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In January of this year, I offered up one way to play it, via the recently re-branded SM Energy. In February, I told you it was the "play du jour." In April, EOG Resources said it saw resource potential of 900 million barrels of oil equivalent on its acreage here.
I'm talking about the Eagle Ford shale play in South Texas. Since Petrohawk Energy (NYSE: HK ) introduced the play in late 2008, I've written 25 articles mentioning the Eagle Ford. If you missed the memo until now, some big headlines are making sure that the Eagle Ford is now all but impossible to ignore.
First came the announcement from Statoil (NYSE: STO ) that it has formed a joint venture with Talisman Energy (NYSE: TLM ) across a total of 134,000 net acres in the Eagle Ford. Talisman is chipping in some existing acreage, while the bulk is coming from a purchase from a private third party -- Enduring Resources of Colorado. Talisman estimates that there is a resource potential of 800 million barrels equivalent on the acquired acreage. On a per-acre basis, that's a much more aggressive estimate than EOG's.
As for the price tag, Statoil is paying a total of $843 million for 67,000 net acres, or over $12,500 per acre. That's quite a premium to what Plains Exploration & Production (NYSE: PXP ) just shelled out for a comparable Eagle Ford asset (and I thought they risked overpaying!) This purchase price is also a bit more than Enerplus Resources Fund (NYSE: ERF ) recently paid in the Bakken -- though for land that's more lightly developed.
That's one reason big international oil players are an ideal partner in these joint ventures -- they've got deep pockets, and aren't afraid to pay up a bit to achieve strategic goals. Another example of this is CNOOC's (NYSE: CEO ) agreement to enter into a JV with Chesapeake Energy (NYSE: CHK ) in the very same play, at another very handsome price.
CNOOC is paying $2.16 billion -- half up front, and half in the form of future drilling costs -- to earn a one-third interest in Chesapeake's 600,000 net acres in the Eagle Ford. Ignoring the time value of money, that works out to $10,800 per acre. Again, this is more than PXP recently paid.
Relative value is always a dangerous game to play. Just because my neighbor paid more for his South Florida condo doesn't mean I got a great deal. Whether Plains, Statoil, and CNOOC are savvy acquirers, or just Johnny-come-latelies, will take some time to discern. It largely comes down to decline rates and ultimate recoveries from these Eagle Ford wells.
Natural gas prices are also a big swing factor that could spell the difference between economic and uneconomic wells for the likes of Petrohawk and Swift Energy. That's yet another reason that oil majors are ideal participants here -- they can afford to wait for $6 natural gas. I can't say the same for all the small guys pouring into this play.