The Next Eagle Ford is…. the Eagle Ford? Comparisons Can Be Painful

Halcon Resources (NYSE: HK) made a splash last year when the company announced its new East Texas Eagle Ford play, ‘El Halcon’.  Whether you call the play by that name, Central Texas Eagle Ford, or Eaglebine, industry results to date haven’t been much to cheer about.

Map

The chart below shows average well results for horizontal wells from 2013 to the present in Burleson, Brazos, Robertson, Lee and Milam counties targeting either the Eagle Ford or Woodbine formations.  Average oil initial production rates of 325 b/d are significantly lower than the 475 b/d observed across the counties BTU Analytics categorizes as the Eastern Eagle Ford development area.

Slide1Although oil production drives well economics in this price environment, it’s worth noting that the differential is even more pronounced on the gas side.

Slide2

Running the average well rates through BTU Analytics’ economics model assuming $8.3 MM well costs, $100/bbl oil and $4/Mcf gas, results in an internal rate of return of 13%.  While I’d love to earn 13% on my bank balance, this is the E&P business and investors don’t have much patience for projects with 13% returns.

Turning to results by individual operators, the results from Halcon do compare well versus other operators trying their hand in these counties, including Apache Corp (NYSE: APA), Anadarko Petroleum (NYSE: APC), and Clayton Williams (NYSE: CWEI) among others.  Note that the production rates below include 58 wells from Halcon, 16 wells from Anadarko, 13 from Clayton Williams, 5 from Apache and 52 from Others.

Slide3

Using oil IP rates more in line with Halcon’s recent results, our model returns an IRR of 35%.  While the Eagle Ford play in Central Texas may not yet be on par with the original Eagle Ford, operators are still in the early innings.  Will the play be the next big thing? Probably not.  However, with some additional well cost reductions, the play could provide meaningful returns for some independent producers and provide just another driver of US oil growth.

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Kathryn Downey Miller is President of BTU Analytics where she leads the firm’s consulting and analytics groups in delivering market advisory services to clients across all sectors of the industry. Additionally, Kathryn oversees strategic planning, financial budgeting and analyst development for the company. Prior to founding BTU Analytics, Kathryn built market expertise in a diverse set of prior industry roles, including buyside investment research at an energy focused hedge fund, energy market fundamentals consulting at Bentek Energy, investor relations strategy consulting for E&P companies and investment banking at Citigroup. She speaks frequently at industry events on North American energy markets and is a CFA charterholder.

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