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XTO takes a bite out of Barnett Shale
Ray Tyson Petroleum News Houston Correspondent
It was just a matter of time before fast-growing XTO Energy made a move on the Barnett Shale, an unconventional East Texas play containing trillions of cubic feet of potential natural gas reserves. Barnett also happens to be situated in the company’s own back yard near Dallas-Fort Worth.
“Our technical teams have been assessing the long-term viability of the Barnett Shale for the past two years,” Steffen Palko, XTO’s president and vice chairman, acknowledged Feb. 23. “The areal extent of the shale should allow XTO to build a compelling growth program.”
The deal-minded independent wasted little time resuming its acquisition game, just as the company recently promised when announcing its capital spending plans for 2004. Not yet two months into the new year, XTO already had shelled out some $450 million for U.S. oil and gas properties and plans to spend at least another $200 million before year-end.
XTO’s latest investments: $80 million for additional properties in the Arkoma basin, a major core area for the gas-weighted company, plus $120 million for a ticket into the prolific Barnett Shale, a play currently dominated by big U.S. independent Devon Energy. XTO did not identify the sellers.
Oklahoma’s Devon, which built its huge 545,000-acre Barnett Shale position on the back of its merger with Mitchell Energy, has estimated the Barnett could hold as much as 120 trillion cubic feet of gas reserves, 20 trillion cubic feet of which the company believes may be recovered. Horizontal drilling economic The tight nature of shale reservoirs, including the Barnett, has been challenging to producers, in particular the need for wide-scale hydraulic fracturing to create artificial permeability so gas can flow freely. Horizontal drilling has slowly emerged as an economic way of capturing more gas per well.
XTO’s 11,000-acre piece of the Barnett includes estimated reserves of 97.6 billion cubic feet of natural gas equivalent, 42 percent of which is proved developed, the company said. The properties currently produce just 15 million cubic feet of equivalent per day, but XTO made it clear that it’s in the market for more acreage.
“With years of production data and well assessment, we are now confident in the feasibility of the play,” said Bob Simpson, XTO’s chief executive officer. “In typical XTO fashion, we have acquired producing properties in the core area of development and plan to expand our position.”
“Given the conclusions, our development teams are enthusiastic and committed,” added Palko. “Our expertise in horizontal drilling and water-fracturing techniques will find perfect application in developing the Barnett Shale.”
XTO said it also expanded it presence in the Arkoma basin of Oklahoma and Arkansas with the purchase of 56.3 billion cubic feet of gas equivalent reserves, 70 percent of which are proved developed. The properties currently produce about 10 million cubic feet of equivalent per day, the company added.
Because of its latest transactions, XTO has increased the company’s projected natural gas production for 2004 over 2003 from 16-18 percent to 18-20 percent. “We remain focused on securing more strategic properties through acquisition efforts this year,” Simpson said of XTO’s overall plan.
Of the roughly 154 billion cubic feet equivalent reserves acquired by XTO in its latest deals, 99 percent is natural gas and 52 percent proved developed. The company said it would allocate $20 million in additional development funds to the new properties, bringing 2004 development expenditures to $520 million.
XTO said it will operate more than 88 percent of the value of the producing properties when the latest transactions close on or before April 15. Financing will be provided through a combination of credit and cash flow from operations, the company said.
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