How to Play the Eagle Ford Shale

You remember last week, when I said to forget about shale? I didn't really mean it.

My intended point was that there are other interesting oil and gas plays out there. Shale, however, is going to continue to captivate both U.S. and international players for years, and most likely decades, to come.

Take the Eagle Ford in South Texas. This one's generated a lot of buzz already in 2010. Expect more of the same going forward.

Chesapeake Energy (NYSE: CHK  ) and Total SA, when they announced their joint venture in the Barnett, mentioned the possibility of teaming up in the Eagle Ford. That, along with ConocoPhillips' (NYSE: COP  ) significant leasehold, indicates the ample size of this play.

Other large companies that are increasing activity in the Eagle Ford include Petrohawk Energy (NYSE: HK  ) and Murphy Oil (NYSE: MUR  ) , which recently announced "encouraging results" from its first well.

So why are these heavy hitters interested in the Eagle Ford, out of all the shale plays out there? The key here, as with the granite wash plays that we looked at last week, is the liquids content of these wells. That means oil and various natural gas liquids (NGLs) -- all of which fetch higher prices than natural gas.

Not all of the Eagle Ford wells produce liquids, however. Mid-sized Pioneer Natural Resources (NYSE: PXD  ) just completed a well in the "dry gas window" of the play. As the name implies, this section just produces gas. Fortunately, the initial flow rates look high enough to justify development here.

Last week, I asked readers who they thought offered the most upside through exploitation of the various wash plays up in the Mid-continent area. Most people went with Chesapeake, which was not the answer I was expecting. Granted, the company is the most familiar to my readers, but it's so large that it would take a lot to really move the needle.

As with the wash, I'd expect a smaller company to extract the most relative value from the Eagle Ford. One firm to take note of is St. Mary Land & Exploration (NYSE: SM  ) , a Denver-based company that's actively divesting non-core Rockies assets. St. Mary's Eagle Ford position (225,000 net acres leased and optioned, with 66,000 joint ventured with Anadarko Petroleum (NYSE: APC  ) ) is very large for the company's size. Throw in the firm's foothold in the Marcellus and the emerging East Texas side of the Haynesville shale, and you have a pretty interesting proposition.

Chesapeake Energy is a Motley Fool Inside Value selection. Total is a Motley Fool Income Investor recommendation. The Fool owns shares of Chesapeake Energy. Check out any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 21, 2010, at 5:43 AM, tilleydog wrote:

    I agree that the smaller companies offer the best upside.A small Australian company Antares Energy is smack bang in the middle of the eagle ford action and has a joint venture with petrohawk plus its own acreages.The first well,Francis Dillworth 2 is being fraced with final results due any day now

    You can look them up on AZZ (asx ticker symbol)

  • Report this Comment On July 02, 2010, at 9:51 AM, arthhughes wrote:

    Investment in the Eagle Ford shale? Here is a Press Release:

    TO: Oil and Gas Exploration and Development Companies

    For Immediate Release:

    Buffco Production, Inc. of Kilgore/Longview TX, is pleased to announce that it has acquired 43,000 acres of leases in the liquids-rich, oil-bearing area of the Eagle Ford shale in South Texas. These leases are concentrated in La Salle and McMullen counties. Buffco is currently seeking a partner to assist in the monetization of this asset. Interested parties should contact Mr. Frank Bufkin at (903) 988-8199, xt 213. Our contact email address is: EagleFord@buffcoproduction.com

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