|ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018|
Eagle Ford outlook
Rig counts in the Eagle Ford shale region were significantly impacted by the downturn in crude oil prices and producers allocating their capital budgets to other producing basins, especially the Permian. With that being said, the number of active drilling rigs in the Eagle Ford shale has increased by 37 rigs, or 128%, to 66 rigs in February 2018 from the low recorded in May 2016. The historical peak for Eagle Ford Region crude oil and natural gas production occurred in March 2015 and was 1.7 MMBPD and 7.4 Bcf/d, respectively. According to the EIA Drilling Productivity Report, the most recent data (January 2018) for Eagle Ford Region production was 1.2 MMBPD of crude oil and 6.4 Bcf/d of natural gas. Until volumes for the Eagle Ford return to near historical peak production, there will be excess capacity in terms of midstream infrastructure available in the region. We believe that the Eagle Ford offers producers some of the best returns on capital of any region in the country and is also favorably situated near growing consumption and export markets on the U.S. Gulf Coast. Several large parcels of producing acreage have changed hands in recent years, which has resulted in a number of rigs being put back into service since the new owners are eager to begin realizing cash flows from their investments. We believe further ownership changes will take place in the near future that will increase the number of rigs working in the Eagle Ford, which could result in higher volumes for our assets.
The rig count in the Haynesville shale has grown in 2017 as a result of increased public and private equity investment in the region. We have seen several significant changes in the ownership of producing properties over the past year, which has led to increased drilling activity in the region by the new owners. From the low of 11 rigs recorded in February 2016, the Haynesville rig count has increased by 36 rigs, or 327%, to 47 rigs in February 2018. Drilling in the Haynesville has additionally benefitted from advances in drilling and completion technology (increased well lateral length, adding more fracking stages, significantly increased proppant concentration) resulting in improved natural gas recoveries per well and increased returns on capital for producers. The historical peak for the Haynesville region natural gas production occurred in November 2011 and was over 10.6 Bcf/d. According to the most recent EIA drilling Productivity Report (January 2018), the Haynesville Region natural gas production was 7.7 Bcf/d. In 2016, the U.S. Geological Survey estimated that the Haynesville and associated Bossier shale plays hold a combined 304 trillion cubic feet of technically recoverable shale gas resources, the second highest level in the U.S. after the Appalachia region. In addition, the Haynesville benefits from its close proximity to the Gulf Coast where substantial petrochemical and liquefied natural gas, or LNG, export buildout is underway. With natural gas futures prices currently at approximately $3.00 per MMBtu, we anticipate Haynesville gas production will continue growing. Until Haynesville volumes return to near historical peak production, there is generally excess capacity of midstream infrastructure available in the region.
Rig counts have increased in the major basins of the Rockies. Drilling activity in the Piceance Basin increased from two rigs in May 2016 to eight rigs in February 2018, and in the Jonah and Pinedale fields increased from a combined four rigs in November 2016 to 12 rigs in February 2018. Drilling activity in the San Juan Basin increased from two rigs in November 2015 to three rigs in February 2018. The current level of drilling and completion activity in the Rockies is generally leading to growth in production of crude oil, natural gas and NGLs. In addition, early results from horizontal drilling in both Jonah and Pinedale fields are very promising for incremental natural gas and NGL production. The Rockies benefit from adequate natural gas and NGL pipeline infrastructure, which helps the region compete with other North American plays where takeaway capacity may be constrained. Like the Eagle Ford and Haynesville, we have seen several significant changes in the ownership of producing properties over the past year, which has led to increased drilling activity in the region by the new owners.
Demand Side Observations
Global demand for petroleum-based products continues to increase at rates that have generally exceeded economists’ expectations, which is in large part due to improving economic growth worldwide. Due to higher crude oil prices and improved drilling and production techniques, U.S. crude oil production has bounced back and secured its place in the global supply. As a result, we expect that some of these new domestic barrels would supplant more of the U.S.’s crude oil imports while the remainder would be exported to growing international markets in Central and South America, Asia and Western Europe where the lighter U.S. crudes make good feedstocks for their refining facilities. We also expect U.S. refineries to operate at higher rates as a result of strong U.S. demand and growing exports of refined products.