Chasing Growth in the Up-and-Coming Eaglebine

Chasing Growth in the Up-and-Coming Eaglebine

Production in the Eagle Ford Shale is soaring, and companies are clamoring to drive production in South Texas up even further with each passing day. The buzz is palpable. But up in the eastern corner of the Eagle Ford, there are only a few companies exploring the sandy, organic shale that has become known as the Eaglebine.

Who's in?
The Eaglebine has attracted oil and gas companies with vastly different profiles, and we'll cover four of them today, beginning with Encana .

Investors know Encana as the Canadian natural gas giant that once played the liquids game, until it spun off its oil assets into Cenovus Energy. Natural gas prices collapsed shortly thereafter, and now Encana is desperately trying to get back in the game. It counts the Eaglebine as one of its emerging play opportunities.

Investors got some insight into the Encana's foray into the Eaglebine during last week's earnings call. First, new CEO Doug Suttles lent legitimacy to the play when he acknowledged that the company is allocating hard-earned savings to the sandy portion of the Eaglebine. No struggling company is going to throw money at a dead-end play. Encana's first two wells in the Eaglebine employed a new frac design, and are coming on line right now. We should know more about their production results soon, but Encana spent about $7.5 million on each well, drilling 7,000-foot laterals on both.

Make room for the little guy
At the other end of the spectrum we have tiny exploration and production company ZaZa Energy. The company just announced that it was selling about 10,300 acres in the Eagle Ford, but that did not include any of its Eaglebine acreage. CEO Todd Brooks went as far as to say, "We remain focused on monetizing select Eagle Ford assets in order to improve our balance sheet and we are currently pursuing other joint ventures in the area. In the Eaglebine, our joint venture is progressing as planned and we anticipate timely drilling of the first three wells as part of the Agreement."

ZaZa made headlines when it announced an Eaglebine development partnership with EOG Resources earlier this spring. EOG will operate the play and take up to a 75% interest, while paying ZaZa $10 million, on top of drilling and completion costs for three wells. That's not a bad deal for ZaZa, as EOG is the top producer in the Eagle Ford and management clearly knows what its doing.

Halcon Resources is another small operator, but its run by the former leaders of PetroHawk, and experience matters a great deal in this game. The company drilled and completed two wells in the Eaglebine earlier this year, and they are producing 90% oil. Even more encouraging is that this is a heavier crude than what is typically produced in the Eagle Ford. Gulf Coast refining capacity for that standard, lighter crude is all but maxed out. There is plenty of room, however, for heavier crudes, which naturally bodes well for Halcon.

What about pipelines?
Now, so far we've got four companies drilling in this play, and not a mention of a single midstream player in the mix to make sure all of this production can actually get to market. Enter Sunoco Logistics Partners .

Sunoco Logistics launched a binding open season on its Eaglebine Express pipeline this past May. The line's initial capacity is slated to be about 60,000 barrels per day, which should be sufficient given the developmental nature of the play right now. The Eaglebine Express will carry crude out of the play to a Sunoco Logistics terminal at Nederland, Texas, which sits between Beaumont and Port Arthur. If everything goes according to plan, the line will be up and running by the middle of next year.

Bottom line
While many are busy bemoaning dwindling decline rates in the Bakken, the oil and gas industry is plowing full steam ahead into less talked about plays like the Eaglebine, which may drive significant growth down the road. It may not ever be as big as the Bakken, but it is certainly worth following.

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