1 Big Winner in the Booming Eagle Ford
The Eagle Ford, a vast shale formation spanning much of South Texas, has quickly emerged as one of the most prolific, and also one of the most economical, shale oil plays in the country.
In June, Eagle Ford production soared to 621,000 barrels per day, representing 60% year-over-year growth. And by the middle of next year, output is expected to reach a million barrels per day.
While there are dozens of companies seeing success in the play, one in particular stands out as a clear leader: EOG Resources . Let's take a closer look at how this Houston-based oil and gas producer is soaring to new heights in the Eagle Ford.
EOG in the Eagle Ford
For starters, EOG has amassed a truly enviable position in the Eagle Ford, commanding a whopping 639,000 net acres, of which the vast majority is in the crude oil window of the play. It is currently the largest oil producer in the play, with net production totaling 173,000 barrels of oil equivalent per day as of the second quarter of this year.
That staggering level of production puts to shame even some of EOG's closest competitors. ConocoPhillips , the second biggest Eagle Ford operator in terms of daily net production, produced about 121,000 barrels per day during the quarter. Meanwhile, Marathon Oil said it was pumping about 80,000 barrels per day, while Chesapeake Energy , which views the Eagle Ford as its key engine of production growth, said it produced about 85,000 barrels of oil equivalent per day.
But it's not just EOG's level of production that puts it among the top of the Eagle Ford pack; it's also the superior economics of its drilling program. In the current environment, the company reckons that its Eagle Ford wells generate a direct after-tax reinvestment rate of return in excess of 100%, which is just staggering.
Reserves boost and cost-cutting efforts
On top of that, EOG also recently increased its reserve estimate for the play from 1.6 billion barrels of oil equivalent to 2.2 billion barrels of oil equivalent. The company now estimates that it has a 12-year inventory of high-quality drilling locations in the Eagle Ford, which should continue to provide several years of solid oil production growth and robust returns on capital.
Last but not least, EOG continues to make great progress in driving down drilling and completion costs. Thanks to continuous improvement in drilling and completion techniques, the company has reduced its average completed well costs in the Eagle Ford from $6 million to $5.5 million while also slashing its average number of drilling days per well to fewer than 12 days.
The bottom line
As you can see, EOG is one of the clear leaders in the Eagle Ford shale. But it also has interests in other lucrative, high-margin oil plays, most notably the Bakken, where it commands about 90,000 net acres in the core area of the play, and the Permian Basin, where it has about 187,000 acres in the Delaware Basin and roughly 133,000 acres in the Midland Basin.
This year, the company is allocating the vast majority of its capital to its most lucrative opportunities, which include the Eagle Ford, the Bakken, and the Leonard shale in the Permian Basin. Importantly, each of these plays currently offers more than 100% direct after-tax reinvestment rate of return. If EOG keeps plugging along like the fine-tuned machine it has shown itself to be, these plays should continue to deliver solid growth in both earnings and free cash flow for years to come.
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The article 1 Big Winner in the Booming Eagle Ford originally appeared on Fool.com.
Fool contributor Arjun Sreekumar owns shares of Chesapeake Energy. The Motley Fool has no position in any of the stocks mentioned. 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.
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