LITTLE ROCK — Energy companies in search of oil riches rivaling the biggest finds from Brazil to Montana are targeting Texas shale, where new wells have triggered a 230-fold increase in crude output in three years.
More than 115 years after a gusher 55 miles south of Dallas ushered in Texas’ first oil boom, U.S. producers such as ConocoPhillips and Marathon Oil Corp. are counting on the Eagle Ford Shale to boost crude output during a glut-driven slump in natural-gas prices.
Drilling for oil in the brushy plains of south Texas is cheaper and less risky than exploration in the Atlantic Ocean off the shores of Brazil, the largest oil find in the Western Hemisphere in 30 years, and more profitable than the remote, rougher terrain of the Bakken Shale in North Dakota and Montana.
“The Eagle Ford is the top basin we have in the world today,” David Roberts, chief operating officer at Marathon Oil, told analysts and investors during a conference call last month.
Surging production in shale formations is transforming the U.S. energy landscape, flooding the market with natural gas and increasing domestic oil production by 14 percent from three years ago, according to Energy Department data. After worries of a global oil shortage drove prices to record highs above $140 a barrel in 2008, politicians and industry executives now are discussing the prospect of the U.S. weaning itself from dependence on imports.
Marathon Oil and ConocoPhillips both plan to double their production in the Eagle Ford this year. EOG Resources Inc., based in Houston, calls the Texas shale play its biggest source of growth.
El Dorado-based Murphy Oil Corp. has 11 rigs operating in the Eagle Ford, up from three at the start of 2011, and seven from the start of the year, said spokesman Barry Jeffery. Since 2009, Murphy has accumulated more than 220,000 acres in the Eagle Ford. The company said it planned to spend about $1 billion drilling this year in the formation.
Oil production in the Eagle Ford jumped almost sevenfold in 2011 to surpass 30 million barrels, still less than Bakken production in North Dakota that exceeded 128 million barrels. This year daily oil production in the Eagle Ford is forecast to expand by 200,000 barrels, roughly the same amount as the Bakken, according to estimates by Wood Mackenzie Ltd. cited by Hill Vaden, an analyst with the industry consultant.
The South Texas oil fields are winning a larger portion of producers’ investment because it’s easier and more profitable to drill there compared with many prospects in the U.S. and in the world. Wells are faster and cheaper to develop, and the formation is closer to U.S. Gulf Coast refineries, lowering transportation costs.
EOG Resources Inc. said a well in the Eagle Ford costs about $5.5 million, compared with more than $8 million in the Bakken, because of different well configurations. An offshore Gulf of Mexico well can cost $100 million, said Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston.
Deep-water wells can take five months or longer to drill, compared with a couple of weeks for a well in the Eagle Ford, said Brian Cain, a spokesman for Anadarko Petroleum Corp.
Producers can get a higher price for their Eagle Ford oil than they can in the Bakken. Prices for Texas and Louisiana crude this week are as much as about $38 a barrel more than oil from the Bakken, according to data compiled by Bloomberg.
“The economics there are absolutely stellar,” said Danny Brown, a general manager who helps oversee Anadarko’s Eagle Ford operations. Anadarko has said it is considering selling its exploration properties off the coast of Brazil.
Texas provides a more stable investment environment compared with many international projects, said Pavel Molchanov, an analyst at Raymond James & Associates in Houston.
“Clearly, there’s less political risk in Texas than in Libya, let’s say, or Kurdistan,” he said. Marathon Oil last year had output suspended in Libya during unrest in that country.
The Eagle Ford cuts across a 400-mile swath of southern Texas, according to the Railroad Commission, which regulates oil and natural-gas production in the state. Producers have reached the oil there using advances in horizontal drilling and hydraulic fracturing, which sends jets of water, sand and chemicals underground to break up rock.
Petrohawk Energy Corp., acquired by BHP Billiton Ltd. last year, first drew attention to the Eagle Ford when it announced a gas find in 2008, a year when futures for the fuel in New York averaged more than $8 per 1 million British thermal units.
Expanded use of fracturing, or fracking, across the U.S. caused a surge in naturalgas output that drove prices to a 10-year low this month of $2.204 per 1 million Btus. Meanwhile, crude in New York has climbed 15 percent since the end of 2010. Benchmark U.S. crude rose by $1.52 to settle Friday at $106.87 per barrel in New York.
While drilling has slowed in U.S. shale gas fields such as the Fayetteville Shale in Arkansas, development has accelerated in South Texas as producers focus on the formation’s oilrich geology.
The Eagle Ford will help lead a surge in state drilling permits that’s on pace to reach 25,000 this year, the most since 1985, said Barry Smitherman, the commission’s chairman.
“It’s by far the most soughtafter play anywhere — not only in this country, but anywhere around the world,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York.
A Sanford C. Bernstein report last August estimated that Eagle Ford production would reach 1.2 million barrels of oil equivalent a day in 2015, with 750,000 of that being liquids.
“A longtime oil field axiom is that big fields tend to get bigger over time, and that’s certainly the case here,” EOG Chief Executive Officer Mark Papa told investors during a Feb. 17 conference call. “This continues to be the hottest and highest reinvestment rate-of-return play in North America.”
Information for this article was contributed by Margot Habiby, Joe Carroll and David Wethe of Bloomberg News; and by Paul P. Quinn of the Arkansas Democrat-Gazette.
Front Section, Pages 1 on 03/24/2012