| Regional Spotlight |
Texas' Barnett Shale hottest US gas play
by Alan Waldman, Los Angeles
(9/24/2006) Stretching across 15 counties in Northeast Texas, about 7,000 to 9,000 ft below the surface, is what could prove to be the most productive gas play in the United States, the Barnett Shale Trend. For four decades, the energy industry has known that this massive unconventional gas reservoir (containing 30 Tcf of reserves) existed, but until a decade ago, when Mitchell Energy (now Devon Energy) found a way to affordably extract natural gas from the Barnett formation's seemingly impermeable rock (using hydraulic fracturing and horizontal drilling), nobody thought it was economically sensible to explore for it.
Since 1996, however, 2,500 wells have been drilled in this astonishing formation, without a single dry hole, while a feeding frenzy has broken out among dozens of energy firms of all sizes.
Located primarily in 11 counties west, north, and south of (as well as beneath) Fort Worth, Texas, the Newark East Field produced 368 bcf of gas in 2005 and 1.3 Tcf since 1999, with another 400 bcf expected this year. There is strong evidence that the Barnett contains 1 Tcf of gas every seven miles and is one of the 10 richest fields in the world. Many authorities believe the Barnett Shale will ultimately surpass the Hugoton Field as the largest onshore natural gas reservoir in the USA.
Barnett production is controlled by the formation's thickness, which ranges from 50 ft on the Bend Arch to nearly 1,000 ft in front of the Munster Arch in the basin's center. In its most productive areas, the Lower Barnett is around 300 ft thick and the Upper Barnett is about 150 ft thick.
The three main advantages of shale gas plays are moderate development costs, high success rates, and slow production decline rates. Thousands of infill wells can be drilled in core Barnett areas, as operators continue to push its limits. Players are already thrilled with the Barnett's perfect success ratio, lack of pressure problems, moderate depth, simple operations, and convenient location within 70 miles of Fort Worth.
Many Barnett wells individually produce a bcf of gas, and several companies have reported initial production more than 5 million cf/d from Barnett wells, although most finds experience a 50% decline in the first year. Barnett wells then stabilize and produce for an average of 20 years, with expected life often in excess of 30 years.
A few years back, expensive gel fractures did not produce enough natural gas to be very economically feasible. But today's typical Barnett fracture stimulation employs a million gallons of water and 50,000 lbs of sand to create a theoretical frac zone that is about 1,500 ft long in both directions, for a total length of 3,000 ft. A major challenge in the western Fort Worth Basin, however, is that the porous Ellenberger structure underlies the Barnett, so that a frac job down into it can severely inhibit gas recovery.
The development and effective utilization of horizontal technology permits drilling multiple wellbores off a single pad, thus leaving a small footprint and enabling access to targets at a distance. Horizontal drilling has been especially successful when drilling below metropolitan areas like Fort Worth and Denton.
Areas of Barnett Shale development
To date, the most Barnett Shale natural gas has been discovered by larger players such as Devon, Chesapeake Energy, XTO Energy, EnCana, and EOG Resources, in Fort Worth's Tarrant County, as well as just to the west in Parker County and due south in Johnson County. However numerous firms have also successfully explored the "outer Barnett" in 12 other counties, and exploration is under consideration in another 10.
For example, Devon, EnCana, Texas Energy Holdings, and Dune Energy have successfully drilled into the trend in Denton County, just north of Fort Worth. Ignis Petroleum Group and KOKO Petroleum have been active even farther north, in Cooke and Montague counties. Northwest of Fort Worth, Lewis Energy has had positive results, Keystone Energy is doing seismic work, Lexington Resources is active, and DTE has acquired 40 producing wells in Jack County, while Devon and Dune Energy are very active in Wise County, where KOKO and Maverick Oil & Gas are starting to drill.
Several players expect Erath and Palo Pinto counties to be the next hot Barnett areas, so EOG, Terax Energy, Texas Energy Holdings, and Infinity Energy are drilling in the former while Lexington, Keystone, and Texas Energy Holdings are testing in the latter. And southwest of Erath County, Lexington, Infinity, and Terax are encouraged by their prospects in Comanche County.
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| Devon Barnett Shale wellsite. |
The major players
Over the past decade, progressively more companies have successfully used sand-water fracturing to inexpensively access previously inaccessible Barnett Shale gas deposits. During 2005, several of the biggest firms jumped in such as Shell Energy, ConocoPhillips, and Marathon Oil, leasing, partnering or merging their way into the country's hottest natural gas play. Finally, ExxonMobil partnered with Harding Company to explore a vast area for the Barnett's hidden treasures.
The oldest (via its acquisition of Mitchell Energy) and largest player in the trend remains Devon, which has a dominant lease position of more than 733,000 net acres and which has more than 2,200 wells in the field. Since acquiring Mitchell in 2002, Devon has drilled more than 1,300 vertical and horizontal wells, which have produced over 800 bcfe of natural gas. Horizontal drilling and other technologies have allowed the company to extend the Barnett's productive boundaries well beyond the core area originally defined by Mitchell. Devon produces about 600 million cf/d, nearly half of the Barnett Shale's daily output of 1.4 bcf, and it has total proven gas reserves of 2.1 Tcf.
At the end of June 2006, Devon (partnered with Crosstex Energy Services) acquired the oil and gas properties of second-largest Barnett player Chief Holdings, for US$2.2 billion. Chief's 169,000-acre leasehold has proven reserves of 617 bcfe, and Devon plans to drill about 800 wells on the property over the next five years, ultimately recovering more than 2 Tcfe. Devon's future prospects in the Barnett Shale have been significantly enhanced by its recent successful 20-acre infill well pilot program.
One of Summer 2006's biggest developments was Chesapeake's acquisition, from Four Sevens Oil and Sinclair Oil, of 39,000 net acres of Barnett Shale leasehold, 30 million cfe/d of current production, and $55 million in natural gas assets, for $845 million in cash.
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| Chesapeake Tarrant County wellsite. |
Two thirds of the 39,000 net acres are located in Johnson and Tarrant counties, where Chesapeake has identified 500 net potential drillsites. It expects to spend an estimated $1.2 billion to fully develop the 870 bcfe of proven and unproven reserves, tripling production to about 90 million cfe/d by the end of 2007.
Chesapeake has also recently acquired or agreed to acquire an additional 28,000 net acres of leasehold, primarily in Johnson and Tarrant Counties, from various additional sellers, for $87 million. There it anticipates drilling 400 net wells to develop 650 bcfe of unproven reserves.
With these acquisitions, Chesapeake, the third-largest independent natural gas producer in the USA, now has 153,000 net acres, 110,000 of them in the heart of the most prolific portion of the horizontally developed Barnett Shale play.
After its January 2005, purchase of prominent producer Antero Resources, for $685 million [and after Devon's purchase of Chief's Barnett Holdings], XTO became the second-largest producer in the Barnett Shale. It is scheduled to drill 240 wells in Tarrant, Johnson, and Parker counties by 2006.
XTO's proven Barnett gas reserves are 440 bcf of natural gas, and it has an estimated upside potential of 400 to 500 bcf under its 61,000 net acres, with new well spacing defined at 100 acres. Production from the properties currently totals 60 million cf/d.
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EnCana wellsite near Fort Worth. |
"Horizontal wells and evolved fracturing techniques are showing consistent results in both the core and non-core areas," XTO vice chairman Steffen E. Palko recently said. "Seismic data is mitigating drilling risk, re-fracturing existing wellbores is delivering significant production and reserves boosts, and tighter well spacing allows us to better access the abundant gas held in place."
Last February, EnCana, the fourth-largest natural-gas producer in the Barnett Shale, announced that it would drill 100 to 120 more wells this year and increase its production by 20% to about 120 million cf/d. EnCana has 205,000 net acres of undeveloped land in the Barnett Shale, proven reserves of 500 bcf, and unbooked potential reserves of 1.5 Tcf. In 2005, it got about 80% of its 26 bcf of Barnett production from Denton and Tarrant counties, but this year it is expanding south into Johnson and Hill counties.
The next-largest Barnett player, EOG, brought its third consecutive "monster" Johnson County well onstream in November 2005. The well south of Mansfield, Texas initially produced 7.7 million cf/d, while a pair of wells developed two months earlier produced at initial rates of 7.5 million cf/d and 6.1 million cf/d. The company is currently exploring and developing 175,000 acres of Barnett Shale play that it has accumulated in the last few years.
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EOG Barnett Shale wellsite. |
Quicksilver Resources recently spudded its 100th Barnett well and anticipates drilling about 50 more in the remainder of 2006. It is enjoying current net production of 45 million cfe/d on 260,000 acres in six Barnett counties. Total gas and natural gas liquids reserves at the end of 2005 were 183 bcfe.
Parallel Petroleum recently spent $5.5 million to increase its Barnett holdings, and it is currently drilling 20 wells on its 13,400 gross acres. It recently nearly doubled its 2006 E&P budget to $39.7 million. Parallel currently has 3.7 bcf of proven gas reserves.
In March 2006, Westside Energy spent $9.8 million buying EBS Oil & Gas, with its 30 producing Barnett wells, 9,837 gross acres, and estimated proven reserves of 2.3 bcf. On 29 August, Westside's Barnett production reached 3.8 bcfe/d, of which 2.5 bcf was gas.
In June 2006, Infinity announced that its three most recent Erath County horizontal wells produced an average of 1.2 million cf/d, a significant improvement over its first five wells. These eight wells have gross proven reserves in excess of 1 bcfe. Infinity controls 70,000 gross acres; it targets the Barnett Shale's shallower gas formations in Erath, Comanche, and Hamilton counties and plans to drill up to six more horizontal Erath wells by yearend.
DTE, which added 40 producing wells on 18,000 Jack County acres a year ago, plans to invest up to $100 million this year developing its Barnett Shale operations across its 55,000 acres.
A group, including Harding, ExxonMobil, Eagle Oil & Gas, and Petrosearch Energy, agreed in February to begin the first 20,000-acre phase of a 1.6 million-acre, five-county area in the Barnett Shale. Costing $81 million, the initial phase will support 130 drillsites.
Newer and smaller players
Triton American Energy plans to lease 13,800 acres of Barnett Shale play. Keystone is leasing 10,400 acres for seismic exploration and potential drilling in Jack, Palo Pinto, Bosque, and Somerville Counties, and it anticipates drilling 30 to 40 wells, from late 2006 through 2009.
Earlier this year, Texas Energy Holdings committed $8 million to drilling 20 horizontal wells on 4,000 Johnson, Tarrant, Parker, and Denton County acres, while testing wells in the outer Barnett areas of Erath and Palo Pinto Counties. Ignis has produced 7.1 million cf of gas and 1,300 bbl of oil from its first well in Cooke County.
Lexington and Dylan Peyton have successfully completed their first well on 2,835 acres of Comanche County, slightly off the fairway of previous Barnett Shale discoveries. The company also holds 2,637 gas-target acres in Hood, Tarrant, Parker, Palo Pinto, and Jack, counties.
Dune Energy, which acquired 95% of Voyager Partners' interests in Denton and Wise County properties (with 45 bcfe of proven reserves and 100 low-risk extensional drilling locations) for $68 million last November, just began aggressive Barnett Trend exploration by spudding its second Foster-McPeek well.
KOKO and several partners brought their first horizontal Barnett Shale horizontal well into production of 1.5 million cf over the first three days in early September. Lewis Energy and Activa Resources had positive results (210 and 230 ft of Barnett Shale encountered) from their first two test wells in Jack County. Terax and Dale Resources have also had initial success in the Barnett Shale.
Cost concerns?
Although most Barnett activity has resulted in profitable licenses, too much of a good thing may be putting price pressures on newer and future players. At a time when conventional oil and gas exploration leases can still cost as little as $50 or $100 per acre, there have been rumors of Barnett mineral rights leasing for as much as $10,000 per acre. And while exploration expenses using the latest techniques have brought down the cost of Barnett exploration significantly over the past five years, a shortage of equipment and rising dayrates are becoming causes for concern. Some producers have reported increased delays in getting rigs and crews, and when they arrived, the price had doubled to $15,000 per day and higher. If natural gas prices soften and costs continue to rise, the current Barnett Shale free-for-all could begin to quiet down.
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