Acquisition Activity Spreads To Eagle Ford

January 16th, 2017 |

As operators adjust to a new outlook post-OPEC cuts, M&A activity is rolling again. BTU Analytics recently hit on some of the motivators around a handful of recent Permian acquisitions, and now assets are trading hands in the Eagle Ford. Sanchez Energy (NYSE:SN) just announced the acquisition of 155,000 net acres spanning Dimmit, LaSalle, and Webb counties in Texas for $2.3 billion, acreage that is contiguous with its Catarina asset. Sanchez is acquiring the acreage from Anadarko (NYSE:APC).  What might this transaction mean for Western Eagle Ford production?

To understand the potential impact, let’s take a look at the drilling activity for both Sanchez and Anadarko in the Western Eagle Ford over the past three years.

The graphic is telling of a few things. First glance shows that Anadarko has not been drilling in the Western Eagle Ford since early 2016. Given this, it becomes fairly apparent that Anadarko did not consider the acreage in the Western Eagle Ford to be a core asset. Sanchez, on the other hand, has continued to drill in the area at a relatively consistent rate. This rate has come up from an average of 3 wells per month in 2014 to 7 wells per month in 2016. The biggest increase in activity came shortly after Sanchez acquired the Catarina asset from Shell, which occurred at the end of May in 2014. Following that acquisition, average well counts per month reached a peak of 9 in 2015.

Ultimately, it is likely that Sanchez’s purchase of the Anadarko assets will result in a net increase in Western Eagle Ford activity, due to the fact that Anadarko sold off a non-core asset that they were unlikely to drill for some time (given nonexistent drilling activity for all of 2016) to Sanchez, who will most likely expand its drilling program in this acreage. Looking at the development plan released in Sanchez’s investor presentation, we have factored in the additional wells Sanchez plans to drill (reported as roughly 20 wells per month) in order to look at the estimated effect on regional oil production. What we see is an increase in production starting in Jan-18 at around 13,000 B/d, ramping up to roughly 55,000 B/d, a significant amount of additional volume to the region. It is important to note that Sanchez is also acquiring 132 drilled and uncompleted (DUC) wells.  While this will add to the company’s production volume rather quickly, the volume from the DUCs was not added in the case of the above scenario, since those DUCs are already factored into BTU Analytics’ production forecast for the Western Eagle Ford region. While the volumes added here are not inconsequential, the more important detail of this swap is highlighting the fact that as acreage trades hands, production volumes not originally forecasted to be there will begin to add to the overall productivity in the region.

To see more on BTU Analytics’ outlook on Eagle Ford production, or run production scenarios like the above, check out our Upstream Outlook.