Despite favorable economics for many pockets of the Eagle Ford, the rebound in Eagle Ford activity remains muted compared to its neighbor, the Permian Basin. Current horizontal rig count is at 65, which is still a mere fraction of the over 230 horizontal rigs that were running in the region in late 2014.
The Eagle Ford is a more mature play with relatively repeatable results that operators are using to help generate cash flow to support development and delineation of newer play concepts in areas like the Permian and SCOOP/STACK. Operators like Pioneer (NYSE: PXD), Marathon (NYSE: MRO), EOG (NYSE: EOG), and Devon (NYSE: DVN) have been significant drivers of regional activity historically, and without exception, average operated oil production in 2016 compared to average 2015 oil production for these and other top 10 operators declined just like the Eagle Ford as a whole. Devon exhibited the highest percentage decline at almost 40% while EOG, Encana (NYSE: ECA), and Carrizo (NASDAQ: CRZO) all declined less than 10%.
BTU Analytics expects this trend to reverse and for production to remain relatively flat on a basin level through 2017 as some operators return to meaningful activity in the Eagle Ford while others continue to allocate capital elsewhere. In the company’s 4Q 2016 earnings call, Pioneer stated that while it is planning to test bigger fracs in the region, it is also planning to sell off 10,000 Eagle Ford acres and let production decline due to higher third party transportation costs compared to its Permian acreage. Devon has continued to focus its attention and capital on its STACK and Delaware Basin acreage with adding Eagle Ford activity seemingly a tertiary priority.
Some producers like Marathon plan to allocate capital more evenly across their portfolio and expect to keep Eagle Ford activity at maintenance levels. Still others, like EOG and Sanchez Energy, continue to tout the Eagle Ford as a growth asset. This mixed sentiment paired with BTU Analytics’ pricing outlook results in a flat oil production forecast through 2017 before returning to growth in 2018 due to higher prices.
However, whether operators are looking at the Eagle Ford as a growth asset or not, there is a common theme of operators testing different horizons in the Eagle Ford with the goal to increase premium drilling location inventory. Sanchez plans to continue testing staggered development of both the Upper and Lower Eagle Ford across portions of their acreage in Webb, Dimmit, and La Salle counties. EOG also continues to talk about developing the Austin Chalk which lies above the Eagle Ford across portions of its acreage, and Devon is testing a development pattern within the Upper and Lower Eagle Ford benches that could lead to developing 18 wells per section. While it is still early, if these producers are able to prove that multiple Eagle Ford benches can be developed economically across large swaths of the play, the Eagle Ford could remain a top tier asset with drilling inventory below $50/bbl wellhead much longer than the next five years.