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Eagle Ford Shale Boom Slowing, Traffic Down

Wheeler's Merchantile in Tilden Texas, during the boom times in the Eagle Ford Shale

Wheeler’s Merchantile in Tilden Texas, during the boom times in the Eagle Ford Shale

These days the parking lots of convenience stores such as this one in Tilden Texas aren’t nearly as crowded as they were just a few short months ago. Most of the oil and gas companies who are drilling in the Eagle Ford Shale region have reduced their drilling budgets for 2015, and are now focusing instead on cost cutting and efficiency. Many are drilling only to hold leases and some are already breaking contracts with drilling rig companies. Experts forecast the price of West Texas Intermediate or WTI to remain below $50 for months to come as Saudi Arabia continues its price war against U.S. producers. Those companies who are lucky enough to have acquired cheap acreage in the “sweet spot” of the Eagle Ford Shale, (where break – even costs are below $40/bbl,) (Such as EOG and Carrizo Oil and Gas,) are still well positioned and are continuing to forecast increased production into 2015 and beyond. Our guess is that the core area of the Eagle Ford will continue to see some drilling activity, even if oil falls into the $30 range, while the “dry gas” and “heavy oil” areas should see far less activity. Some companies in those parts of the shale play are already facing bankruptcy and acquisition as it becomes realized that their breakeven costs are too high. A “thinning of the herd” is already happening at the small company level.  What’s next? It’s possible that we are about to see a whole new round of increased efficiency claims, as results of gas injection pilot tests are published. Technology that increases the ultimate recovery rate (EUR) of Eagle Ford Shale wells on maturing leases could be this play’s saving grace. Look for this, along with ruthless new drilling, fracking and proppant cost reductions to be touted in the investor reports coming up later this quarter.

 

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