The great state of Texas has always been one of the United States' top energy producers. However, not so long ago, most of the oil, and a fair bit of gas, was coming from West Texas. While the Permian Basin still cranks out the most oil, the Eagle Ford Shale is moving rapidly to challenge the dominance of its oilier brother.
New shale on the block
Far from the Permian Basin, the Eagle Ford shale swoops across southern Texas from the Mexico border up into East Texas. Its prime oil window is found in the northernmost strip of that band, followed next by a strip that produces mostly condensate, and finally a region that produces mostly dry gas.
According to the Texas RailRoad Commision, last year the shale produced 914 million cubic feet of natural gas per day and 119,353 barrels of oil per day. So far this year, the gas number is down slightly to 880 mmcf per day, but the oil number has risen significantly to 297,079 bpd through August. Remember, that is an average number: the commission reported that July's production was more than 310,000 barrels per day.
For perspective, in 2008 when PetroHawk -- since bought out by BHP Billiton (NYSE:BHP) -- drilled its first well, oil production in the Eagle Ford was only 358 barrels per day.
Winning with oil
Predictably, because natural gas is so cheap right now, much of the drilling in the shale is in the oil window (though plenty of gas and condensate comes along with it).
So who's getting rich off all this oil? Let's start with the shale's top producer: EOG Resources (NYSE:EOG). The company cranks out 109,000 barrels of oil equivalent per day, and estimates its potential reserves in the play are upwards of 1.6 billion boe.
While EOG is cleaning up, Marathon Oil (NYSE:MRO) is using the shale to shore up its balance sheet. The company recently received an upgrade from analysts at JP Morgan on the strength of its Eagle Ford assets. Marathon almost doubled its production in the Eagle Ford sequentially, from the second quarter to the third quarter of this year, to about 40,000 barrels of equivalent per day. Marathon is raising its Eagle Ford production target for next year from 70,000 boepd to 85,000 boepd.
Of course, all the oil and gas production in the Eagle Ford means nothing without the companies responsible for transporting oil to Gulf Coast refineries and processing natural gas liquids. A bevy of midstream outfits are getting in on the Eagle Ford action, too.
Energy Transfer Partners (NYSE:ETP) has invested more than $1.2 billion in the Eagle Ford region since 2010. Increased production in the shale boosted Energy Transfer's fee-based revenue in the third quarter this year.
The words "Eagle Ford" are all over the capital expenditure sheet at Enterprise Products Partners (NYSE:EPD). The partnership has completed roughly $2 billion in projects this year and half of them are in the Eagle Ford. Of the remaining $7 billion or so it plans to spend between now and 2015, about $4 billion is geared toward our favorite Texas shale play.
Kinder Morgan Energy Partners (UNKNOWN:KMP.DL) is happy to get in on the game as well, and will repurpose existing assets if need be. In June, the company brought a new Eagle Ford pipeline into service that has a capacity of 300,000 barrels per day. Sixty-five miles of the pipeline were new, while 113 miles were converted from a natural gas pipeline.
The Energy Information Administration forecasts that the combined production of the Permian Basin and the Eagle Ford will grow to reach 2.48 million barrels per day by January of 2014. All of that energy is going to need to be transported and processed, making high-yielding midstream companies like Energy Transfer Partners a solid investment option.