1 Stock to Play the Eagle Ford Boom

Investors following the North American oil and gas industry should be aware that oil production volumes from the Eagle Ford shale play have blown past expectations this year.

According to the Texas Railroad Commission, crude oil production from the Eagle Ford region averaged more than half a million barrels per day for the first quarter of 2013. This is a whopping 34% increase from 2012 production levels and is also the highest since the south Texas play hit oil in 2008. Energy research firm Wood Mackenzie estimates that total Eagle Ford capital expenditure will hit $28 billion in 2013. It's pretty evident that the value extracted by major operators is exceeding expectations. However, this shouldn't come as a big surprise, either. In the last couple of years, exploration and production companies have been quietly raking up acreage in this shale play.

The movers and shakers
Marathon Oil
(NYSE: MRO  ) increased its stake to 330,000 net acres in the liquids-rich window of the Eagle Ford. For the first quarter, average net sales volumes from this acreage stood at 72,000 barrels of oil equivalent per day -- a fourfold increase year over year. Still in the growth phase, the company should be further increasing production where this property is concerned. This shale play should have a major role in increasing Marathon's overall production volumes in the next three years.

The recently spun off E&P major ConocoPhillips (NYSE: COP  ) is another key operator in the Eagle Ford region. With 227,000 net acres under its belt, the company is sitting on an estimated 1.8 billion barrels of oil equivalent. Over the next five years, Conoco is expected to invest $8 billion in this region and add 130,000 barrels of oil equivalent.

1 company to watch
While Marathon and Conoco should become major players in the Eagle Ford in the next few years, it's Houston-based EOG Resources (NYSE: EOG  ) that has the best position in this shale play. The stock rose an incredible 43% in the last 12 months.

Holding acreage in the Gonzalez County helped the company dramatically increase its liquids production. According to CEO Mark Papa, the biggest profit driver during the first quarter was its increasing oil production in the Eagle Ford that exceeded expectations. Gonzalez County turns out to be the sweet spot for EOG Resources. In the first quarter, 27 new wells that came online had initial production rates, or IP rates, above 2,500 barrels of oil per day. Of these, nine wells had IP rates streaking past the 3,500 bpd mark. This is an amazing performance in shale oil drilling. However, unlike the Bakken shale play, the decline rates aren't so steep for the Eagle Ford wells.

Superior well designs = greater returns
One of the main reasons why EOG Resources has been doing so well is because of its superior well designs. Unlike many others, the company doesn't just rely on well pressure (frack pressure in scientific speak). Instead, with longer horizontal laterals, these wells exhibit flatter declining rates (rather than steeper declining rates) in production volumes. While this strategy isn't always successful, the company's designs and well-completion techniques are among the best in the industry. The net result is that EOG's wells are among the most economical for a given production rate.

Moreover, natural gas prices are picking up. This eases a lot of pressure on management to make a faster transition to liquids production. Currently, EOG Resources maintains a 60-40 ratio of liquids to natural gas production. The company also expects to turn free cash flow positive this year even with a base case crude oil pricing of $85/barrel. Additionally, management has hinted that the positive FCF could result in a meaningful dividend increase and a reduction in debt.

Foolish thoughts
All in all, EOG Resources seems to be focused on the long term. The Eagle Ford's oil window will likely continue to be the company's most important revenue driver for the next three years. At the same time, investors should keep an eye on its natural gas production as prices for this commodity continue to move north. Under such a scenario, EOG Resources is extremely well positioned to be an industry leader among independent upstream companies.

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