Image source: ConocoPhillips.
The downturn in the oil market has been much worse than the industry had expected it to be. Many oil companies are now fighting for their very survival. Drilling activity has slowed considerably and exploration activities have almost ceased to exist. While that broadly describes the current state of the industry, there are some companies that have been less affected than their peers due to stronger balance sheets and premier drilling locations that are still profitable at current prices.
One such company is EOG Resources (EOG +1.97%), which has continued to test the limits of its acreage in the Eagle Ford shale in an effort to drive further improvement in its drilling returns. Its tests have only made it more excited by the potential it sees in that play.
Finding the winning pattern
Billy Helms, EOG Resources' EVP of E&P, spent some time on the last quarterly conference call detailing its most recent tests in the play. He started off by saying that:
In the Eagle Ford, after five years and three resource upgrades to this world class play, we are still excited about the learning and the technical progress we make every quarter. We continue to test and evaluate the Lower Eagle Ford W pattern mentioned in last quarter's call. While the W pattern is not new to the industry, there is one significant difference to the spacing test, the vertical spacing between target intervals is not necessarily an arbitrary distance, but rather is determined by certain characteristics of the rock.
Helms remains optimistic about the Eagle Ford because it continues to grow in size due to the company's ability to maximize the recovery of hydrocarbons within its current acreage position. One of the newer techniques it is using (as are its peers) is known as a W pattern to drill wells into a section of the Eagle Ford. Fellow Eagle Ford driller ConocoPhillips (COP +1.40%) has a nice slide that details its spacing tests, including the W pattern:
Data source: ConocoPhillips investor presentation.
What the W pattern does is enable EOG Resources and ConocoPhillips to drill wells closer together to access more of the reservoir rock. ConocoPhillips is even testing tighter spacing than the W pattern, with the second test pictured on the slide above showing much more of a zigzag pattern. However, one thing that EOG Resources has discovered via its tests is that the vertical distance between the top and bottom wells shouldn't be arbitrary, but should instead be determined by the type of rock it is drilling into.
Steering to success
Helms explained why this was important by noting that:
Our W pattern test is specifically designed to take advantage of technical findings from the work we are doing around targeting. We started this targeting work by analyzing 60 unique well characteristics from hundreds of recently drilled Eagle Ford wells. From these 60, we identified 12 characteristics that are present in our best wells. By incorporating this data into our 3D seismic and petrophysical data we determined that the Lower Eagle Ford may have two sweet spot intervals...The laterals in our W pattern test are geo-steered to very specific areas that meet specific criteria. These targets can be as narrow as 20 feet. Initial results from these tests are promising...
While a W pattern has helped the company unlock more of the oil and gas trapped in the Eagle Ford, that pattern alone isn't the optimal way to develop the play. Instead, it uses data to build a model, which shows that there are two prime layers to target its drilling so that it can achieve the best well results.
Data source: EOG Resources investor presentation.
To put it another way, the company assembles a heat map of sorts, which shows exactly where to target each upper and lower well. This ensures that it hits the best spots that will yield the highest volumes of oil and gas. Given that volumes are a big key to drilling returns, by accessing a greater volume of oil and gas within the reservoir, EOG Resources can boost its drilling returns.
Investor takeaway
Companies like EOG Resources and ConocoPhillips remain excited by the Eagle Ford shale because they are figuring out the key to drilling better wells. That's largely the result of continual testing of the play, with EOG Resources now discovering where to target wells into the best spots of the play. That is leading to an improvement in its drilling returns, which is a real key to success in the current low oil price environment.
