April 10, 2018 3:00 PM, EDT

US Oil Debt Eases

Drillers Target Next Shale Play
Oil Workers Drilling Shale Oil workers drilling shale (Brittany Sowacke/Bloomberg)

U.S. oil and gas producers expect their borrowing ability to increase over the next few months, leaving them open to invest in new shale assets, particularly the Eagle Ford in Texas.

That’s the conclusion of Haynes & Boone, which found that more than 80% of respondents predict their borrowing bases, or credit availability backed by collateral, likely will increase as banks conduct their biannual reviews. That may benefit the Eagle Ford and Austin Chalk as the “next big play,” the study said.

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The Eagle Ford is an established shale play, generating about 12% of U.S. oil, but it’s been receiving more attention of late. While the formation produces only about a third as much crude as the Permian Basin, the country’s most prolific field, the Eagle Ford is closer to the Gulf Coast’s network of refineries and pipelines, and drilling rights are cheaper.

In March, Steve Chazen, former Occidental Petroleum Corp. CEO, bought drilling rights in the Eagle Ford and Austin Chalk from EnerVest in a deal worth $2.66 billion. KKR & Co. and Venado Oil & Gas also expanded their position in the play with a $765 million purchase of Cabot Oil & Gas Corp. assets that month.

EOG Resources Inc. is the biggest producer of crude from the Eagle Ford. Production from the play, though, remains below its 2015 peak, according to the Energy Information Administration, potentially creating an opportunity for new entrants.

With West Texas Intermediate, the U.S. crude benchmark, up 28% in the past six months, pressures have been easing on debt-loaded oil producers. They have used that to lock in prices. About 50-60% of their 2018 production has been hedged, the survey indicated.

Producers will use cash flow from operations, bank debt and private equity as their main sources of capital this year, the survey said, and bankruptcies “are showing a drop-off.”