2 More Gas Companies Announce Oil Ambitions

Last week, I noted how everyone hates natural gas. By that I mean independent oil and gas producers suddenly seem extremely motivated to shift their production mix in favor of crude or other liquids. In that piece, I focused on large companies like EOG Resources (NYSE: EOG  ) and Chesapeake Energy (NYSE: CHK  ) , but this trend extends on down to the smaller shops as well.

On Friday, Carrizo Oil & Gas (Nasdaq: CRZO  ) announced that, in a strategic shift, it "is attempting to increase significantly the level of its crude oil and liquids production and reserves by as early as the first quarter of 2011." The company's initial plan of attack involves moving into the Eagle Ford shale play of South Texas, and the Niobrara in Colorado. Carrizo ran a pretty modest stock offering on Friday to help fund this push into oily plays.

Like EOG Resources, Chesapeake, Devon Energy (NYSE: DVN  ) , and countless others, Carrizo cut its teeth on unconventional gas production in the Barnett shale. The company then moved on to the Marcellus shale after Range Resources (NYSE: RRC  ) blazed the Appalachian trail, identifying the gas play as a "logical extension" of its Barnett expertise. Is the move into unconventional oil another logical extension? Up to a point, yes, because both development activities tend to share core competencies in the areas of horizontal drilling and hydraulic fracturing.

I do wonder whether every small company moving into these oily plays will hit the ground running, though. From a technical perspective, EOG Resources appears to be ahead of the pack when it comes to unlocking these new resource plays. We'll see how steep the learning curve actually is.

The Eagle Ford could actually make for a pretty smooth transition, because it produces gas, natural gas liquids, and condensate to varying degrees. Everyone and his mother now seems to be active in this giant play. The latest entrant is Goodrich Petroleum (NYSE: GDP  ) , which announced today that it's reallocating roughly 20% of its formerly Haynesville-dominated budget to the Eagle Ford play. I told you in February that this was the play du jour. We might need to make that the play de l'annee.

Chesapeake Energy is a Motley Fool Inside Value pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Fool owns shares of Chesapeake Energy. The Motley Fool has a disclosure policy.


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  • Report this Comment On April 12, 2010, at 4:08 PM, KennethRanson wrote:

    You say, "it produces gas, natural gas liquids, and condensate to varying degrees."

    Natural gas liquids and condensate are the same thing. The liquids condense out of the gas as it comes to the surface.

    You mean to say that the Eagle Ford produces gas, condensate, and oil depending on the location of the well and the burial history of the reservoir being tapped.

  • Report this Comment On April 12, 2010, at 4:56 PM, KennethRanson wrote:

    You say, "it produces gas, natural gas liquids, and condensate to varying degrees."

    Natural gas liquids and condensate are the same thing. The liquids condense out of the gas as it comes to the surface.

    What you mean to say is that the Eagle Ford Shale produces gas, condensate, and oil depending on the burial history of the reservoir tapped.

  • Report this Comment On April 12, 2010, at 9:38 PM, XMFSmashy wrote:

    Kenneth,

    Thanks for the comment. Some operators just report condensate, while folks like Forest Oil and Rosetta Resources report condensate and NGL volumes separately in their press releases. In doing so, they're distinguishing between hydrocarbons like pentane that are liquid at normal temp (lease condensate), and lighter hydrocarbons that require some pressure (NGLs). Correct me if I'm wrong, but I believe lease condensate is more valuable, and priced closer to WTI, while NGLs are priced at perhaps half of WTI.

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