As the summer heats up South Texas, so has excitement regarding the Eagle Ford shale play. Activity has increased significantly, with more than 70 rigs at work.

Eagle Ford production is approximately 250 million cubic feet of gas (MMcf) and 15,000 barrels of oil per day of crude and condensate from some 110 wells. More than 250 wells have been permitted so far this year. Most of the activity is in the liquids-rich condensate window, with activity increasing in the oil window.

Crude from the oil window is high quality (40 degrees API). It will be interesting to see how these wells perform as reservoir pressure declines and the wells are put on artificial lift.

In the condensate window, condensate yields can be as high as 100 barrels per MMcf. Further processing of the rich gas, which can have a heating value as high as 1,350 British thermal units (Btu) per standard cubic foot (scf), can yield 70 barrels per MMcf of liquids.

Initial production (IP) rates in the dry-gas window have ranged from 8 to 10 MMcf per day with heating values of 975 Btu/scf. Ramp up of production in the dry-gas window will largely depend on gas-pipeline infrastructure, which currently is curtailing production. New pipeline projects are planned.

A large portion of the gas window offers additional targets, including Escondido, Olmos and Austin Chalk, and companies such as Laredo Energy, Escondido Resources and others are successfully developing those formations.

Transactions. Since late last year, 11 major transactions have occurred (as of the end of July), ranging from joint ventures to outright sales of acreage positions to large mineral owners conducting processes to lease their minerals. This activity is being driven by: encouraging test results from recent completion operations and production history; the realization by smaller, less-capitalized companies that the cost and complexity of drilling a medium-to-long lateral-length well with multiple-stage stimulation treatments requires significant capital and technical expertise; continued interest from international and domestic companies looking for exposure to U.S. shale plays and shale technology; and reduced supply of open acreage as large tracts are leased up.

Valuations. Acreage transaction and joint-venture valuations have increased nearly tenfold since the beginning of the year, with recent JV transactions ranging from $10,000 to $12,000 per acre. Larger acreage transactions of 100,000 acres are attracting premiums.

Acreage close to wells that have reported significant IPs is also receiving attractive valuations. Most of the attention is focused on properties in the oil- and condensate-rich windows; however, test results from wells in the dry-gas window are showing promise and will benefit from increases in natural gas prices.

Deals on the market. Raymond James estimates that there are currently at least 11 publicly announced deals on the market totaling more than 580,000 net acres across 18 counties in South Texas. Properties are available in all areas of the play. Sellers run the gamut: from those looking to sell all rights to those selling only deep rights, to players seeking JV partners.

The more desirable properties, i.e. large acreage positions in the liquid-rich areas or oil window, near existing successful completions, will garner the most interest.

However, values can be attained in other areas of the play. Separate buyer groups have emerged for different packages as those lacking shale expertise focus on JVs, while experienced operators opt for acreage acquisitions.

—Christopher J. Simon, Raymond James & Associates (713-278-5206; chris.simon@raymondjames.com)