Global Investors Cash In on Texas Oil & Gas Boom

A major new oil and gas discovery has turned a swath of South Texas into one of the hottest resource plays in the US. Stretching 50-miles wide by 400-miles long from the Mexican border to East Texas, the Eagle Ford shale prospect offers opportunities for the production of higher-priced liquids -- condensate, natural gas liquids, and crude oil -- in addition to dry gas.

In just the past three years, energy companies in the US and abroad have made the Eagle Ford a target of exploration because of the heavy liquid content of the shale, high initial oil production rates, the sprawling existing and proposed infrastructure, and its proximity to some of the largest energy markets in North America. Although the Eagle Ford is struggling with a drought this summer, industry experts agree the play has long-term potential.

London-based Edison Investment Research describes US shale oil projects as "red hot" -- as statistics from the Texas Railroad Commission seem to prove. Consider this: In 2008, the commission issued 33 drilling permits for the Eagle Ford. It issued 94 in 2009, 1,010 last year, and 933 between January and March this year.

The Eagle Ford is booming because of advanced horizontal drilling and -- yes -- hydraulic fracturing. (See Fracking Friction Intensifies as Studies Continue.) But while there are some concerns about the environmental effects of fracking, the debate is nowhere near as strident in Texas as it is in, say, New York.

About 170 rigs are now operating in the region, with more than 900 wells running production and approximately 1,400 wells in various stages of drilling and completion.

The Eagle Ford is now second only to the Bakken formation in North Dakota in terms of production. It's the sixth largest US oilfield ever discovered and the largest in 40 years, geologists maintain.

Marathon Oil (NYSE: MRO), one of the companies in the IU25 index, is one of the major players. Last month, the company agreed to buy 144,000 acres in the Eagle Ford from Hilcorp Resources LLC for $3.5 billion -- or close to $25,000 an acre. The deal set a new high for Eagle Ford acreage, surpassing $1.55 billion, or $16,000 an acre, that Korea National Oil Corp., the national oil and gas company of South Korea, paid Anadarko Petroleum Corp (NYSE: APC) to establish a foothold there.

But Dave Roberts, Marathon's executive vice president and chief operating officer, thinks the potential justifies the price. Roberts called the Eagle Ford the company's "flagship play," adding that the geology makes it "the best unconventional oil play in the US today." The new positions will more than double Marathon's stake in the Eagle Ford and give it a total of 285,000 acres.

There's fierce competition for land in the Eagle Ford. Most of the major players -- Chesapeake Energy (NYSE: CHK), Petrohawk (NYSE: HK), Pioneer Natural Resources (NYSE: PXD), EOG Resources (NYSE: EOG), Apache Corp. (NYSE: APA), Newfield Exploration (NYSE: NFX), and Conoco Phillips (NYSE: COP) -- got in early.

Chesapeake, which even has a Facebook page dedicated to its Eagle Ford operations, has about 600,000 acres in the Eagle Ford. Last fall, it sold a 33% interest for $1.08 billion to a subsidiary of Cnooc Ltd. , the third largest national oil company in China.

In the past year or so, more big oil companies have entered the play, including BP (NYSE: BP), Shell (NYSE: RDS.B), ExxonMobil (NYSE: XOM), and Hess (NYSE: HES), along with numerous smaller companies and startups.

Just recently, technology-focused Digital Valleys Corp. (OTC: DTLV) changed its name to Circle Star Energy Corp. (OTC: CRCL) and acquired more than 30,000 acres in the Eagle Ford and other Texas shale formations. The company issued a statement indicating that its new name reflects "management's decision to pursue new business opportunities in oil and gas exploration and development."

There are issues in the Eagle Ford, to be sure, including limited supplies of water -- a critical component of fracking. The whole play is in a hot, dry area, and right now, it's struggling with a drought that's made water an even more valuable asset.

But the shale bed could eventually deliver 750,000 to 800,000 barrels of oil per day, according to industry experts at last month's 2011 RBC Capital Markets Global Energy and Power Conference in New York City. With prospects like that, someone is going to find a way to increase the water supply.