EOG: Barnett Shale larger than believed

EOG Resources says field may cover all or parts of six additional Texas counties; gears up drilling on 460,000-acre position

Ray Tyson

Petroleum News Houston Correspondent

The huge Barnett Shale field in northeast Texas, among the hottest natural gas plays in the United States, appears to be larger than originally thought and may cover all or parts of at least six additional Texas counties with trillions more cubic feet of gas reserves to be had.

It also appears that exploration and production independent EOG Resources played its cards just right. The company disclosed that based on drilling results and extensive research it believes the Barnett Shale play extends well west of the current boundary and that EOG’s entire 460,000-acre position now lies within the Barnett’s “gas window.”

“We feel we’ve confirmed a very large gas accumulation, and we’ve established a dominant acreage position,” said Mark Papa, EOG’s chief executive officer. “We expect by next quarter to have 500,000 acres under lease.”

Papa also told industry analysts during an April 27 conference call that EOG plans to increase its Barnett production to 60 million cubic feet a day this year from 6 million cubic feet a day last year. To accomplish that goal, he said the company intends to increase the number of rigs operating on its acreage to seven from the current four by June 1, “and we’ll likely increase the rig count even further in 2006.”

The contrarian view

However, even before the company began accumulating acreage in the Barnett, “EOG’s technical analysis yielded a different conclusion and this provided us an ability to lease acreage that many in industry thought was non-commercial,” Papa said.

EOG drilled two key test wells on the western and northwestern edge of its acreage in Jack and Erath counties, some from 47 to 32 miles west of an established gas area in Johnson County. Papa said the Erath County well produced at 500,000 cubic feet of gas per day with no oil and that the Jack County well tested at 900,000 cubic feet per day with a trace of oil.

He said the company also verified Barnett gas tests in western counties from multiple vertical wells drilled by small private companies.

“Therefore, we believe the Barnett play extends to six additional counties beyond Johnson County,” Papa said, adding that about 370,000 of the company’s 460,000-acre position in the Barnett is located in western “outpost” areas. The remaining 90,000 acres are situated in Johnson County where most of the company’s drilling has so far occurred.

Pay thinner to west, but depths shallower

Before EOG’s disclosure, geologists believed the Barnett Shale play, located in the Dallas-Fort Worth area, could hold more than 100 trillion cubic feet of gas reserves, 20 tcf of which may be recoverable with new technologies.

Big independent Devon Energy is by far the leading producer in the Barnett Shale with estimated daily production of about 550 million cubic feet of gas.

Meanwhile, EOG reported exceptionally strong earnings for the 2005 first quarter, netting a profit of $200.8 million or 83 cents per share, compared to $98.1 million or 42 cents per share for the same period last year.

Total company daily production increased 19.3 percent during the 2005 first quarter vs. the same quarter last year. Natural gas production from the United States and Canada alone increased 12.4 percent, the company said.

“Based on first quarter drilling results and production increases from our three operating areas — North America, Trinidad and the North Sea — we can confidently reaffirm our previously stated 13.5 percent production growth target” for 2005, Papa said. “As the year progresses, we may re-evaluate this goal with the possibility of increasing our full year target.”