Escondido Resources II LLC operates with a different spin when it comes to the Eagle Ford shale play in Southwest Texas. The company, which was first formed in 2004, with capital commitments from equity partner EnCap Investments LP, has opted to target the Escondido and Olmos reservoirs along with the highly popular Eagle Ford.

The reasons, opines William Deupree, president and chief executive of Escondido, are obvious. Deupree discussed his company's current strategy at Hart Energy's Eagle Ford: Developing Unconventional Gas (DUG) Conference and exhibition in San Antonio, Texas, on October 12, 2011.

The company's strategy is simple, says Deupree—apply new technology to old, established and shallow fields including the Olmos and Escondido reservoirs. "We look at the Olmos and Escondido reservoirs as hidden reserves in South Texas," Deupree says.

Thus far, the company has drilled 44 wells, 19 vertical and 25 horizontal, all with a 95% success rate. As of October 2011, the company had hit 60 million cubic feet (MMcf) per day of production, with 2.5 trillion cubic feet in gross resource potential, of which 33% lies in the Olmos and Escondido formations, and 66% lies in the Eagle Ford.

"We found ourselves at a bit of a crossroads at Escondido. While we have an excellent acreage position with about 30,000 acres in the Eagle Ford trend, and about 60,000 acres in the shallow Olmos and Escondido reservoirs, the economics of the Eagle Ford are a little bit diminished right now because of depressed gas prices. Our dilemma was, do we follow the trend and keep drilling Eagle Ford wells, or do we try something different?"

Faced with this quandary, Escondido chose to take a slightly different path by employing the drilling and completion technologies used in the Eagle Ford wells to the shallow Olmos and the Escondido reservoirs. Despite the buzz, the Eagle Ford never replaced the company's efforts to develop the Escondido and Olmos resource trends and according to Deupree, it was more of an addition to a successful program.

"What the Eagle Ford did do for us was to focus us on the use of horizontal technology in the shallow reservoirs, something that had never really been done before. We drilled our first horizontal well in the Escondido in 2009 immediately following our first Eagle Ford well, and have drilled a total of 25 horizontal wells, 16 in the Escondido, five in the Olmos, and four in the Eagle Ford. Before we sold our predecessor company in 2007( Escondido Resources LP) we drilled 163 wells to get production to 25 MMcf per day. Our last three wells as Escondido II LLC will produce the same amount from the exact same reservoirs."

Those numbers speak for themselves, according to Deupree, who says that the economics of horizontal drilling in Escondido and Olmos formations are comparable to the rich-gas Eagle Ford shale play, and offer a significant economic edge, even in low gas price environments.

Moreover, gas production projections for the company show that Escondido does not expect to grow its Eagle Ford rig count significantly until 2013, and predicts that by 2016, half of its projected 300 MMcf per day gas production will come from the Eagle Ford and the remaining 150 MMcf per day will come from the Escondido and Olmos reservoirs.

According to Deupree, this strategy will serve Escondido Resources well, as the company capitalizes on the opportunity to take advantage of the profitable shallow drilling opportunities in the Escondido and Olmos formations while maintaining deep Eagle Ford rights.