Has Eagle Ford Drilling Peaked?

There is evidence to believe that Eagle Ford drilling may have peaked and well completions will moderate from the frenzied levels prevalent since 2012. After issued drilling permits in the play increased nearly two-fold from 2009-2012, they have leveled off in concert with new field discoveries throughout 2013. Before everyone goes running to the doors though, it is important to understand that many leaseholders in the play, such as EOG Resources, (NYSE: EOG  ) , Anadarko Petroleum Corporation (NYSE: APC  ) and Chesapeake Energy Corporation (NYSE: CHK  ) , have secured large enough untapped acreage positions where it will be drill! drill! drill! (business as usual) for years to come.

Texas railroad commission drilling data shows slowdown 
Through November, well completions in the play are up 47% over the comparable 2012 period. Drilling activity proceeded similarly in the past three months, increasing 35% compared to 2012. However, issued drilling permits and new oil-field discoveries are a different story. Approved permits and new oil-field discoveries are down 1% and 40%, respectively YTD, as heightened 2013 E&P activity has uncovered the majority of drillable land within the Eagle Ford's oil, liquids-rich, and dry gas windows. While the absolute level of drilling activity could stay flat or moderate beyond 2013, future well completions have a long runway, and reserves will likely benefit. 23,130 permits have been issued since 2012 with only 15,922 wells completed to-date. Further, 1.4 million acres of drillable land remains for the most active Eagle Ford players.

(Drilling data per Texas Railroad commission monthly/annual reports for districts 1-6E)

Major Eagle Ford players relatively unaffected
EOG Resources is the the largest leaseholder in the Eagle Ford, and the company is likely to remain unscathed in the event of an aggregate slowdown in drilling activity. EOG believes if oil prices stay at current levels in 2014 it can aggressively deploy capital above the $7.2 billion mark it notched in 2013. The company has 639,000 acres of secured land remaining, mostly in the upper part of the play's crude oil window. EOG plans to utilize 25 rigs to churn out 460 well completions through the end of 2013. With its expansive acreage position, company management believes it has 4,900 remaining drillable wells, which will be spaced 45-60 acres apart. Accordingly, analysts are forecasting double-digit top and bottom-line growth in FY14.

With all the adoration EOG receives, it is easy to forget that other major players have secured sizable acreage positions as well. Anadarko Petroleum has 400,000 acres of drillable land, of which it plans to complete 350 wells in 2014. At the current run rate, Anadarko has 8.7 years of drilling activity remaining. Analysts are forecasting 2014 revenues and EPS to increase by 9.2% and 21.5%, respectively.

Chesapeake Energy has taken a different approach than its competitors, mainly through divesting Eagle Ford assets after its debt-fueled lease acquisition binge left the company with a cash flow shortfall in 2012. Chesapeake entered a joint-venture with CNOOC in 2010, where it received $2.2 billion in exchange for a 33% interest in 600,000 acres. The company also divested 55,000 acres to EXCO Resources in July for $680 million. Chesapeake currently has 380,000 of remaining acreage and approximately 2,900 drillable wells. Analysts expect continued revenue and EPS growth through 2014 of 5% and 27.9%, respectively.

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