ACG in San Antonio on 5/29/18: Bob Watson, CEO of Abraxas Petroleum

Abraxas Petroleum Corp.’s chairman and CEO said it’s getting harder for smaller oil companies to compete for land in U.S. shale fields and that drilling in the Eagle Ford Shale isn’t economical for them.

Bob Watson said his company is in the process of selling its Eagle Ford land, which totals more than 14,000 acres, according to a March filing with the Securities and Exchange Commission.

Watson spoke Tuesday at an Association for Corporate Growth Central Texas event in San Antonio. He didn’t say when the Eagle Ford land would be sold or who is interested in buying it.

“The treadmill is so fast” in the Eagle Ford, Watson said, that small companies like his can’t spend the money to keep drilling at the high rate needed to make the field profitable. Watson added that the Eagle Ford “doesn’t attract capital for us” compared to shale plays in West Texas and North Dakota.

“You’ve got to keep drilling, keep drilling, just to keep up,” he said. “The big guys can do that, with the big balance sheet, the EOGs and the Marathons, they’re going to keep blowing and going in the Eagle Ford because there is oil there.”

The oil man, who has been in the industry for more than 40 years and founded Abraxas in 1977, pointed to other difficulties operating in shale oil fields in West Texas and North Dakota, where Abraxas holds tens of thousands of acres.

Watson said that in West Texas’ Permian Basin, where Abraxas has the largest amount of acreage, pipeline bottlenecks to get the oil from the pump jack to the Gulf Coast are hurting the prices producers are getting for product.

“There’s very little uncommitted capacity right now,” Watson said. “In fact, what’s setting that differential, which is about 12, is the cost to truck oil from West Texas to Houston, where you get Gulf Coast prices.”

He said he hopes that new pipelines under construction — such as the 700,000-barrel-a-day Gray Oak crude oil pipeline announced in April by Andeavor and the 440,000 barrel-a-day EPIC crude oil pipeline — will relieve the pressure on West Texas infrastructure.

Watson added that Abraxas is building its West Texas acreage “brick by brick” and through acreage swaps with other companies.

Abraxas’ holdings in the North Dakotan Bakken shale oil field — where it has the majority of its producing wells — totals 22,000 acres. But growing that acreage “is just not possible,” Watson said.

“It’s just too tightly held, period,” he said. “We’re dealing with Exxon, Continental Resources, ConocoPhillips. All that land is HBP, held by production, not going anywhere. They’re in no hurry to give it up, and they’re not going to.”

The U.S. had 1,059 drilling rigs in operation for the week that ended Friday, according to Baker Hughes. Of that total, 478 are operating in West Texas’ Permian Basin oil field, while South Texas’ Eagle Ford Shale has 78 rigs.

At its peak in 2012, the Eagle Ford had 259 rigs, the majority drilling for oil, and continued to have more than 200 rigs until 2015. At its lowest, in mid-2016, only 29 rigs were operating in the Eagle Ford.

In the first quarter that ended March 31, Abraxas posted income of 10.8 million, or 7 cents a share, compared to a loss of 40.9 million, or 39 cents a share, for the same period in 2017.

In fourth-quarter filings in March, Abraxas Petroleum reported a 4.1 million loss but a 16 million profit for 2017.