BHP Billiton Loves The Eagle Ford Shale

By Eric Fox | November 22, 2011 AAA

BHP Billiton (NYSE:BHP) is relying on the development of the company's large position in the Eagle Ford Shale, to help meet its goal of increasing production from onshore shale assets, to one million barrels of oil equivalent (BOE) per day by 2020. (For more on oil and gas, check out Oil And Gas Industry Primer.)

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Acquisition
BHP Billiton acquired Petrohawk Energy, earlier in 2011, and inherited a large position in the Eagle Ford Shale, in south Texas. The company is currently producing 52,000 barrels of oil equivalent (BOE) per day from this area, with approximately 53% of the production composed of liquefied natural gas and condensate.

BHP Billiton estimates that these properties have 13.5 Tcfe of risked net resource potential, assuming 90 to 100 acre spacing. The company is operating 14 rigs to develop the Eagle Ford Shale and plans to move up to 26 rigs, by 2013.

Properties
BHP Billiton has 332,000 net acres under lease, in three project areas that have exposure to the Eagle Ford Shale. The company is currently active with development programs at the Blackhawk and Hawkville Fields.

Petrohawk Energy also has 50,000 net acres at the Red Hawk prospect, located in Zavala County, and was working on developing the Eagle Ford Shale here. In Aug. 2011, the company ended this program, citing well results that were below expectations.

Another operator active in Zavala County is Crimson Exploration (Nasdaq:CXPO). The company has several thousand acres under lease here and reported a number of successful wells here in 2011. (For more on exploration, check out Unearth Profits In Oil Exploration And Production.)

Hawkville Field
BHP Billiton has 224,000 net acres at the Hawkville Field, with current production of approximately 30,000 BOE per day, or over 50% of the company's current Eagle Ford Shale production. The company will increase its rig count here from five to 13 rigs, by 2013.

Since BHP Billiton's position is spread out over a three county area, the well results for the company at the Hawkville Field vary considerably. In the northern part of the field, wells tend to have a higher content of liquid hydrocarbons and generate a higher return for the company.

BHP Billiton estimates that wet gas wells in the Hawkville Field will have a 43% return, compared to 15% for dry gas wells, in the southern portion of Hawkville. Overall, approximately 70% of the field's production is natural gas, with the balance composed of condensate and natural gas liquids.

Blackhawk Field
BHP Billiton has 58,300 net acres at the Black Hawk field, and is producing 22,000 BOE per day from here. Since this field is to the northeast of Hawkville, the shale is shallower and wells here produce a higher liquid content. Production from Blackhawk, on a field wide basis, is approximately 77%; production at Blackhawk is condensate and natural gas liquids.

BHP Billiton estimates that wells here will generate returns in excess of 100% and the company will add four rigs here by 2013, bringing its total rig count to 13. (For more on the natural gas industry, see Natural Gas Industry: An Investment Guide.)

Other Operators
The Eagle Ford Shale is attracting many other companies and is one of the most active areas for oil and gas development, in the onshore United States. Forest Oil (NYSE:FST) completed five horizontal wells into this play, during the third quarter of 2011, and reported an average initial production rate of 481 BOE per day from these wells. Comstock Resources (NYSE:CRK) has 28,000 net acres in this play and plans to drill 32 gross wells into the Eagle Ford Shale in 2012.

The Bottom Line
BHP Billiton and is focused on the Eagle Ford Shale, as it looks to leverage growth off the huge investments made in the onshore United States, in 2011. Many other exploration and production companies are also involved here; this combined investment may one day change the perception of the United States from a mature area, to one in a growth mode. (To gain a better understanding of oil, read A Guide To Investing In Oil Markets.)


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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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