Operators in the Eagle Ford have had a rig count of over 250 rigs for more than a year, drilling faster and faster. But where is the pressure for that pace coming from?
As shale activities turn from wildcatting to manufacturing-style drilling projects, both pace and scale of operations are increasing. Many operators are accountable for improved drilling times as a main success indicator, so that even though some operators “scaled back the number of rigs be utilized, they’re still drilling the same number of wells” according to R.T. Dukes of EagleFordShale.com. The transition in type of operations also means that where those who first jumped in for a strategic land position are no longer able to keep up the pace, companies more experienced in creating repeatable success are buying in and creating additional rigs. “Approximately 270 rigs have been running in the region for almost 12 months,” says R.T. Dukes.
“You have to drill a well to hold acreage,” said Tudor, who spoke at a media tour hosted by BHP Billiton Petroleum this month. “There’s a lot of that in America.”
We’re starting to see the end of many lease agreements, with peak negotiations in the Eagle Ford dating from 2008 to 2010. Since many have a primary term of 3-5 years, 2012 has seen the first wave of preventative drilling, or drilling for the sake of keeping land position rather than economically feasible extraction. Some of the drilling activity we’re seeing is considered ‘preventative’, because if a well isn’t producing at the end of its associated lease agreement’s primary term, the landowner can renegotiate. If the land is being operated, it’s ‘held by production’, thus preventing the land from coming back onto the open market. This activity saves operators any penalties associated with the lease agreement, as well as potentially higher royalties paid to the lessor. In short from Dukes: “It could mean millions of dollars per well.”
Drilling for lease compliance’s sake is a relatively new phenomenon, as lease contracts and provisions have never been more complicated, and land owners have never been as sophisticated and aware as currently is the case. Entrance has created a lease compliance management solution for one Eagle Ford operator, that tackles this problem head on.
Learn more about lease compliance here!