NGI’S 2015EAGLE FORD PRIMER

NGI Natural Gas Intelligence

ReseaRch InsIght analysIs Key BasIn stats

This Primer is excerpted from NGI’s 2015 NORTH AMERICAN SHALE & RESOURCE PLAYS FACTBOOK containing all of the continent’s commercially viable Shale/Resource Plays

For more information or to order, visit natgasintel.com/factbook

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EAGLE FORD SHALE

The Eagle Ford Shale, which is located in Southern Texas and features separate dry gas, wet gas/condensate, and crude oil windows, may only have six years of production history, but it has quickly be-come one of the hottest resource plays in North America. According to the Railroad Commission of Texas, Petrohawk (now part of BHP Billiton) drilled the industry’s first Eagle Ford well in LaSalle County, Texas in 2008. That first well has led to a surge in Eagle Ford drilling activity, so much so that production has grown from basically noth-ing in 2009 to respective totals of 910,000 bbls/d of crude oil and 4.3 Bcfe/d of natural gas and natural gas liquids in July 2014, subsequently making the Eagle Ford one of the most prolific oil & gas producing basins in the county. Industry consulting firm Wood Mackenzie opined in June 2014 that combined Eagle Ford crude and condensate production should double by 2020, hitting an estimated 2 million b/d, which would rival Alaska’s entire North Slope field at its peak.

Production growth in the Eagle Ford continues to plow forward, despite the fact that the drilling rig count in the play gradually has fallen from 259 rigs on May 25, 2012 to 208 rigs on November 14, 2014. We believe this is largely the result of the continuous transition to multi-well pad drilling, which has helped push the number of wells drilled per rig up from 3.74 in 1Q12 to 5.47 in 2Q14. Production growth is also being helped by a number of other factors, such as down spacing, the migration to longer laterals, and better completion techniques. For example, Rosetta Resources, SM Energy, Pioneer Resources, and Cabot Oil & Gas have all reported better well results by pumping more sand during the hydraulic fracturing process.

Part of the allure of the Eagle Ford area is it is home to several stacked oil & gas formations that lie above and below the Eagle Ford, such as the Olmos and Austin Chalk (above), and the Buda and Georgetown Lime (below). The Pearsall Shale also lies be-neath the Eagle Ford, and several companies noted on their cal-endar 2Q12 earnings calls that the Pearsall, which was previously

thought to be primarily dry gas and centered in the western part of the area, may be more liquids rich in more eastern portions of the play. In addition, several companies are testing whether the Upper Eagle Ford and Lower Eagle Ford are in fact separate formations in certain parts of the play, which would likely increase the number of productive wells that could be drilled in the formation. It is still very early in this process, but so far, companies such as Rosetta Resources and Pioneer Natural Resources have reported “encour-

aging” test results, and Penn Virginia noted in October 2014 that they are “very high” on the Upper Eagle Ford, so much so that the company can envision a 50/50 split in their drilled wells between the Upper and Lower Eagle Ford shales, possibly as early as 2015.

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Unlike in the bourgeoning Bakken Shale play in North Dakota and Montana, where energy infrastructure was practically non-existent a decade ago, crude oil and natural gas pipeline takeaway capacity is relatively plentiful out of the Eagle Ford Shale. Moreover, there are several major crude oil refineries in South Texas, particularly in the Houston and Corpus Christi areas, so Eagle Ford producers already have something of a readily available captive market for their supply nearby. Valero Energy announced in early 2014 that it planned to increase the light oil capacity of its Houston and Corpus Christi refineries by a combined 160,000 bbls/d so that it can handle more Eagle Ford production. Longer-term, however, there is concern that the U.S. as a whole may not be able handle the growing amount of lighter crude oil in North America, so that could present some problems for Eagle Ford producers several years down the road.

A more immediate problem is what to do with the surging con-densate production in the U.S. in general, and in the Eagle Ford in particular, where said production has grown from practically noth-ing in 2009 to nearly 250,000 bbls/d in July 2014. Condensate is typically too light to be in much demand by U.S. refineries,

which are geared more toward processing heavier oil. As a result, condensate tends to trade at a significant discount to crude in the United States. Several operators have either proposed or are in the process of building condensate splitters, but we believe that this is a relatively limited solution, because the economics of splitters relies heavily on the demand for naphtha.

However, exports may come to the rescue. In June 2014, the U.S. Department of Commerce granted permission to (and only to) Pioneer Natural Resources and Enterprise Products Partners to export Eagle Ford condensate abroad under existing rules, which some believe may be a precursor to the United States allowing more full-fledged condensate and crude oil exports in the future. Pioneer successfully made the argument that because the con-densate it seeks to export is a product of the distillation process, it is in fact a refined product, and therefore should not be subject to the U.S. crude oil export ban. The company had exported at least two shipments of condensate as of early September 2014. More than 20 companies have expressed formal interest in exporting condensate since June, but as of early October 2014, the formal ban on U.S. crude oil and condensate exports remains in place, with no guarantee it will ever be lifted or amended.

CountiesTexas: Atascosa, Bee, DeWitt, Dimmit, Fayette, Frio, Gonzales, Karnes, LaSalle, Lavaca, Live Oak, Maverick, McMullen, Webb, Wilson, Zavala

NOTE: The Texas Railroad Commission also lists Brazos, Burleson, Grimes, Lee, Leon, Milam, and Robertson Counties as being pro-spective for the Eagle Ford, but we consider those to be part of the Eaglebine play.

Eagle Ford Shale (continued)

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Eagle Ford Shale (continued)

Local Major Pipelines

Natural Gas: Eagle Ford Crossover, Energy Transfer, Enterprise Products, Gulf South, HPL, KM Tejas, KM Texas, NGPL, Tennessee, Texas Eastern Transmission, Transco

Crude Oil: Double Eagle, Energy Transfer, Enterprise, ETC Rio Bravo, Harvest, Kinder Morgan, Koch Pipeline, Longhorn, NuStar, Plains, Springfield Pipeline, TEPPCO South, VEX Pipeline

NGLs: Copano, Energy Transfer, Maverick Field NGL System, Phillips 66 (LPG), Sand Hills, Texas Pipeline, Three Rivers

EAGLE FORD SHALE NET ACREAGE POSITIONSLast Updated December 2014

Company Net Acres Company Net Acres

EOG Resources 632,000 Alta Mesa Holdings 1,850Chesapeake Energy 449,000 American Standard Energy Corp 1,200BHP Billiton 300,000 Jadela Oil 1,200BP/Lewis Energy Group 300,000 Petrolympic 320Sanchez Energy 226,000 El Indio Investment Corp. 50ConocoPhillips 220,000 1776 Energy Operators N/AMarathon Oil 211,000 Amadeus Energy Ltd N/ACNOOC 200,000 Blue Eagle N/AAnadarko Petroleum 185,000 Blue Stone N/ABlackbrush Oil & Gas 160,000 BRC Operating Co. N/ANewfield Exploration 160,000 Buffco Production N/ASM Energy 144,000 Cheyenne Petroleum N/AMurphy Oil 135,144 Clayton Williams Energy N/APioneer Natural Resources 126,500 Cypress E&P N/AReliance Industries 118,000 Dan A Hughes Co. N/AApache Corp. 106,000 Eagle Rock Energy Partners N/APenn Virginia 101,800 EagleFord Energy Inc. N/AEP Energy 91,675 EF Energy N/AExxonMobil 90,000 Fasken Oil & Ranch N/ACabot Oil & Gas 86,000 GAIL India Ltd. N/ADevon Energy 82,000 Hunt Oil N/ACarrizo Oil & Gas 81,000 Ironwood Oil & Gas N/ALaredo Energy 78,000 JGC Energy Development N/ABluescape Resources 74,000 Korea National Oil Corp N/AForest Oil 64,500 Manti N/ATalisman 61,000 Modern Exploration N/AEscondido Resources II 60,000 Mueller Exploration N/ARosetta Resources 60,000 New Standard Energy Texas LLC N/AStatoil 60,000 Overton Energy N/AEXCO Resources 49,000 Paloma Resources N/AEncana 45,500 Peregrine Petroleum N/ASwift Energy 45,102 Primera Energy N/AMitsui 39,000 Redemption Oil & Gas N/AGoodrich Petroleum 37,794 Riley Exploration N/AZaza Energy 30,200 Rock Oil N/A

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Eagle Ford Shale (continued)

EAGLE FORD SHALE NET ACREAGE POSITIONSLast Updated December 2014

Company Net Acres Company Net Acres

Matador Resources 29,165 San Isidro Development Co. N/AArgent Energy Holdings 26,188 Schlumberger N/AComstock Resources 24,000 Sea Eagle Ford N/AMagnum Hunter 24,000 Shale Hunter LLC N/ABaytex Energy 23,000 Southern Bay Operating N/ASundance Energy 20,000 Stone Energy N/AContango Oil and Gas 19,200 Stonegate Production Co. N/ACinco Resources 17,800 Strand Energy N/AOak Valley Operating 14,745 Texon Petroleum N/AWapiti Energy 12,883 Texoz E&P N/AAbraxas Petroleum 10,611 Tidal Petroleum N/AStrata-X 9,773 Tug Hill Operating LLC N/ADoxa Energy 8,800 Union Gas Operating Co. N/ASun Resources 5,014 Valence Operating Co. N/AHall Phoenix 4,000 Venado Oil & Gas N/ALucas Energy 4,000 Viceroy Petroleum N/AOccidental Petroleum 4,000 Weber Energy Corporation N/AU.S. Energy Corp. 3,559 Wellstar Corp. N/AAdams Resources Exploration 2,340 XOG Operating N/A

Source: Compiled by NGI’s Shale Daily from company documents