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April 14, 2020

Eagle Ford major operators forced to reduce rig count by 42%

By GlobalData Energy

Eagle Ford is yet another shale play expected to decline in production by the end of 2020 due to operators’ response to the current oil price crash.

Many uncertainties surrounding the crude oil price are further aggravated by a plunge in global demand due to the Covid-19 and US oil storage capacity running out in the coming weeks.

Figure 1 – capital expenditure (CapEx) pre and post-price fall scenarios

With the updated information released by the operators on capital and rig count reduction, GlobalData performed an analysis of how the price fall directly affects the production outlook of Eagle Ford in 2020.

By assessing the readjustment of capital expenditure (CapEx) of 16 companies, which account for approximately 75% of total Eagle Ford production, GlobalData estimates a reduction of approximately 190.5 thousand barrels of oil equivalent per day (mboed) in output for this group of companies as compared to the forecast for 2020 before the oil price crashed. Over 66% of the production drop originates from crude oil, while the rest is from natural gas.

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According to the GlobalData analysis, the rig count drops by 21 rigs from 50 rigs reported by the end of March 2020 to 29 rigs by the end of 2020. Overall, the rig reduction is a result of capital expenditure cuts summing up to approximately $2.36bn reported by operators.

GlobalData took wells drilled between 2018 to date as a sample set assumed to be most affected by the oil price fall. The sample set consists of approximately 2,800 wells, of those, fewer than 25% have breakeven below $40 per barrel (bbl).

According to the GlobalData estimates, the average position full-cycle breakeven oil price of top operators in Eagle Ford is $60 per bbl. The full-cycle position takes into account wells brought online in the past two years, which bring an important share of production and are arguably still recovering their investment.

Although crude oil prices might fall to a record low, natural gas price outlook seems to be relatively positive despite the current economic crisis due to the reduction of associated gas production from oil wells.

Given the nature of Eagle Ford having multiple production windows, this might present an opportunity for operators to shift their strategy to include more gas into their production mix and allocate capital investments to develop their gas-bearing acreage of the play.

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