Photo Credit: Flickr/Jonathan Wheeler
An EOG Resources Inc (NYSE:EOG) operated well in the Eagle Ford Shale of Texas has set a new regional record for oil production. The well produced an average of 7,513 barrels of oil per day along with 6.8 million cubic feet of natural gas. It’s estimated that even with a 75% decline rate from the well it will produce more than a million barrels of oil this year. But, it’s really just a drop in the bucket for a company that produced 153,000 barrels of oil equivalent per day out of the Eagle Ford last quarter.
What’s most interesting about this well is that it has the potential to produce more than a million barrels of oil within the next year. The average estimated ultimate recovery for one of EOG Resources Inc (NYSE:EOG)’s average Eagle Ford wells is about 400,000 barrels of oil equivalent, making this well truly special. It also sets this well apart from the nation’s other top shale oil fields.
For example, the average Bakken well is estimated to ultimately produce around 600,000 barrels of oil equivalent. It’s those high ultimate recovery rates which make the investments really pay off for producers over the long term. For example, Continental Resources, Inc. (NYSE:CLR) will see a 60% rate of return on wells it drills today as long as oil stays over $100 per barrel. Although, that is still below the well economics enjoyed by EOG Resources Inc (NYSE:EOG) in the Eagle Ford, which are currently about 100%. Wells simply cost more to drill in the Bakken, which puts some pressure on rates of return.
They key though is that the more oil that’s produced, the better returns are for producers. The returns of both the Bakken and Eagle Ford are what’s enticing producers to flock to those two plays. Meanwhile, lower-return plays, such as the Mississippian, aren’t drawing as much attention. The Miss is only about 45% oil, which is why a producer like SandRidge Energy Inc. (NYSE:SD) is only seeing internal rates of return of 40%… not that there is anything wrong with a 40% return. SandRidge Energy Inc. (NYSE:SD) would need natural gas to be in the $5.50-$6.00 range in order to see returns like those in the Bakken or Eagle Ford, as its average well will only produce about 100,000 barrels of oil in totality, though the estimated ultimate recoveries of its wells are 369,000 barrels of oil equivalent when factoring in natural gas and liquids.
For perspective, this one EOG Resources Inc (NYSE:EOG) well has the potential to produce 10 times the oil of a typical SandRidge Energy Inc. (NYSE:SD) well this year, which means that its economics will truly be remarkable. However, given the massive projected decline rate of between 75%-90%, the well’s gusher won’t last all that long, making it really just an interesting side note for a company expected to drill about 425 wells in the Eagle Ford this year. That’s not to say that this well isn’t important; it will be really interesting to see if EOG Resources Inc (NYSE:EOG) has stumbled upon a better way to drill its Eagle Ford wells, which could really boost its output, estimated ultimate recoveries, and, best of all, returns.
The article A Texas-Sized Gusher From the Eagle Ford originally appeared on Fool.com and is written by Matt DiLallo.
Fool contributor Matt DiLallo owns shares of SandRidge Energy (NYSE:SD). Matt DiLallo has the following options: short September 2013 $5 puts on SandRidge Energy. The Motley Fool has no position in any of the stocks mentioned.
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