I've been tuning into a lot of conference calls by the leading independent oil and gas producers this week, and they're saying some startling things. Rather than break out each company's results, I'm going to focus on a few key recurring themes.
Gas is trash
This one should be no surprise, but most E&Ps are avoiding natural gas plays like the plague. It's hard to blame them, with oil soaring and gas down in the sub-$4 dumps.
The onshore oil bash
One thing making a gas drilling pullback more palatable for onshore players is the sudden proliferation of oily resource plays. The Bakken has been blooming for years now, but that's proven just the tip of the iceberg. With the help of long horizontal laterals and massive multistage hydraulic fractures, onshore oil plays are popping up everywhere. This gives the independents a lot of places to redeploy capital.
EOG was an early mover in the Eagle Ford play in South Texas, and has reiterated its estimate of 900 million barrels of oil equivalent (boe) of net resource potential. Not everyone's Eagle Ford leasehold is this oily, but EOG pegs crude's contribution to the mix at 77%. This is a tremendous oil discovery, akin to what folks like Anadarko seek in the deepwater Gulf of Mexico.
Another emerging play that we're watching with great anticipation is the Niobrara in Colorado and Wyoming. Operators are mostly mum on this one, but Anadarko is bringing in additional rigs here, and Noble Energy
Success breeds new challenges
This is all very exciting, both for operators and investors. This onshore oil opportunity is so exciting that the industry has drilled itself right into an equipment shortage. Frac equipment is hard to come by, and completion costs have soared some 40% to 50%. EOG says its Eagle Ford well completions cost $1 million more than previously estimated, and that if the company were to call up a firm like Halliburton today to bring in a frac crew, there would be no availability prior to January of next year.
Frac delays are a big reason EOG dropped its production guidance, not only for this year, but for 2011 and 2012 as well. In short, this supply tightness is not going to lift anytime soon. This slower pace of completions is something to keep in mind as you try to form projections for any E&P with a big liquids-directed drilling program in 2011.