Energy Independence: Fracking the Eagle Ford

Betting on this vast new energy source could be a portfolio-changing event

    View All  
Energy Independence: Fracking the Eagle Ford

Much of the field’s appeal stems from the fact that it’s rich in dry natural gas as well as various natural-gas liquids and shale oil. The glut of dry gas coming from sister fields such as the Marcellus and Utica has sent prices for the fuel plummeting towards historic lows. The Eagle Ford’s dual appeal, along with sustained higher oil prices, have helped spur development as prices for condensate and NGLs such as ethane are tied to Brent crude metrics.

This rising energy production also highlights how the drilling revolution can impact our economy. A study by the University of Texas at San Antonio shows that the Eagle Ford generated more than $25 billion in economic growth and development in 2011 and supported around 47,000 local jobs. Wells producing $100,000 a week in income for royalty holders are not uncommon across the shale field.

This has prompted the university to update its economic projections for the field. Overall, the Eagle Ford will support nearly 117,000 workers and pump more than $62.3 billion into the local economy by 2021. This data show just how powerful the shale revolution is on the economy and how it plays into our dream of energy independence.

NuStar Energy (NYSE:NS) CEO Curt Anastasio believes that several projects in the Eagle Ford could “literally double our company’s earnings over the next few years.” If he’s right, now could be a great time for investors to add exposure to the field.

BHP’s $12 billion purchase of Petro Hawk gave it prime acreage across the region. Likewise, the recent refining split and asset divesture at ConocoPhillips (NYSE:COP) makes the formerly integrated major more reliant on North America’s energy bounty. That includes its nearly 220,000 NGL-rich acres in the Eagle Ford. Both companies represent good plays on the field’s potential, though the Eagle is just one piece of these diversified natural-resource companies’ pies.

Perhaps, the best way to frack the Ford is through an independent E&P, EOG Resources (NYSE:EOG). The company focused on the shale-oil side of the field before many other E&P operators thought it would yield any economic results. That first-mover status has allowed EOG to amass nearly 650,000 acres across the Eagle’s oil reserves. The company remains active in drilling the Ford, and the field remains a significant contributor to the company’s reserves and earnings.

Share’s of EOG aren’t cheap, but they have fallen about 20% from their $120 peak. The stock’s current price has a P-E of around 21. Given the company’s leadership position and acreage in the Eagle Ford, Marcellus, and other shale basins across North America, EOG generally trades at a premium to some of its peers, such as Apache (NYSE:APA). That premium is supported by the hunch that EOG is the next takeout in the energy sector — despite its $27 billion market cap.

That slight price premium could be worth it to investors with a long-term timeline as the Eagle Ford continues to see production gains.


Article printed from InvestorPlace Media, http://investorplace.com/2012/05/energy-independence-fracking-the-eagle-ford/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.