Producers in the Eagle Ford Shale region just south of San Antonio are keeping an eye on the market after waking up to near seven-year-low crude oil prices on Monday morning.
West Texas Intermediate was trading as low as $37.60 per barrel early Monday afternoon, dipping well below this year’s previous low of $38.22 per barrel, which was set less than four months ago on Aug. 24. Figures from the U.S. Energy Information Administration show that the previous record low for WTI crude oil prices was reported at $34.03 per barrel on Feb. 12, 2009.
File Photo from a rig where Encana Corp., which is drilling for oil in Karnes County. The company’s leases are among those producing a record amount of crude in the Eagle Ford shale.
CARLOS JAVIER SANCHEZ | SABJ
University of Texas at San Antonio researcher Thomas Tunstall said that how today’s price downturn affects producers in the Eagle Ford depends on how low it goes and how long it lasts.
“I don’t see a change until after the holidays,” Tunstall said.
Houston-based energy giant Baker Hughes (NYSE: BHI) reported on Friday that there are 73 active rigs in the Eagle Ford, compared to 206 active rigs at the same time last year — at 64.6 percent drop.
“It won’t go to zero, but those companies that are still there have shown that they can withstand $40 per barrel,” Tunstall said.
Houston-based EOG Resources (NYSE: EOG) publicly stated that it can still make a profit at $40 per barrel on many of its leases, but other companies like San Antonio-based Abraxas Petroleum Corp. (NASDAQ: AXAS) stated they will not drill in the Eagle Ford again until oil reaches $65 per barrel.
“As companies react to these new market realities, they will respond with new technology and new tricks up their sleeves,” Tunstall said.
One company operating in the Eagle Ford that is responding to the problem with technology is Encana Corp. (NYSE: ECA). The Calgary-based company plans to maintain its current level of drilling activity in Karnes County, which is ranked by the Railroad Commission of Texas as the most prolific oil-producing county in the Lone Star State.
In addition to maintaining its activities in the Eagle Ford, Encana recently reported that it will be speeding up capital expenditures in the Permian Basin, where it will invest an additional $150 million in the fourth quarter. The company expects to drill 36 net wells and bring 30 into production in Permian Basin during the fourth quarter in order to deliver an estimated 50,000 barrels of oil equivalent per day.
Tunstall said the dip in prices are a reaction to last Friday’s decision by the Organization of the Petroleum Exporting Countries, or OPEC, to keep their production levels the same.
“This is not altogether unexpected, but some times the market has to hear the words before it reacts,” Tunstall said.
OPEC’s decision also comes months ahead of when sanctions against Iran are expected to be lifted. Tunstall said the Middle Eastern nation is expected to flood an already saturated global market with as much as 500,000 barrels of oil per day.
Sergio Chapa covers the energy industry for the newspaper.
CARLOS JAVIER SANCHEZ | SABJ