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Eagle Ford Shale Overview
Ramona Hovey, SVP Analysis and ConsultingFebruary 23, 2011
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OVERVIEWEAGLE FORD SHALE
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Geologists have known about Eagle Ford Shale for several decades, but technology did not exist to produce economically
Conoco drilled first well in Sugarkane Field in 2006, however, early production was more Austin Chalk than Eagle Ford
Apache also started producing from Eagle Ford Shale in 2006. Most wells were vertical wells and focus was Austin Chalk.
October 2008 – Petrohawk STS #1 in Hawkville Field was first “true” Eagle Ford Shale well. Promising initial results help lead to increase in Eagle Ford Shale Activity
Early development was in more gas rich areas, but recent activity is almost entirely in liquids rich areas
June 2010 – Shell acquires 105,000 acre lease in Oil Window for $1 Billion USD and 25% royalty
Eagle Ford History
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Sub Basin of the Gulf Coast Basin. Covers an area 40 miles wide and 400 miles long, extending from Maverick County in South Texas to Brazos County in East Texas.
Deposited during the Cretaceous Period (approximately 65‐145 million years ago)
Underlies the Austin Chalk and Edwards Limestone and is above the Buda Lime. The Eagle Ford shale is the source rock for oil and gas in the Austin Chalk
Divided into lower transgressive and upper regressive layers. Transgressive shales have optimium oil‐prone potential; regressive shales are gas prone
Setting / Depositional Environment
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Maverick Basin Stratigraphic Column
Period Formation
Cretaceous Escondido
Olmos/CBM*
San Miguel
Anacacho
Austin Chalk*
Eagle Ford*
Buda*
Del Rio
Georgetown*
Pryor
McKnight
Glen Rose
Pearsall*
Pine Island
Sligo
Hosston
Jurassic
Eagle Ford Geologic Overview
Map Source: Geologic Map of Texas, Bureau of Economic Geology
*currently producing
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Eagle Ford Structure Map
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Eagle Ford Isopach
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Age CretaceousPermeability up to 0.13 mdPorosity 4% to 15%TOC 4.5 to 5.5%Frac Nature Brittle, high calcite, fracs easyThickness 100‐330 ftDepths 4,000 – 14,000 ftPressure Gradient 0.6 psi/ftThermal Maturity 0.5 to 2.2% Vitrinite ReflectancePrimary Production Dry Gas / Wet Gas / Oil windows
Reservoir Characteristics – “Fracs Like a Dream”
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Three main areas of production The northern part of the play is the “oil” window, with lower pressure and high volumes of oil.
The middle section is the “wet gas” or “condensate” window
The deeper section farther south (=>15,000 feet) is the “dry gas” window
Eagle Ford Geologic Overview
Note: Gas/Oil Windows based on public data (EOG, HK) and internal analysis
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ACTIVITY AND PLAYERSEAGLE FORD SHALE
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Two Waves of Leasing
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1.5 million acres leased in 2008
Peak: 2Q10 – 880,000 acres with majority in
liquids phase
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Leasing By Quarter (Windows)
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• Average term historically around 36 months (3 years)
• Operators will begin to “drill up” expiring acreage in 2010
• Could present problems for operator’s with assets in multiple shale plays
• Royalties slightly increased over time in each window
• Dry Gas royalty (22%) higher than Oil and Wet Gas (21%) in 2010
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Eagle Ford Leasing – Movement into Oil “Window”
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Early leasing in Gas rich area’s
Slow movement in 2007 into more “oily” area’s
First “wave” of leasing in 2008, mostly in oil
/wet gas phaseLow natural gas prices pushes
companies further into oil window
2nd “wave” occurs in early 2010, core area’s quickly leased up ,
slowing land rush by the end of 2010
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Large Leases Available Early, but Little Left
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Shell – 105,000 acre lease. Paid $1
Billion USD in 2010 along with 25%
royalty
LaSalle & McMullen Counties represent some of the earliest and best wells –almost entirely leased up
St. Mary L&E –65,000 acre lease
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Top 10 Grantees – 2006 to current
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EOG large leaseholder, but focused entirely in
Oil phase
Laredo – small private company in Dry Gas window
Some lease positions in North East Eagle Ford, but largely undeveloped and uneconomic wells
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Expiring Acreage May Present Opportunities
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First “wave“ of leasing set to expire in 4Q11 if not drilled
Expiring acreage mostly in liquids rich
areas
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Top 10 Grantees ‐ Expiring Leases
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EOG, Griffith, Cinco all have significant
“potentially expiring”position in oil phase
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2010 ‐ Operators Change from “Acquisition” to “Drill Up”
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Over 90% of new permits are in oil or gas condensate window
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Permits By Quarter (Windows)
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• Eagle Ford is actually 3 different shale plays with 3 different set of characteristics
• Operators beginning to “drill up” expiring acreage in 2010
• Total Depth getting smaller in oil window but laterals getting longer
• Dry Gas window – very little permit activity. Also, deepest area with largest total depth
• Wet Gas – horizontal length the same as oil window
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Permits by Year
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Top 10 Permitters – Focus on Oil and Wet Gas Window
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Lewis only top permitter with any Dry
Gas permits
Chesapeake, Anadarko, and EOG in most shallow area
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Top 10 Permitters (2010‐present)
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Operator Permit Count Avg Total Depth Avg Horz Length
CHESAPEAKE 322 7,432 6,269
EOG 212 11,693 5,091
ANADARKO 147 8,555 5,893
PETROHAWK 103 13,636 6,116
CONOCO 84 13,097 5,196
LEWIS PETRO PROPERTIES 77 14,833 5,295
PIONEER 74 16,729 5,030
ENDURING RESOURCES 60 14,323 5,144
ROSETTA RESOURCES 57 9,448 5,890
EL PASO 47 10,066 4,977
Grand Total 1,183 11,981 5,490
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Historical Production – BOEPD (6:1)2009 Represents First Significant Production
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• October 2010 Production ~ 95,000 BOE/D
• Earliest production from commingled Apache wells
• Petrohawk’s Hawkville and Conoco’s Sugarkane first wells start producing in late 2008
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Liquids vs Gas Production
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40,000 BBL/D
350 MMCF/D
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Operator Quoted IP Rates – Little Correlation to Production
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R^2 not significant when comparing IP Rate to 6 Month Cumulative
Production
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MaxIP – Good Predictor of Cumulative Production
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R^2 increases significantly when using MaxIP (peak
monthly production) instead of IP Rate
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R‐Squared Continues to Increase When Comparing to 12/24 Month Cums
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MaxIP Early Indicator of Core Areas
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Conoco, Petrohawk, Pioneer significant condensate
production
Great oil/condensate production in 2010 from
Webb and Dimmitt Counties
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MaxIP also Points to Gas Core Areas
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Conoco, Petrohawk, Pioneer also leader in gas production
Hawkville best results for gas MaxIP
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Top Operators All in Core Areas
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Lewis Energy assets gas oriented, but position is still close to significant liquids
production
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Top Operators also Represent Best in Gas Production
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Creaming Curves Continued – Useful for Comparisons
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Wet Gas best results of all three windows
Dry Gas beginning “cream over” due to depressed gas prices and little focus in area
Oil continuing to make gains in production
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BEST PRACTICESEagle Ford Shale
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Operator Performance – Eagle Ford
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Operator Performance – Eagle Ford
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Big Savings In The Casing Design
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Forgoing Intermediate Casing Intermediate Casing is not necessary if the wellbore pressure can be controlled without it
Swift Energy quotes a savings of $800k per well by not setting an intermediate string
Surface casing is set to about 5,000’, then a production casing or liner is set to TMD
Source: Swift Energy
Source: Petrohawk Energy
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Percentage of EF Wells with Intermediate Casing
Steady increase in percentage of wells without intermediate casing
over time
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Play Wide Trends(Squares have Intermediate Casing, Circles do not)
60% of oil window wells do not use intermediate casing
Sugarkane and Blackhawk have a higher percentage of wells with
intermediate casing.
Early wells in Hawkville Field used intermediate casing. Current wells are trending strongly towards not setting
intermediate casing.
Maverick Basin wells follow the Hawkville trend of not using
intermediate casing.
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RELATIVE ECONOMICS
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Relative Economics by Area
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Region B‐Factor EUR (Bcfe) %EUR @ 10 yrs
Hawkville Dry 1.4 4.7 54
Hawkville Wet Gas 1.1, Liq 1.1 5.4 65
Sugarkane‐Blackhawk Gas 1.1, Liq .6 5.5 73
Maverick Basin Gas 1.1, Liq 1.1 2.8 72
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How does the Eagle Ford compare with other unconventional plays?
•Geology• Some of the best rocks•Good areal extent and thickness
•Activity/Players•Lots of activity•Many players
•Best Practices•Evolving quickly from a technical standpoint•Strong economics for liquid rich part of play•Questionable economics for gas part of play
•Infrastructure•Service bottlenecks but better than most plays•Restricted market access, particularly for oil/liquids
•Business Risks•Not significant compared to other plays
•Opportunities•Some undercapitalized leaseholders looking for capital•Experienced operators looking for development partners•Gas development opportunities for longer term players•Good opportunity for well capitalized companies
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•Acreage• Very little open acreage• Expectations of high bonuses• Significant amount of expiring
acreage• Attraction of drilling
commitment• Market access
•Leasehold Acquisitions• Underfunded lease holders• Condensate/oil bias• Development potential upside
• Technology advances• Better capitalized operators• Re‐fracing possibilities• Infill potential/tighter spacing
• Joint Ventures
• Underfunded operators
• Relative attractiveness
• Access to experience
• Established service company relationships
• Market connections
• Risk/Reward tradeoffs
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What sort of opportunities does the Eagle Ford hold?