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Eagle Ford, Not Permian, Hogs the Shale Boom Limelight


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West Texas Intermediate (WTI) crude continues to trade above the $70-a-barrel psychological mark in the wake of concerns that Iran's crude export might fall after Trump nixed the nuclear deal.

Higher oil prices are definitely a plus for all drillers in major U.S shale plays. Investors interested in the energy sector should know which oil plays are profitable at the moment.

The Permian Basin has long been the favorite oil and gas play for drillers, as the region supported companies even when oil was trading below $50, per media reports. At such a low price level, most explorers struggled to survive in areas like Eagle Ford and instead chose to focus on the Permian Basin by dumping assets in other plays.

However, the situation is quite different now with Eagle Ford taking center stage following the bottleneck in the Permian pipeline.

Strong Permian Operations

The Permian region has always been in the spotlight when it comes to oil and natural gas production in the United States. In terms of production, Permian has outrun resources like Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville and Niobrara.

As per data provided by the U.S. Energy Information Administration (EIA) , oil production from Permian has been increasing steadily over the past several years. Notably, the maximum proportion of crude production in the United States came from Permian.

From nearly 1 million barrels a day of crude at the beginning of 2009, Permian's daily production is now heading toward 3.5 million barrels, per the EIA. While the prolific Permian Basin is undoubtedly the hottest shale play in the United States, Eagle Ford and Bakken are the other regions that have contributed meaningfully to the overall production picture.

After a steep fall in rig count in the mid-2014 to mid-2016 period due to crude weakness, the number of rigs exploring oil has started to increase. We can say that the rise in drilling activities has been directly contributing to Permian production.

Rising Activities in Eagle Ford

From minimal production since the start of 2009, daily production of oil in the Eagle Ford region is now headed toward 1.5 million barrels, per the EIA . This has been supported by an uptick in rig count in the shale play.

The weekly rig count in Eagle Ford was mostly in the range of 188 to 214, per data provided by Baker Hughes BHGE , a GE company. The count fell to below 30 in mid-2016 and is now treading toward 70, reflecting increasing focus on the shale play.

Notably, daily crude production in the Eagle Ford saw upward momentum since early 2011, approaching toward 1.8-million barrels per day. However, production started falling since 2015-beginning as energy market was already grappled with crude weaknesses.

Focus Now on Eagle Ford

EIA predicts new well oil production per rig from Eagle Ford to increase from 1,479 barrels a day in May to 1,532 barrels in June this year. Meanwhile, in the Permian, EIA expects the production growth to be only 2 barrels per day.

This seems that drillers and explorers are redirecting focus from the crowded Permian to Eagle Ford. In Permian, there is a dearth of pipeline capacity for transporting oil to Gulf Coast export facilities, major refinery terminals and principal hubs like Cushing. This has forced Midland operators to sell stranded oil at a big discount to that in Cushing.

Drillers with strong foresight have already booked the existing pipeline capacity for transporting Permian crude to the principal hubs. Thus, other drillers do not have the incentive to operate in the basin.

Also, labor shortage and low pipeline capacity have bumped up the cost of production in the Permian Basin, making the operating scenario unfavorable for new drillers. Hence, upstream players have shifted focus to the Eagle Ford, where the cost of production is relatively low.

Eagle Ford Drillers Come to the Forefront

Headquartered in Houston, TX, ConocoPhillips COP is giving more importance to the Eagle Ford shale play than the crowded Permian Basin, per Ryan Lance, CEO of the upstream energy giant.

The company's prime focus on the Eagle Ford is reflected in the first-quarter 2018 production picture. Through the quarter, the company's daily oil equivalent production from the Permian Basin was recorded at 19,000 barrels, considerably lower than 163,000 barrels from Eagle Ford. (Read more: ConocoPhillips Chooses Eagle Ford Over Permian: Here's Why ).

EOG Resources, Inc. EOG is among the leading players in the Bakken play and the largest in the Eagle Ford. In the South Texas Eagle Ford, the company has brought online 72 gross wells through first-quarter 2018. The company's strong first quarter production was significantly aided by operations in Eagle Ford.

Houston, TX-based Marathon Oil Corporation MRO has extensive acres of resources in the oil-rich Eagle Ford. The company's year-over-year rise in production, available for sale, in the first-quarter 2018 was aided by solid contributions from U.S. resource plays in the Eagle Ford.

Chesapeake Energy Corporation CHK , headquartered in Oklahoma City, OK, has a footprint across roughly 245,000 acres in the lucrative Eagle Ford. Through 2018, the company plans to bring online up to 140 wells in the Eagle Ford.

We advise investors not to dump the above stocks right away as the companies currently carry a Zacks Rank #3 (Hold). You can see  the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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Chesapeake Energy Corporation (CHK): Free Stock Analysis Report

EOG Resources, Inc. (EOG): Free Stock Analysis Report

ConocoPhillips (COP): Free Stock Analysis Report

Marathon Oil Corporation (MRO): Free Stock Analysis Report

Baker Hughes Incorporated (BHGE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Business , Stocks
Referenced Symbols: CHK , EOG , COP , MRO , BHGE



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