Last month, I declared the Eagle Ford shale the hottest unconventional play of 2010. With major purchases by the likes of Williams
Whereas 2009 was a year for early stage tinkering, 2010 has brought an explosion of activity in this South Texas treasure trove. The Eagle Ford rig count reached 49 in April, and hit 84 by early August -- exceeding the number working in the Barnett shale.
The party's only getting started. Halliburton projects that the rig count will exceed 200 by the end of next year, as ConocoPhillips
Companies like EOG Resources
Chesapeake obviously paid considerably more for its new leasehold than Marathon, but the surrounding activity has arguably reduced the risk for these acres. We've seen companies like Statoil
If this were a major purchase, I would be more concerned about Chesapeake overpaying. What I find, though, is that the company tends to acquire vast swaths of undeveloped land on the cheap, and farm it out to international partners with deep pockets, like CNOOC, at multiples of that acquisition price. As long as the company saves its higher-priced acquisitions for small "tuck-ins" like today's purchase, and keeps debt levels at around 40% of total capital or lower, the business model doesn't bother me.
Chesapeake Energy is a Motley Fool Inside Value pick. CNOOC is a Motley Fool Global Gains recommendation. Statoil ASA is a Motley Fool Income Investor selection. Try any of our Foolish newsletter services 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. 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.