Shale Drillers Look Beyond Texas as Prices Rise

Date : 05/14/2018 @ 7:29AM
Source : Dow Jones News
Stock : Eog Resources, Inc. (EOG)
Quote : 117.67  -0.88 (-0.74%) @ 4:01PM

Shale Drillers Look Beyond Texas as Prices Rise

EOG (NYSE:EOG)
Historical Stock Chart

6 Months : From Apr 2018 to Oct 2018

Click Here for more EOG Charts.
By Rebecca Elliott 

Shale drillers are ramping up production in the U.S. as oil prices rise, moving beyond the West Texas oil field that became the country's drilling center.

From Oklahoma to North Dakota, companies are increasing investment in oil fields that fell out of favor several years ago, as $70-a-barrel crude prices make fracking and horizontal drilling economical in more places again.

While the Permian Basin in Texas and New Mexico remains the fastest-growing shale spot, congested pipelines and shortages of labor and materials there are crimping profits, making other fields attractive alternatives.

EOG Resources Inc., one of the shale sector's leaders, is active in the Permian but also in Colorado, North Dakota and Oklahoma. In Wyoming, the company has built up larger lease holdings and expanded production over the past two years.

Chief Executive Bill Thomas recently touted the "diversified assets" of EOG's portfolio when discussing the company's blockbuster first quarter, in which production rose 15% and profits surged more than 2,000% from a year earlier.

"Last year it was all about, 'How much can you put in the Permian?'" said Daniel Romero, an analyst with the energy consulting firm Wood Mackenzie. "But now, a few months later, it's what else are you doing outside of the Permian?"

After oil prices plunged in 2014, shale drillers flocked to the Permian because it was the least expensive place in the U.S. to produce oil by fracking, thanks to existing infrastructure and oil-bearing rock stacked like a layer cake, which allowed better yield per acre.

The oil rig count there more than tripled over the past two years, according to oil-field services company Baker Hughes, which tracks rigs as a barometer of drilling activity. Output surged to roughly three million barrels of oil a day -- similar to the output of Kuwait -- from just shy of two million barrels in early 2016, according to the U.S. Energy Information Administration.

But rig counts have been rising elsewhere, too, as prices have gradually recovered. The number of oil rigs in several basins outside the Permian has more than doubled over the same period, according Baker Hughes. The areas include North Dakota's Bakken region, the Eagle Ford in south Texas, and the Cana Woodford in Oklahoma, home to fields known as the Scoop and the Stack.

Drilling exclusively in Oklahoma is Alta Mesa Resources Inc., a company chaired by former Anadarko Petroleum Corp. Chief Executive Jim Hackett, who went hunting for opportunities in shale with backing from New York investors.

Hal Chappelle, Alta Mesa's chief executive, said the company, which has a working interest in more than 130,000 acres in the Stack formation, was drawn to Oklahoma in part because of lower leasing costs.

While top-tier land in the Permian's Delaware Basin sold for an average of more than $33,000 an acre last year, property in the Scoop and Stack cost roughly half as much, according to energy-data firms RS Energy Group and 1Derrick.

"The Permian was seeing an incredible amount of competition, and that was reflected in acreage prices," Mr. Chappelle said.

While the Permian has experienced explosive growth, pipeline construction hasn't kept pace, leading to bottlenecks that are now making it difficult for some producers there to move their oil to market.

Oil in Midland, Texas -- where the local price of crude is set -- recently sold for $12 to $15 below the price of crude elsewhere in the U.S., according to Citi Research, part of Citigroup Inc. The discount reflects the added cost some face getting oil to refineries and export facilities out of the region using trucks and trains.

Some of the oil fields seeing growth, notably the Bakken and Eagle Ford, had been popular among shale drillers and experienced their own bottleneck problems before prices started dropping in 2014. After topping out at more than $100 a barrel in June 2014, oil prices plunged, falling below $30 in early 2016 before slowly recovering. The current prices above $70 are the highest in more than three years.

Continental Resources Inc., which is focused in North Dakota and Oklahoma, is benefiting from improved pipeline capacity in those areas. It sold crude produced in North Dakota at a discount to the main U.S. oil benchmark, West Texas Intermediate, of just $4.31 a barrel, executives told investors this month. In parts of Oklahoma, that figure was less than $2.

Price differentials in the Bakken had gotten as wide as $28 a barrel six years ago, according to the EIA, as production outstripped pipeline capacity.

"We are having infrastructure catch up with development in North Dakota and in Oklahoma," said Blu Hulsey, the company's senior vice president of government and regulatory affairs.

Write to Rebecca Elliott at rebecca.elliott@wsj.com

 

(END) Dow Jones Newswires

May 14, 2018 07:14 ET (11:14 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

Latest EOG Messages

{{bbMessage.M_Alias}} {{bbMessage.MSG_Date}} {{bbMessage.HowLongAgo}} {{bbMessage.MSG_ID}} {{bbMessage.MSG_Subject}}

Loading Messages....


No posts yet, be the first! No {{symbol}} Message Board. Create One! See More Posts on {{symbol}} Message Board See More Message Board Posts


Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.


NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.