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Barnett Shale drilling, production heats up Strong prices drive output, new technologies crack stubborn rock shale at huge unconventional natural gas play in East Texas Ray Tyson Petroleum News Contributing Writer
With commodity prices at unprecedented highs, producers are going hog wild in the red-hot Barnett Shale, a huge unconventional natural gas play in East Texas that had explorers puzzled just a decade ago.
Oklahoma’s Devon Energy, by far the largest producer in the Barnett, currently has a fleet of 18 drilling rigs turning out a well every two or three weeks. In total, the big E&P independent has drilled more than 2,000 producing wells into the Barnett.
Devon, which is aiming for record Barnett production of 590 million cubic feet per day by year-end 2005, intends to further boost output to 630 million cubic feet per day by the end of 2006.
“This is the largest gas field in Texas (and) is truly a resource play,” Larry Nichols, Devon’s chief executive officer, declared Nov. 3 at the Merrill Lynch Global Energy Conference in New York. EOG plans 4,000-plus wells, $4 billion investment EOG Resources, with 11 rigs operating and current Barnett production of 82 million cubic feet per day, is talking about drilling more than 4,000 wells over time, an effort that would require an investment exceeding $4 billion.
Mark Papa, EOG’s chief executive officer, said the last 20 wells drilled by EOG in Johnson County, EOG’s new Barnett core area, are performing much better than initially expected, resulting in a better than 100 percent return to the company after taxes.
“I’m telling you that EOG will be pumping that much capital through this channel at these kinds of reinvestment rates of return,” Papa said at the Merrill Lynch conference.
XTO Energy, a relative newcomer to the Barnett Shale via its $685 million acquisition of Antero Resources, has rapidly evolved into a major regional player, with 190 million cubic feet per day of gross daily production in the 2005 third quarter, up 15 percent from 155 million cubic feet per day in the prior quarter, and up 25 percent on a net basis to XTO. Once a pipedream “The Barnett Shale exploded over the last several quarters,” XTO President Keith Hutton said, noting that the company is now running 19 drilling rigs, up from 17 rigs in the prior quarter. “This is where a lot of our excess cash is being spent.”
For years, the Barnett Shale was largely an industry pipe dream. Although just about everyone knew the field existed, hardly anyone could figure out how to economically recover the huge volumes of natural gas locked in the stubborn reservoir shale. That required new technology based on repeated fracturing of the shale to allow the gas to flow in abundance to the surface.
Devon, with its $3.1 billion acquisition of Mitchell Energy in 2001, was really the first producer to act on Barnett’s potential. Under Nichols’ leadership, the company pioneered horizontal drilling in the region and currently accounts for about half of all Barnett production on just a portion of its vast 554,000-acre position.
“We moved very expeditiously when that area was first discovered,” Nichols said. “We saw Mitchell before anyone else did and bought it. It gives us the cheapest acreage position of anybody there.” Dominated by independents In addition to Devon, EOG and XTO, major producers in the Barnett include E&P independents Chief, Burlington Resources, Chesapeake Energy and EnCana. In fact, the Barnett is dominated by independents.
The relatively shallow Barnett Shale field is immense, covering multiple counties in the Dallas-Fort Worth area, including Wise, Denton, Jack, Tarrant, Parker, Johnson, Hood and Palo Pinto. Geologists speculate the entire field could hold as much as 125 trillion cubic feet of in-place gas, of which 25 trillion cubic feet, or 20 percent, could be recovered with new drilling technologies.
EOG is one company that is carving a niche in Johnson County, located south of the traditional Barnett core area in Wise, Denton and Tarrant counties. Nine of the company’s 11 Barnett drilling rigs currently operate in Johnson.
Recent wells drilled by EOG in Johnson County have average reserves of 2.4 billion cubic feet per well, 20 percent greater than EOG originally expected, Papa said. Moreover, the company plans to down space wells to 500 feet in the county, adding 500 to 750 drilling locations to its inventory. Gas, not oil, says Papa “We believe both we and industry have seen enough of Johnson County to know that clearly it’s just a part of the core area,” Papa asserted. “It’s in the bag, as we feel Parker County is. We believe that we’ve now proven that (these counties) are gas productive and not oil productive.”
EOG stock took a mild hit in the 2005 second quarter after the company surprisingly lowered its year-end exit rate in the Barnett to 80 million cubic feet of gas per day from 100 million cubic feet per day.
“It now appears we will end the year well above 80 million cubic feet a day and likely close to our original 100 million cubic feet per day goal, because we have been completing a string of monster wells,” Papa said.
All of EOG’s 503,000 acres in the Barnett Shale are located outside the traditional core area where Devon dominates. Last April EOG claimed that the Barnett Shale field was much larger than industry initially believed, possibly extending into all or parts of six additional Texas counties.
Based on extensive research and its own drilling results, EOG believed the field extended well west of the accepted boundary and that the company’s 460,000-acre position at the time was entirely within Barnett’s “gas window.” Two counties added to core “What we’ve done is show … what we believe is now defined as the core area of the Barnett,” Papa said. “By our definition we have now added two counties to the core area – Johnson and Parker. Up until six months ago, the core area was really kind of the old Barnett area.”
Still, EOG has been slow moving into the more western areas of the Barnett, where pay thickness averages about 200 feet versus 300-325 feet in the region’s more recognized areas. For one, pipelines have yet to extend that far making it difficult to impossible to transport produced gas to market. Despite the reduced pay thickness, EOG believes that based on today’s gas prices it could achieve a handsome 70 percent after-tax return on the company’s western acreage.
“Why this is significant is we’re talking about drilling potentially greater than 4,000 wells and investing here (Barnett) greater than $4 billion,” Papa said. “And you can get a number that would be $6-$8-$10 billion here.”
Editor’s note: In addition to writing weekly stories for Petroleum News, Ray Tyson is the editor of Upstream Review (www.upstreamreview.com.)
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