After years of playing second fiddle to the prolific Permian, the Eagle Ford shale play is slowly eyeing a comeback post the oil bust. And several oil stocks in particular are geared toward success thanks to the comeback.
Make no mistake, the Permian Basin still remains the most sought-after unconventional basin and continues to post the biggest production gains in the United States. However, pipeline bottlenecks out of the region, which are expected to last well into 2019, have triggered spending outside of the Permian with one of the beneficiaries being the Eagle Ford.
The Eagle Ford Shale is already a well-known domestic oil play that churns out around 12% of America’s daily crude. But the producing basin is likely to experience heightened activity in the near-to-medium term with a portion of Permian capital set to land in this rich oil and gas-producing formation.
But before we dive into the oil stocks that will benefit the most, let’s first examine how we got here in the first place:
Eagle Ford Shale: Abundant in Oil and Gas
A sedimentary rock formation spread over 400 miles across Texas, the Eagle Ford Shale stretches from the Mexican border in the west to the Texas-Louisiana border in the east. It’s roughly 50 miles wide with massive recoverable oil and natural gas resources. Per the U.S. Geological Survey, Eagle Ford has an estimated average of 8.5 billion barrels of oil, 66 trillion cubic feet of natural gas and 1.9 billion barrels of natural gas liquids there for the taking.
Permian’s Loss Is Eagle Ford’s Gain
By now, it is well documented that serious logistical constraints in West Texas’s Permian “super basin” is forcing operators in the region — especially those without committed pipeline capacity — to sell their produce at hefty discounts, which recently went up to $20 per barrel. EIA’s latest Drilling Productivity Report puts Permian oil production at around 3.5 million barrels per day, ahead of the current pipeline capacity of about 3.1 million barrels per day (per Bloomberg Intelligence).
The Permian bottleneck issue has compelled companies to shift drilling capital out of the area to other shale basins in the United States and the Eagle Ford has received a boost as a result.
Output, Investments Climb
Oil production from the Eagle Ford shale play is expected to see a monthly climb of 15,000 barrels a day to 1.438 million barrels a day in November, according to the most recent figures available. It’s the second-largest climb among the big shale plays after Permian. One must also note that the formation has strongly rebounded from the low of 1.1 million barrels a day in August 2017. Meanwhile, some 77 drilling rigs are currently active in the region, more than double from a low of 33 two years ago.
Investment in Eagle Ford is picking up as well for oil stocks. According to Canadian financial services provider Scotiabank, M&As in the field hit a whopping $15 billion so far this year — second only to the Permian’s $45 billion. While it’s not as “hot” as the Permian, the region’s cheap acreage, coupled with proximity to the pipelines and refineries in the Gulf Coast, keeps the assets very relevant indeed. Finally, with oil prices likely to head higher, output in the second-largest producing shale play is expected to stay strong.
Eagle Ford Shale Oil Stocks in Focus
With the hectic pace of drilling activity set to continue in the Eagle Ford play and investor’s strong appetite for stocks focused in that region, we present five companies that investors should watch out for.
EOG Resources (NYSE:EOG) is the largest crude producer and acreage holder in the Eagle Ford shale, boasting more than 500,000 net acres. The company has identified 7,200 locations, both drilled and undrilled, with resource potential of around 3.2 billion barrels of oil equivalent.
WildHorse Resource Development Corporation (NYSE:WRD) is one of the largest operators in the Eagle Ford play, holding a total of 418,000 net acres. In fact, following two separate acquisition deals, the company has become a pure play Eagle Ford operator with a 70% oil-weighted portfolio.
SM Energy Company (NYSE:SM) controls around 165,000 net acres in the Eagle Ford. The company is currently running a rig and a fracking fleet in the play and expects to complete four net wells in the upcoming quarter.
Marathon Oil Corporation (NYSE:MRO) has 145,000 net acres in the Eagle Ford. In the second quarter, Marathon Oil churned out an average of 106 thousand barrels of oil equivalent per day (59% oil) from the play. The company’s holdings in the area are a significant contributor to its free cash flow on the back of strong of well performance.
Penn Virginia Corporation (NASDAQ:PVAC) is another pure play Eagle Ford shale operator, having approximately 84,000 net acres (92% held by production). The company expects to grow production by 30% in the second half. Moreover, Penn Virginia’s acreage contains 82.6 million oil equivalent barrels in proved reserves.
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