Mineral Interests: Finding Gold in Oil
After years of looking at the Working Interest economics of the Barnett Shale, and then the Fayetteville, Haynesville, and Marcellus Shale plays, I still cannot understand the economic attraction of the larger shale plays to non-public owners of working interests. Even in higher natural gas pricing environments ($5-7 per mmbtu), the performance metrics are not impressive, nor do I believe they are sustainable over a longer term. I did, however, find value further ‘upstream’ – helping a small Texas Independent put together and acquire mineral interests in the emerging Eagle Ford shale play.
Due to the production of natural gas liquids and oil in certain areas or ‘windows’ of the Eagle Ford trend, the play should exhibit economics which are superior to the other shale plays (with the exception of the Bakken oil shale, which also includes a sandstone member of the formation). As with all unconventional plays, the Eagle Ford must address water and other environmental concerns, but I am now a firm believer that for a small to mid-size energy firm the ‘place’ to be in the shale plays – not to be confused with conventional reservoirs – is as a mineral interest owner (or in services).
A few excerpts from the Texas Railroad Commission website regarding the Eagle Ford:
- The Eagle Ford Shale trends across Texas from the Mexican border in South Texas into East Texas, roughly 50 miles wide and 400 miles long.
- Like the Barnett and Haynesville Shales, it has become an attractive target for hydrocarbon exploitation – made possible by the introduction of horizontal drilling and fracturing procedures.
- In the best parts of the shale that produces oil, the wells are producing at rates of up to 1,000 barrels of oil per day (BOPD), and the estimated reserves are 500,000 barrels of oil equivalents (oil equivalents factor in the casinghead gas along with the oil produced) per well. In the best parts of the shale that produce natural gas, the wells are producing at rates of up to 5 million cubic feet of gas per day (MMCFGPD), and the estimated reserves are 6 billion cubic feet (BCF) of gas equivalents (gas equivalents factor in the condensate along gas produced) per well.
For some interesting opinions on natural gas shale economics, please check out Bill Powers at Seeking Alpha (http://seekingalpha.com/author/bill-powers) and Financial Sense (http://www.financialsensearchive.com/editorials/powers/main.html). A free membership is required to access the Seeking Alpha site.