Is the Eagle Ford shale play getting a second wind?

Over the previous yr, the Eagle Ford shale play has proven renewed curiosity in funding in addition to M&A exercise. This November, Marathon Oil Firm, (NYSE: MRO) introduced in its quarterly earnings name that it had acquired the Eagle Ford asset of privately held Ensign Pure Sources. For a sale worth of ~$3.0 bn in a mix of money and debt devices, MRO will get 67,000 BOEPD of manufacturing, 130,000 bolt-on acres, and 600 new risk-free drilling areas. Not a foul deal on the face of it at ~$23,000 an acre, however what made the deal at Eagle Ford stand out versus different shale performs? Clearly, as you take a look at the deal slide from MRO beneath, the synergies turn out to be obvious. The legacy MRO acreage lies within the risky oil and condensate sector of the play. Ensign continues to acreage within the condensate area and strikes down into the moist fuel area, offering a brand new horizon for the MRO. Ensign deal brings double-down give attention to condensate and new horizons in moist fuel to Marathon. This focus provides us a clue to the query requested within the above paragraph, and we’ll increase on this pondering as we transfer via this piece.

On this article, we’ll evaluation a few of the latest Eagle Ford M&A exercise over the previous few years. Offers on this drama have been coming quick and livid currently, and we expect some widespread threads between them are presently being pushed by takeoff realities rising from the Permian and the lure of easy accessibility to Corpus Christi exports and LNG services. Huh. ,

Rediscovering Eagle Ford

The Eagle Ford was one of many early shale breakout performs, as firms similar to EOG Sources, (NYSE:EOG) started drilling and ramping up manufacturing since 2010. Crude oil and fuel manufacturing grew quickly from lower than 50K BOEPD in 2008 to 1.7K BOEPD in 2015. A perform of rocketing rig counts and cracking shale’s code with fracturing. Issues slowed down within the late teenagers and common manufacturing at Eagle Ford regularly dropped in the direction of 1.0 mm boepd, a stage it maintained till the start of this yr when it edged in the direction of 1.2 mm boepd.

Eagle Ford started to shake its sleepy, “end-of-life” fame with the Penn Virginia and Lonestar Sources merger, which gave the mixed firm — an Eagle Ford Pure-Play rebranded as Ranger Oil, (NYSE: : ROCC) – 140,000 web acres in South Texas, common manufacturing in extra of 40K BOEPD, and roughly 20 years of stock.

Devon Vitality (NYSE: DVN) then acquired Validus Vitality final yr for $1.9 billion. A flurry of smaller offers adopted, together with the April 2022 announcement of Silverbow Sources’ deal to purchase Sundance Vitality’s Eagle Ford holdings for $354 million and Sandpoint Working’s holdings in play for $71 million.

So, we are able to say that the Eagle Ford is again, however to know the remainder of the story, we have to perceive the core drivers.

EOG and Dorado Discovery

First introduced in 2018, low fuel costs largely muted the affect of the Dorado discovery within the Eagle Ford. As talked about in an article launched RBN Vitality WeblogMarket circumstances have shifted in Dorado’s favor in 2021.

“EOG Sources plans to considerably increase pure fuel manufacturing at its Dorado fuel play in Eagle Ford. EOG, which owns roughly 516,000 web acres within the Eagle Ford oilfields and 160,000 web acres within the basin’s dry fuel window in Webb County Ltd., has estimated its Dorado discovery to have roughly 21 trillion cubic ft (Tcf) of fuel and a breakeven value of lower than $1.25/MMBtu. In February 2022, the corporate will promote Cheniere Vitality’s Corpus Christi Liquefaction Stage III challenge to 420 Reached an settlement to produce MMCF/D fuel – a seven-train, 10-MTPA enlargement of Cheniere’s LNG export terminal in Corpus on prime of the 300 MMCF/D EOG had already agreed to supply to the challenge As a result of its new trains come on-line.

EOG does a superb job of articulating the market dynamics at play for its Eagle Ford November Investor Presentation slide down. Noting amongst different issues the proximity of Dorado to the Corpus Christi export hub.

wrapping it up

Evidently the visionary producers we mentioned on this article had been pissed off by the difficulties of takeaway Permian on account of rising GOR A sound strategic transfer adopted at Eagle Ford.

Whenever you mix the numerous volumes of wealthy condensate, NGL and moist fuel with its proximity to processing and export markets in close by Corpus Christi, Eagle Ford competes for capital to equal top-tier acreage in different performs.

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Traders trying to make the most of continued development in Eagle Ford might want to try Marathon. The corporate is buying and selling at 5.5X money movement or barely much less, given the continuing commodity-led selloff. It is vitally aggressive with different shell gamers. The present worth per flowing barrel is $63K a barrel, very aggressive even on that metric with some giant operators going for nearly $100 a barrel.

Adjusted money movement from Ensign’s 67K boe will add $1.5 billion of OCF to MRO on an annualized foundation. As an example the OCF goes as much as ~$6 bn. In that state of affairs, the OCF a number of drops to three.5X and the P/FB foundation to $53K per barrel.

To get again to five.5X, MRO shares want to regulate in the direction of $51-$53 per share. Analysts nonetheless want to regulate for this acreage pickup, as their prime estimate is $42, so I is perhaps pulling the hairs off my skis right here. Though I don’t assume so. The maths is easy.

Backside-line MRO shares ought to stay elevated from Ensign’s acreage pickup. It also needs to be famous that different shareholder-friendly actions are being taken by the corporate to dramatically cut back the share rely over the subsequent a number of years.

By David Mesler for

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