SAN ANTONIO—“Today, on average, the Eagle Ford is about $5 to $10 a barrel higher in breakeven costs than the Permian and Bakken analogs,” said Mark Meyer, managing director and head of securities and research at Tudor, Pickering, Holt & Co. (TPH).

Meyer spoke at Hart Energy’s recent DUG Eagle Ford Conference & Exhibition.

“We've seen a real adjustment in inter-basin economics, in reprioritizations amongst some of the operators with respect to rig allocation, and this has had a decidedly disproportionate effect on the Eagle Ford,” he said.

TPH estimates that at prices of $60 per barrel for WTI and $2.50 per million cubic feet for natural gas, about 95 rigs would need to be working to hold Eagle Ford production flat, assuming operators were living within their cash flows. That is far above the current weekly rig count of 36 rigs, as reported by Baker Hughes.

The Eagle Ford has been a significant contributor to the dramatic growth in production the U.S. enjoyed from resource plays between 2010 and 2015. But, unlike the Bakken and Permian areas, the Eagle Ford region did not have a wedge of legacy production that was producing at low decline rates. Instead, the play went from a standing start directly to a hyper-growth phase. “Now we've basically pulled the rug out from under the growth and the ability to stay ahead of these declines,” Meyer said.

But, although production will likely continue to drop significantly, there is some good news in the Eagle Ford. Capital efficiency has gone way up and capital intensity has gone way down in the play, and the Eagle Ford also has strong geographic advantages based on its prime location close to markets and market outlets.

One opportunity is the forecast for an improving market for both natural gas and NGL in 2017 and the early part of 2018 “We’ve seen renewed focus on natural gas-directed activity throughout the various zones of the play,” Meyer said. As of August 2016, the highest concentrations of rigs are in the core of the Karnes Trough area and in the dry gas window in Webb County, Texas. TPH is looking toward some commodity upside and a widening of margins at the wellhead.

A big surprise is that, due to cost reductions, efficiencies and next-generation stimulations, the Eagle Ford wet gas play has the best gas breakeven economics today of all the comparable resource plays in the Lower 48, Meyer noted.

“We’re not necessarily at a crossroads, but maybe at a different way of attacking the near-term and medium-term tactical opportunities,” he said. “We do believe that there is one coming in natural gas, so we're going to be paying very close attention to see how allocation and activity ramp up and progress, particularly in Eagle Ford gas vs. oil.”

That will likely be reflected in the A&D market. “Improving gas markets and gas prices could, at least for the medium-term, help redefine what we think of as traditional core acreage inside the Eagle Ford,” Meyer said.

“There is considerable consolidation opportunity, and we don't see fire sales taking place for quality assets in the Eagle Ford. The consolidation is going to result in a much more efficient future for the play.”

Peggy Williams can be reached at pwilliams@hartenergy.com.