels per day according to a study done by economist Mark J. Perry of the University of Michigan.

The two are the Permian Basin and the Eagle Ford. These days, the Permian Basin is getting most of the attention, due to the predictions of “the second-largest oil field in the world.”

In this article, I’m going to focus on the Eagle Ford and review some of its prospects. First let’s look at the geography of the play. Look at the map below courtesy of the EIA.

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The green area shown on the map is where all the oil is. E&P companies first explored the red area of the play. What they found was mostly gas.

However, as they moved north, more and more of the wells became oily. Now, nearly all the drilling is taking place in the green area of the play.

ConocoPhillips (NYSE:COP) is one of the E&P companies that plan to spend big on the Eagle Ford and other shale formations next year. How big? How about $4.36 billion dollars-worth. That’s about 25% of Conoco’s entire capital budget for 2014.

Conoco’s Chairman and CEO, Ryan Lance had this to say about Conoco’s unconventional shale prospects: “Today, we have an unparalleled inventory of opportunities that will enable us to deliver organic growth from continuing operations in 2014 and beyond.

“In addition, our planned conventional and unconventional exploration activity should provide opportunities that can keep us on track for sustained growth and returns.”

A name not often heard with regard to drilling anywhere is the Penn Virginia Corporation (NYSE:PVA). While the company has leaseholds in the Mid-Continent, Cotton Valley, Haynesville and the Marcellus, it’s betting big on the Eagle Ford.

It has 67,000 acres in the play. That translates to approximately 890 remaining drilling locations. By the end of 2014, it expects to expand its acreage position to over 100,000 and its drilling sites to over 1,000.

Right now, given the company’s size, it has a ten-year drilling inventory. It expects 2014 oil production growth of 65-85%.

Penn Virginia currently has five rigs turning in the Eagle Ford and may add a sixth in 2014. Q3 2013 production was 12.5 million barrels of oil equivalent per day (Mboepd).

The company plans to divest its Selma Chalk and Granite Walsh assets during the first half of next year to raise additional capital for its Eagle Ford drilling program.

While Penn Virginia is one of the smaller companies operating in the Eagle Ford, its future looks extremely bright for the next several years at least.

Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is a Houston-based exploration and production (E&P) company that’s also betting big on the Eagle Ford. Its Q3 2013 production hit record levels of 12,228 barrels of oil per day.

This is a 41% increase versus Q3 2012. Revenues and earnings for Q3 2013 were up 37% and 33% respectively over Q3 2012.

During the quarter, Carrizo acquired an additional 3,500 acres in the Eagle Ford. The company increased its 2013 crude production growth guidance from 45% to 47%. It also expects 2014 production growth of over 40%.

Shares are currently 25% of their October highs. Now is a great time to add a few to your energy portfolio.

These are just a few names of the dozens of drillers working the Eagle Ford. Next year looks like it could bode well for all of them.

Profitably yours,

Peter Fallon.

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