Yes, the Eagle Ford Is Really This Good
May 14th 2013 11:11AM
Updated May 14th 2013 12:20PM
Looking for a new "get rich quick" scheme? Head down to South Texas and start drilling wells in the Eagle Ford Shale then, as nearly every company with acreage down there is experiencing outstanding production right now. Production in the play popped 74% year over year in February, bringing production to about 471,000 barrels per day. Today I'll highlight three players reaping the Eagle Ford's benefits, as well as the one poor exploration and production company that goofed and somehow lost money in South Texas.
Show everyone the money
We'll start with Anadarko Petroleum . The company recently announced that sales of crude oil and natural gas liquids in the Eagle Ford jumped 60% year over year, to 28,000 barrels per day. The company plans to bring a natural gas processing plant on line this quarter, which should have a capacity of 200 million cubic feet per day.
Moving on to Chesapeake Energy , the debt-ridden natural gas producer is reporting that the Eagle Ford is the driving force behind a big increase in the company's oil production. Management expects to produce 1 million barrels of oil more than originally anticipated, on account of drilling longer laterals, better than expected well results, and sufficient midstream infrastructure-- which is something that is currently holding back Chesapeake's production in the Marcellus Shale.
Naturally, no story mentioning Chesapeake would be complete without mention of an asset sale. It is the second-largest leaseholder in the Eagle Ford, after EOG Resources , and the company plans to sell off its northern block of acreage in the play to anyone who wants it. Given the company's recent history for disappointing investors on price when it divests acreage, we can expect that someone will come away with pretty good deal.
Finally, we have Halc贸n Resources , a small company that is worth mentioning here because it is targeting the East Texas section of the Eagle Ford. The company has seven producing wells and 50,000 net acres in the Eaglebine section of the play; it aims to eventually bring that number up to 150,000 acres and drill an additional 15-20 wells this year. Halc贸n estimates that its reserves may be in the neighborhood of 350,000-400,000 barrels of oil equivalent, though it is worth mentioning that average production so far has turned out to be 94% oil.
Almost everyone is getting rich
In summary, production is way up in the play, Halc贸n is finding success in an obscure corner pocket, midstream infrastructure is in place, and it's basically raining money for the oil and gas industry in South Texas. It sure seems like a company would really have to go out of its way to blow it in the Eagle Ford, and that's exactly what Hess did.
Forbes' Chris Helman has the whole Hess soap opera here, but essentially the company put Chesapeake to shame by selling a large amount of acreage for a very small amount of money, and then took a giant tax-hit on it to boot. Hess teamed up with the tiny, yet courageously named, ZaZa Energy for an Eagle Ford joint venture, poured over $1 billion into the project and then bailed to avoid another $500 million in drilling costs. The company is dealing with plenty of corporate governance issues right now, but this is one failure investors may have a hard time forgiving.
There is no shale play in the U.S. that can match the opportunity in the Eagle Ford right now. While most companies will find tremendous success, every deal should be properly evaluated because, as Hess has shown, it is still possible to fail here. Most companies, however, will boost revenue on the growing production, excellent takeaway capacity, and proximity to market that has made the Eagle Ford the top shale play that it is today.
Energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.
The article Yes, the Eagle Ford Is Really This Good originally appeared on Fool.com.Motley Fool contributor Aimee Duffy has no position in any stocks mentioned. If you have the energy, follow Aimee onTwitter, where she goes by @TMFDuffy. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.