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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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The Eagle Ford Rebound Needs $48 Oil

The oil price crash that started in 2014 has affected not only corporate profits and drilling plans. It has had a huge economic impact on the areas around the U.S. shale plays.

The 21 counties directly or indirectly involved in production of Eagle Ford in South Texas saw a record-high economic impact of US$123.3 billion in 2014. During the subsequent two years of low oil prices, Eagle Ford’s impact dropped to close to US$49.8 billion in 2016, a new report by the University of Texas at San Antonio (UTSA) shows.

The study “Economic Impact of the Eagle Ford Shale, Business Opportunities and the New Normal”, commissioned by the South Texas Energy and Economic Roundtable (STEER), shows just how much economic output the shale oil boom in the peak 2013-2014 years generated, and how much the subsequent oil price slump led to subdued drilling activity and lower economic impact. Most recently, activity in the Eagle Ford has picked up, things are looking up from the 2016 lows, and cautious optimism prevails, the study suggests.

According to the report, back in 2014, the Eagle Ford Shale aggregated 21-county area had an impact close to US$123.3 billion, supported almost 191,200 full-time-equivalent jobs, paid US$8.6 billion in wages and salaries, generated almost US$3.6 billion in state revenues, added some US$54.8 billion in gross regional product, and added nearly US$2.2 billion to local government revenues.

In 2016, the study says, those impacts were US$49.8 billion in output, nearly 108,300 full-time-equivalent jobs, US$4.1 billion in wages and salaries, US$1.8 billion in state revenues, US$23.1 billion in gross regional product, and around US$1.3 billion to local government revenue.

In the two years of the downturn, the economic impact of the Eagle Ford roughly halved compared to the peak when oil prices were comfortably sitting at above US$100 per barrel.

“Since February 2013, with 260 rigs, the number of rigs in the area had declined steadily and by mid-2016, there were only 36 rigs in the shale region,” the report says.

But since the fourth quarter of last year, more stable, and higher, oil prices spurred renewed activity in the Eagle Ford region. As of May 2017, the rig count had reached 98, and although the Eagle Ford is not as hot as the Permian in West Texas, the South Texas shale play is seeing an uptick in activity. Related: Iran’s Largest Oil Terminal Boosts Capacity To 8 Million Bpd

The Dallas Fed’s Energy Indicators report for May showed that the Eagle Ford saw its “fourth consecutive monthly increase in production since bottoming in January 2017.”

The Eagle Ford’s oil production is expected to increase by 43,000 bpd in July over June, to stand at 1.368 million bpd, and gas production is also seen to be rising, according to the EIA.

“The Eagle Ford Shale play became a boon to the South Texas economy, and provided an opportunity to boost local infrastructure. Our region is well positioned for a successful future as local area production picks back up. South Texas has become an export leader in the energy products realm. We are committed to continued sustainable growth,” said John LaRue, Port Corpus Christi executive director, commenting on the study.

Referring to the future of the Eagle Ford production and economics, the UTSA study said: “Dependent upon prevailing prices of oil and gas, of course, the Eagle Ford continues to have a lot of life left in it - albeit with periodic ups and downs.”

Since the price of oil has tumbled around 15 percent since late May, some traders and investment banks have started cautioning that oil prices may be headed into the US$30s. Current WTI prices are not that far from a US$40-per-barrel oil, which has the industry and analysts wonder how low an oil price the U.S. shale can afford. According to UBS, oil at US$45 “slows most U.S. shale plays,” and the Bakken, the Eagle Ford, and the Niobrara struggle below US$45.

The Dallas Fed Energy Survey from Q1 2017 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 US$48 per barrel WTI.

The next few quarters will show if the oil price below US$50—and now below US$45—will have an impact on the Eagle Ford’s recovery, and if drillers have adapted to turn profits in the ‘new normal’.

By Tsvetana Paraskova for Oilprice.com

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