Oil Majors Are Soaring Like Eagles Over This Play

ConocoPhillips recently issued bullish guidance for its Eagle Ford assets, and investors should pay attention, as EOG Resources has also revised Eagle Ford reserve estimates upwards

Apr 25, 2014 at 8:00AM

The Eagle Ford stuns again, with ConocoPhillips (NYSE:COP) recently boosting its Eagle Ford reserve estimates by 700 MMBoe to 2.5 billion barrels of recoverable oil equivalent. Will ConocoPhillips be able to translate skyrocketing reserves into output growth and offset declines in legacy assets? 

Technology is key
Maybe it can, especially as improvements in efficiency make Eagle Ford wells all the more valuable. Part of this can be attributed to ConocoPhillips' willingness to test out new drilling and completion technologies. By increasing the amount of proppant used in the drilling process, ConocoPhillips was able to increase EUR (estimated ultimately recovery) per well by 30%. As Conoco combined tighter cluster spacing with more proppant, it was also able to more than double the production rates of new wells versus wells completed a few years ago.

On top of each well recovering more hydrocarbons at a quicker pace, it's also cheaper to bring them online. Drilling and completion costs have fallen by 37% and 41%, respectively, since 2010. Wells can also be completed 40% faster, allowing Eagle Ford operators to bring better wells online at a faster rate, while costing less. If this trend continues, this won't be the last time that ConocoPhillips and other Eagle Ford players raise reserve and production estimates.

Better guidance
Previously, ConocoPhillips was excited to tell shareholders that it planned on boosting output from 141,000 boe/d (at the end of 2013) to an estimated 220,000 boe/d by the end of 2017. Now, due to colossal the improvements being made in drilling and completion, ConocoPhillips is guiding for a production rate of 250,000 boe/d in 2017, which could come much higher by the end of 2017. 

ConocoPhillips isn't alone in developing the Eagle Ford shale. EOG Resources (NYSE:EOG) has also been lending a helping hand, as oil producers have been indirectly working together to improve drilling effiencies in South Texas by sharing well imformation. 

More oil please
In 2013, EOG Resources grew oil output out of the Eagle Ford by 69%, as year-end production hit 178,000 boe/d. The production mix for wells producing in the Eagle Ford is extremely profitable: 78% oil, 10% NGL, and 12% dry gas. This shift toward liquids allowed EOG Resources to grow its total oil output by 40% last year as companywide production increased by 9.4%. 

For this year, EOG Resources is expecting total crude production to rise by 27% as total output is guided to climb by 11.5%. To grow crude production by strong double digits once again, EOG Resources is going to complete 520 net wells in the Eagle Ford. To diversify and hedge against unforeseeable weather complications, EOG Resources is also going to complete 80 net wells in the prolific Bakken/Three-Forks play.

Passing the benefits onto the shareholders
During 2013, EOG Resources increased its Eagle Ford reserve estimates by 45% to 3.2 BBoe while adding 1,600 potential drilling locations. What makes those potential drilling locations all the more valuable is the fact that the estimated EUR per well increased by 50 MBoe to 450 MBoe, meaning that each new well brought online will yield 12.5% more hydrocarbons.

Foolish conclusion
There has been a very bullish trend taking hold in American shale plays for some time. Drilling times are decreasing, well completion costs are trending lower, EUR rates are rising, and oil and gas producers are shifting their production mixes toward more crude and NGL output. The Eagle Ford isn't the only area benefiting from this trend, but it's a perfect example of how merging better geological information with better forms of well completion designs can dramatically increase the amount of recoverable hydrocarbons laying underneath shale formations.

ConocoPhillips and EOG Resources have both revised their Eagle Ford estimates upwards, and more revisions are sure to follow. If you are looking for two companies with plenty of exposure to one of America's best shale plays, I would definitely recommend looking at bit deeper into ConocoPhillips and EOG Resources.

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Callum Turcan has no position in any stocks mentioned. The Motley Fool owns shares of EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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