US drillers target Eagle Ford shale play as oil debt eases

The Eagle Ford shale play produces less crude than the Permian basin, but is located in south Texas and is closer to the US Gulf Coast’s refineries and pipelines.  Pipeline and Gas Journal graphic.

Eagle Ford, Austin Chalk “next big play” according to study

As oil prices continue to rise, US oil and gas producers expect they will be able to boost their borrowing ability in the coming months, allowing them to invest in new shale assets.  Many drillers are saying they are looking to increase their presence in the Eagle Ford shale play in southern Texas.

Law firm Haynes & Boone LLP, recently surveyed producers.  Their poll showed that over 80 per cent of respondents say their borrowing bases, or credit availability backed by collateral, will rise as banks undergo their bi-annual reviews.

The study said this could result in an increase in spending which could benefit the Eagle Ford and Austin Chalk shale play.

Eagle Ford currently generates about 12 per cent of US crude production.  With land and service prices rising in the Permian and pipelines out of the Permian basin running at near capacity, the Eagle Ford is garnering more attention now.

The Eagle Ford play is closer to the US Gulf Coast’s network of refineries and pipelines and drilling rights are cheaper.

In March, the former chief executive officer of Occidental Petroleum, Steve Chazen, bought drilling rights in the Eagle Ford and Austin Chalk play from EnerVest Ltd.  The deal is valued at $2.66 billion.

KKR & Co and Venado Oil & Gas LLC also recently increased their position in the Eagle Ford by spending $765 million for Cabot Oil & Gas Corp. assets last month.

Currently, EOG Resources is the largest player in the Eagle Ford.  According to the US Energy Information Administration, production from the shale play is below its 2015 peak, which could allow new entrants to compete in the play.

Rising oil prices have reduced pressures on oil producers.  Companies are locking in prices now and between 50 to 60 per cent of their 2018 production has been hedged, according to the survey.

Cash flow from operations, bank debt and private equity will be the main sources of capital this year and bankruptcies are “showing a dropoff”, according to the survey.