The Eagle Ford Shale is an oil-producing machine. But the field and its operators could ultimately cross the border into Mexico or become — as it started back with the first wells in 2008 and 2009 — a big source of natural gas.
Scott Sheffield, chairman and CEO of Irving-based Pioneer Natural Resources, said he expects the field to cross the 1 million barrel per day production point any month now.
“The Eagle Ford has been the fastest rise,” said Sheffield, who spoke Thursday at Hart Energy’s DUG Eagle Ford Conference at the Convention Center. “It could be the fastest growth field to ever hit 1 million barrels in U.S. history, basically in about a four-year time frame.”
But while South Texas is well established as a top U.S. onshore field, for the long term, Pioneer and other Eagle Ford operators are watching for potential opportunities in Mexico, where President Enrique Peña Nieto unveiled a proposal last month to allow some direct foreign investment in projects of Petróleos Mexicanos, or Pemex.
Sheffield said independent companies that operate in the Eagle Ford would be well-positioned to enter Mexico. “I’m optimistic. We’ve been watching Mexico for 10 years,” he said.
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He said he expects the majors, the largest oil and gas companies in the world, would be the only ones with the capital to enter the offshore Gulf of Mexico market. But Sheffield said independents with Eagle Ford experience would be well-suited for onshore work. The Eagle Ford in Texas arcs from East Texas to the border, but doesn’t stop there.
“Pioneer would be interested in moving across the border and expanding our operations if we can get the right returns across the border and if we can execute,” Sheffield said. “I think several independents would like to move across the border, so it will be interesting to see what happens. We’re just talking about the Eagle Ford itself. We’re not looking at other areas of Mexico at this point in time.”
And while Mexico offers a tantalizing prospect, there are several challenges beyond the politics and policies of the country opening up its lands to drilling by foreign companies.
Mike Howard, CEO of Howard Energy Partners, said the demand in Mexico for natural gas has grown, but the pipeline infrastructure to move the product has not kept pace.
“In the state of Texas alone we have roughly 370,000 miles of pipelines,” Howard said. “The country of Mexico, according to Pemex’s 2011 asset yearbook, has roughly 9,000 kilometers (or about 5,600 miles). So they’re a little behind on infrastructure. To say that reform is needed is an understatement. There’s a lot of infrastructure that’s needed there.”
Tony Sanchez, CEO of Sanchez Energy Corp., said his company doesn’t have investments in Mexico now.
“Are we interested? I’d say yes, at the surface.”
But Sanchez also said there are myriad practical challenges.
“The U.S. has drilling rigs,” he said. “If we need to drill a well tomorrow, I can get a rig for you. I can get good crews that know what they’re doing. I can get a (crew) to show up… and start fracking right after we cement casing. All of that plays into how we deploy capital and generate rates of return, and that’s a function of the infrastructure in place. I think it’s going to take time.”
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Meanwhile, companies are finding profits in domestic shale fields.
“In order for us to go into Mexico and invest we’ve got to have better opportunities than we have in the Eagle Ford right now — and they’re pretty hard to beat in the Eagle Ford,” Sanchez said.
Operators also have said they can’t make Mexican exploration and production projects economically viable or attract investors unless they can book reserves to show their ownership of access to the crude.
“For capital to move across the border from here, we have to have the ability to book reserves somehow and not just show financial measurement in regards to cash flow,” Sheffield said.
Also on the horizon, operators are watching natural gas prices, which are near historically low points. Operators have largely abandoned the gas-producing parts of the field and rushed to drill in more “oily” and liquids-prone areas. The Eagle Ford tends to have more oil on its northern arc, condensate sandwiched in the middle and dry natural gas on the southern arc.
But Sheffield said that he expects natural gas prices to rise in about five years to the point where it’s economic again to drill in the southern arc of the field. Once gas prices reach the $5 to $7 range, another wave of leasing could happen.
“I’m predicting the second big phase of the Eagle Ford will happen sometime around 2017 to 2022,” he said. “We’ll see another big jump. Most of the people will be focused on the dry natural gas. That’s several years away. ”