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Dex Dunford

Dex Dunford

Dex is an experienced researcher and reporter living in the heart of Alberta's oil country. He writes for Divergente LLC on emerging stories in the…

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Eagle Ford Struggles, But It’s Still The Sweet Spot

If development in Eagle Ford from 2008 to 2014 felt like a drag racer flying down the track, then 2015 must have felt like skidding to a halt. This year will be like hitting a brick wall—or a shale wall, but it’s a wall that will eventually be torn down.

For now, though, the bad news keeps piling up.

Baker Hughes’12 February rig count for the Eagle Ford is grim. Currently, there are only 58 rigs active in the region. That’s a staggering drop from 164 during the same period in 2015, and 216 in 2014.

Pioneer Natural Resources announced earlier this month that it would be pulling all drilling rigs out of Eagle Ford. Pioneer had six rigs operating as of December 2015. This cut is fresh on the heels of a $27 million fourth-quarter loss for the Irving-based producer.

Pioneer is also moving two pressure pumping fleets from the Eagle Ford to the Permian Basin. Related: Why Is Well Decommissioning So Slow In Canada?

Oilfield workers in the Eagle Ford are also feeling the pinch. According to the University of Houston, each rig equals 224 jobs on and off the drilling pad, which translates into 35,000 jobs lost since 2014 from Baker Hughes alone.

On a wider scale, fewer rig workers in the area has hit local business hard. Cotulla, dubbed the “hotel capital of the Eagle Ford,” has been one of those communities, with brand new hotels shutting down operations. This is a difficult change for a community that saw 20 new hotels erected during the oil boom prior to 2015.

But comparing this downward trend to North Dakota’s Bakken play shows that the Eagle Ford isn’t the only play in jeopardy.

In December 2015, the average production from the Eagle Ford Shale was 1.5 million barrels per day, down 7% from December 2014. The North Dakota section of the Bakken play produced 1.2 million barrels per day in November 2015—down a similar 6% from November 2014.

The average price per barrel in both regions dipped 35% in 2015 over the previous year, and both lost their fair share of active rigs as producers stopped production on all but the fastest, most efficient rigs. The total rig count in the Eagle Ford dropped from 200 to 70 in Eagle Ford, and from 150 to 50 in Bakken. Related: Oil Rally Stalls After Iran Declines to Commit to Freeze

Analysts predict the decline is not over for either shale play.

In late January, Sami Yahya, Platts Bentek energy analyst, commented on the outlook for both plays: “If prices remain sub-$40 per barrel and producers are unable to further bring down completion costs, then they might defer completions until the pricing market makes a comeback.”

When that might be is anyone’s guess.

Texas’ Permian Basin is likewise faring poorly.

This time last year, the Permian Basin had 454 rigs operating. Now it has 182. The most recent figures for this month from Baker Hughes show the Permian rig count falling by 17 rigs. Four weeks into this year, there has been a 12.92% decline in rigs.

But when it comes to the Permian, Chevron, for one, views this as the most cost efficient play in the US. With that in mind, the company spent much of last year switching over to horizontal drilling in this play, insisting that the “economics in some of the best areas at strip type prices work”. But it would still take $50 oil to make it work, and we’re not close to $50 oil. Related: Activist Investors Crushed By Oil Crash

About 10% of the 40,000 wells drilled in 2014 sit uncompleted, and most of them are in Eagle Ford, Bakken and the Permian Basin—but no one’s turning off the taps.

There is, however, a bigger picture that could be the saving grace for these three major US shale plays. Under the surface of grim rig counts there is a shifting focus in the works, with operators honing in more narrowly on the real sweet spots. This shift, say some analysts, could see a move away from the Williston Basin toward more concentrated efforts in the Eagle Ford and Permian.

At the end of the day, grim or not, it’s certainly not game over for the three big boys. Producers are making progress in reducing high break-even costs, and particularly the Eagle Ford and Permian could end up benefitting from shifting sweet-spot sentiments.

By Dex Dunford for Oilprice.com

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