When Will Eagle Ford Shale Drilling Come To My Land?
One of the most common questions that landowners who have signed Eagle Ford shale oil leases ask is “when will they drill an oil well on my land?’
In the oil business, decisions are most often made with two things in mind, maximizing profit and minimizing risk. One of the biggest risks for oil companies in the Eagle Ford shale play at the moment is having leases expire, with no oil and gas production to hold them, then having to face a much more competitive market to re-lease that acreage. Once a well is drilled, the lease is “held by production”, but with so much acreage to drill up, oil companies simply won’t be able to get to all of it before leases expire or come up for renewal. Many Eagle Ford shale oil leases contain an option for the oil company to extend them when the primary term expires. For example, the contract may enable the oil company to pay the same amount per acre to hold the lease for another two years. On large ranches, it may cost an oil company too much to renew leases, so they will make every possible effort to drill a well and “hold by production” the acreage. This is especially true in areas where the price per acre of Eagle Ford shale leases has been driven into the thousands. If you have several hundred or several thousand acres in one of these areas, and you signed a lease with a primary term of three years, there is a good chance that you’ll see a rig move in before it expires so the company doesn’t have to pay any more to hold the land.
Oil Companies Must Clear Up All Title Issues First
Before drilling begins, oil and gas exploration companies must clear up all title issues related to the properties involved. If a number of parcels of land are involved in the proposed unit, it may take several months to track down all of the information required to establish genuine ownership of the minerals / surface. Tracts of land must not have issues such as disputed ownership or back taxes. In the case of property that has a quitclaim deed, (the lowest quality deed), the company may need to get affidavits from neighboring landowners to help validate the claim of ownership. This is necessary to avoid large lawsuits once royalty payments, surface damage, etc., becomes an issue.
There are other factors at play in the Eagle Ford shale right now that may be affecting drilling in your area. These factors include the ability of the Texas Railroad Commission to issue permits, the availability of drilling rigs, frac water, sand, road material, oil and gas pipelines and trucks, etc. “Takeaway capacity” or the ability to get oil and gas from new wells to market, will be an issue well into 2012, until new pipeline networks are finished. Also, permitting for new wells has seen delays due to a staffing shortage at the RRC, which is down to 625 full time employees from 704 in ’09. Update: The Texas RRC has noted that as of Sept, 2011 drilling permit processing time is, according to them, “1 business day for expedited permits and 3 business days for standard permits.”
Putting On A Show For Wall Street
Some landowners, such as those with EOG Resources leases in McMullen and LaSalle counties, have been perplexed to see drilling rigs show up, then move on down the road a few months later.
According to one oil company executive that I spoke to, one of the motives in relocating assets is to drill enough “super wells” and get them online as soon as possible to impress Wall Street investors. This is most likely the reason that companies such as EOG Resources have shifted rigs away from the western Eagle Ford play toward counties to the east. According to the Schlumberger rig count, EOG Resources had, as of July, 28, 2011, 9 rigs drilling in Gonzales county, 6 in Karnes county, and 2 in Wilson county, (the eastern side of the play). At that time there were only two rigs drilling for EOG Resources in LaSalle County and none in McMullen or Dimmit counties. EOG Resources holds thousands of acres in those counties, with proven reserves. However, in order to focus on “big producers”, they have moved almost all of their rig fleet to the east, where they are bringing in wells producing more barrels of oil than those in the western province. In Gonzales county, EOG has wells such as the Hansen – Kullin #3H, which is producing 1,538 barrels a day, with shorter laterals than those in the west. While there have been some big wells drilled in LaSalle, Dimmit, McMullen and other counties to the west, those in the eastern side of the play are on the priority list. The aim is to boost production numbers and keep the investor’s money flowing in. For landowners wanting to see an Eagle Ford shale well on their property, patience is a virtue. Rumors are in the air of “massive drilling programs”, by the main players in the Eagle Ford shale, once a network of new pipelines is completed in 2012.
Update: 09/19/2011. Judging from the two dozen or more new drilling permits recently approved for EOG Resources in LaSalle and McMullen counties, a shift of rigs back to the west side of the play will occur in the coming months in order to “hold by production” some of the larger leases, which are about to come up for renewal.
By Eaglefordshaleblog.com editor Nolan Hart, 07/28/2011
