Public independent E&Ps have consistently sent a smaller portion of their drilling and completion capital to the Eagle Ford since 2015, which we highlighted earlier this month, in part because many of them also have operations in the currently favored Permian Basin. Because the Eagle Ford has fallen relatively out of favor with public investors, asset sales in the region by public E&Ps have skyrocketed since crude prices began recovering in 2016. Including the recent EnerVest divestiture, which we’ll focus on today, Eagle Ford divestitures by public operators have totaled almost $10B since June 2016 (accounting for deals >$50MM). EnerVest’s sale of its Eagle Ford assets to TGP Pace Energy Holdings, creating Magnolia Oil and Gas, is the largest of them all at nearly $2.7B, and likely represents an opportunity for more Eagle Ford production growth than would have been expected by EnerVest alone.
The Eagle Ford acreage in the Magnolia transaction can be loosely broken up into two assets. One in Karnes County, which accounts for 77% of current production, and the other is the Giddings Field, which represents more than 94% of the acquired acreage but only 23% of current production.
The map above plots the acquired Karnes county acreage against our proprietary economic data featured in the E&P Positioning Report. BTU Analytics estimates that 72% of the remaining Eagle Ford locations on the transacted Karnes acreage will have a wellhead breakeven below $40/bbl. TPG Pace highlights 190 net operated and 60 net non-operated locations remaining in the Eagle Ford formation within the Karnes acreage. The company shows another 145 operated and 30 non-operated net locations in the Austin Chalk formation.
The quality of the Giddings Field acreage is more opaque given the relative lack of development to-date. While the acreage is vast, less than 16% of it is associated with an Eagle Ford breakeven value (this is not surprising since the area is more prospective for Austin Chalk). Note that the acreage in Brazos and Grimes counties resides outside of BTU Analytics’ Eastern Eagle Ford sub-location used in the calculation of our Eagle Ford breakevens. However, it also highlights the general lack of recent activity across much of Fayette, Lee and Washington counties.
The map below plots the same Giddings acreage against our three-mile by three-mile Eagle Ford breakeven grids and all horizontal wells completed on or near the transacted acreage since 2010. While multiple operators have completed wells on or around the transacted acreage in Brazos and Grimes counties, large swaths of the Giddings acreage are still relatively unknown from an economics perspective.
These two assets are currently the entirety of Magnolia’s portfolio, making the company much more focused on the asset than EnerVest, which has additional assets in the San Juan Basin, Anadarko Basin, Barnett Shale and Appalachia. With Magnolia solely focused on the Eagle Ford, this is yet another transaction where the acquiring operator has the willingness to aim capital at its new acreage in the near-term. Additionally, as we highlighted at our annual What Lies Ahead conference in February, the Eagle Ford does not face the same infrastructure constraints as many other US shale basins, meaning that production on these assets can grow uninhibited by some infrastructure hurdles hampering development in other areas. As such, Magnolia plans to complete 45 nets wells in Karnes county in 2018 (33 operated and 12 non-operated) while running an average 2.7 rigs across its acreage. That rig count will be increased to four in 2019.
How do we think this transaction could affect production on these assets and the Eagle Ford in general? Request a copy of our Upstream Outlook.