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Oil Prices Poised To Rise In Early 2018

A consistent fall in comparative…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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$60 Oil Could Revive The Eagle Ford

Oil

The world’s hottest shale play right now, the Permian, is boosting its oil production and contributing the most to the U.S. crude output growth. Meanwhile, Texas’ other shale play, the once-hot Eagle Ford, has cooled, turning thriving communities into ghost towns.  

The economic impact of the oil price crash is plainly seen across the counties in and around the Eagle Ford. Small business owners began struggling after the oil boom turned to gloom in 2014. Ghost towns and abandoned plots now bear the scars of the downturn, Bloomberg’s Dan Murtaugh and photographer Max Burkhalter report.  

Photos of what could easily be mistaken for the set of The Walking Dead document how the Eagle Ford-related economy has suffered through the oil price crash. Still, the business owners who spoke to Bloomberg called the bottom of the downturn a few months ago, and report signs of a rebound lately.

Back in 2014—when oil prices were still around $100—the Eagle Ford’s economic impact was estimated at $123 billion in the 21-county area—an all-time high to-date, according to a June 2017 report by the University of Texas at San Antonio’s Institute for Economic Development. By last year, the economic impact had dropped to $50 billion. Employment related to Eagle Ford activity in the 21-county area dropped from 191,153 in 2014 to 108,000 in 2016, the report says.

Related: US Shale, End Of OPEC Cuts Could Stifle Oil Prices In 2018

Since the end of 2016, though, the Eagle Ford has shown signs of recovery. According to Dallas Fed’s most recent energy indicators report, Permian Basin output increased in August by 62,300 bpd to 2.52 million bpd. Eagle Ford’s production rose by 17,000 bpd to 1.28 million bpd.

“Eagle Ford production has been on an upward trend since it bottomed out in late 2016, although rig counts have been declining since reaching 86 on May 26,” Dallas Fed said, noting that the Eagle Ford output dropped in late August and early September due to curtailments amid Hurricane Harvey.

The EIA’s latest Drilling Productivity Report estimates the Eagle Ford oil production at 1.271 million bpd in October, revised down to reflect Harvey’s impact.

The Dallas Fed energy indicators report also highlighted that “Operators look to be moving rigs to more prolific counties within basins, such as Reeves County in the Permian Basin and Karnes County in the Eagle Ford.”

The number of all active oil and gas rigs in the United States fell last week by 1 rig. The total oil and gas rig count now stands at 935 rigs, up 424 rigs from the year prior. In the Eagle Ford, the number of rigs dropped to 68 from 71 last week, but is up by 31 rigs from the 37 rigs for the same week last year.

The Eagle Ford activity and oil production is inevitably tied to oil prices, which, after starting this year with WTI above $50 on the back of the initial enthusiasm over OPEC’s cuts, faltered in March and dipped to $47.

The Dallas Fed Energy Survey from Q1 2017 at the end of March showed that 62 executives from exploration and production firms said that the average breakeven price to profitably drill a new well in the Eagle Ford was $48 per barrel WTI. Related: The Driving Forces Behind Today’s Oil Markets

Since then, the WTI price has faltered several times, entering a bear market in June, dipping to $43 and shedding more than 20 percent from recent highs. But earlier this week, oil returned to a bull market and WTI hit a seven-month high at $52.22, as sentiment turned bullish with growing evidence that the market is rebalancing, strong oil demand growth, and a supply concern over possible disruption of oil exports from Kurdistan.

At $51-52-per-barrel oil, U.S. shale drillers are hedging anew to lock in future production prices. Hedging activity has sped up since WTI broke above $50.

“There’s been more producer-hedging in the past two weeks than in the past four or five months,” one banker told the Financial Times.

The Eagle Ford and its zombie-apocalypse-like small town landscape will only benefit from locked-in future sales and a prolonged bull market in oil. Oil prices may never return to $100 again, and the dizziest oil-boom spending days may be over, but there’s still life left in the Eagle Ford patch.

By Tsvetana Paraskova for Oilprice.com

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  • Tom on September 28 2017 said:
    No industry can be run to protect the petrodollar when it's the government who spends,spends,spends. Now no employees, no financing and after Permian runs low, good luck.

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