Pump it Up Article from the Fort Worth Business Press
BOB FRANCIS 23.JUL.04

Barnett proves it is no Shale game
"It's hot as a pistol right now and I'm not hyping you. I don't have to, believe me," said J. Robert Ransone, vice president at Five States Energy in Dallas. Ransone is talking about the Barnett Shale, one of the largest -- certainly the hottest -- natural gas production areas in the U.S.

That gas production happens to be in our backyard. The Barnett Shale is centered in Tarrant County with extensions into Wise, Denton, Johnson and Parker Counties and is producing approximately 935 million cubic feet (MMcf) of natural gas per day.

In total, the Barnett Shale covers 500,000 acres of land and eight counties. An assessment of the potential gas reserves of the area last year estimated that up to 26 trillion cubic feet of potential reserves are in the area. That is a major increase over the seven trillion cubic feet estimated in the late 1990s.

It also verifies the crystal ball prognostications of legendary Texas oilman George Mitchell, of Mitchell Energy Corp., who began buying acreage in the area in the 1950s. Devon Energy Corp., of Oklahoma City, purchased Mitchell in 2001 for $3.5 billion, primarily for Mitchell's Barnett Shale assets. Devon is the big dog in the Barnett Shale with 120,000 acres, the majority in the core area of the Barnett Shale. Last year, Devon drilled 325 vertical wells and 54 horizontal wells in the core area of the Barnett Shale. This year it plans to drill 113 vertical wells and 114 horizontal wells, spending about $300 million in the process. Devon is also moving outside the core area to develop wells in Johnson and Parker Counties. It employs around 800 contractors for its work in the area.

The major geographic elements in the Barnett Shale are the Ouchita Mountains to the east, the Munster Arch to the northeast and the Bend Arch that defines the western margin of what is called the Fort Worth Basin. The oil is encased in a layer of tight black shale that ranges in thickness from 50 feet near the Bend Arch to nearly 1,000 feet near the Munster Arch.
To get the gas out, the well must be "fraced," which generally means applying extreme water and sand pressure to the shale, which yields the gas. Over 1,200 successful wells have been drilled in the area and at least 400 wells are being drilled or completed.
The growth in the area's drilling has been huge by any measure. In January 2000, there were 566 wells completed in the area; since then, at least 750 have been added. "It's grown faster than anyone thought even a year ago," said Terry McCarter, executive vice president for energy at Texas Capital Bank.
Most of the drilling has occurred in far north Tarrant County and southeast Wise County; the first wells were drilled in the city of Fort Worth earlier this year after the city approved guidelines for drilling last year. There are 326 wells worth $301.9 million pumping gas in Tarrant County this year, compared with just 10 wells four years ago, according to the Tarrant Appraisal District. And more are coming.
City officials are considering whether to allow companies to drill on city-owned property at several local airports, parks and at the Fort Worth Nature Center. The potential revenue to the city is enormous -- as much as $2.25 million over the 10-year life of a well, according to city officials. Other cities are adopting similar ordinances, said Chester Nolan, city manager for Cleburne. "We realize we're going to need some rules as companies begin drilling here," he said.
The increased market and price for natural gas stems from several policies implemented by the federal government several years ago, said Charles Matthews, Texas Railroad Commissioner. "During the Clinton administration, policies were put into place to favor building gas fueled power plants. At the same time, Canadian suppliers began cutting back on their exports. That has fueled a lot of the increase in gas prices, which has translated into drilling in the area," he said.
As the Barnett Shale's importance has grown, so has interest from local companies. XTO Energy Inc. purchased producing properties in the Barnett Shale in April and has 40,000 acres in the area. "We would like to have about 100,000 acres," said Gary Simpson, XTO's vice president of investor relations. XTO typically does a lot research before the purchase of reserves and Simpson said this was the case in its Barnett Shale purchase. "We believe these assets will continue to prove their value. This area will produce for a long time," he said.
Also joining the Barnett Shale group is Encore Acquisition Co., which purchased Cortez Oil & Gas for $123 million in April. Cortez has several acres in the Barnett Shale.
Ness Energy International Inc., of Willow Park, has been busy acquiring acreage in the area, including approximately 3,500 acres in June to add to the 10,000 acres it already had in the area.
Quicksilver Resources has 120,000 acres in the area. Quicksilver raised eyebrows last year when it hired Mark Whitley as vice president of operations. Whitley had been instrumental in developing the Barnett Shale, first for Mitchell Energy, then for Devon.
Not every Fort Worth oil and gas company is interested in the Barnett Shale.
Cano Petroleum Inc. is taking a contrarian's view. "We believe the world's need for oil is continuing and will continue for some time," said Jeff Johnson, chairman and CEO of the company. Johnson's company is focusing on developing secondary and tertiary oil fields. "Natural gas is in vogue and that's understandable because demand is high, but we believe there will be a role for oil as well."
While everyone has acknowledged the importance of the core area of the Barnett Shale, the story this year has been the growth in non-core areas in Parker County, Johnson County and the western area of Wise County "Eighteen months ago, people thought the play would be in the core of the Barnett Shale, in Tarrant County, Wise County and maybe a little of Denton County," said XTO's Simpson. "That's not the case any longer."
The reason the core area was thought to be most likely to produce the most profitable wells was that the gas was less expensive to obtain. In the core area, there is a natural frac barrier formed by the Viola limestone on the bottom and the Marble Falls limestone frac barrier on top that helps force the gas up the well. Outside of this area, the bottom layer of the shale is the much softer Ellenburger dolomite. "A lot of people thought that would make it tough and more expensive to get the gas out," Ransone said. "But we've gotten around that."
Last year, Devon began drilling some test wells in the area and, while the company won't specifically discuss the results, it has started acquiring more land in the non-core area. According to EOG Resources, which also has acreage in Johnson County, drilling in the non-core area is not as fruitful as in the core area, but is profitable. The company said horizontal wells in the core area produce between two and six Bcf (billion cubic feet) per well, while in the non-core area the amount is somewhere between 1.5 and four Bcf. "It's a little more expensive, but it's not bad," Ransone said.
It was not just Devon that proved gas could be brought into the area. A small oil and gas exploration company called Hallwood Energy Corp. does not talk about how it does it, but it averages production of more than 20 million cubic feet of gas per day, all in Johnson County.
"Our biggest problem has been the lack of capacity to handle the gas we have produced," said William Marble, vice president of Hallwood. The company has 47 producing wells in Johnson County. "We have to be careful not to outrun our capacity in our drilling program."
Natural gas pipeline companies are interested in the area. Energy Transfer Partners is hoping to build a 52-mile, 24-inch pipeline from Cleburne to TXU's processing plant in Springtown, and other companies are interested. "We really need some more capacity here," Marble said.
Even without a pipeline to carry much of the gas, Cleburne has reaped benefits. According to Nolan, the city has received more than $250,000 in royalties from the drilling on city property. "We think we'll get about $100,000 annually for the foreseeable future. It's not a large amount, but it will sure help," Nolan said.
The lack of a pipeline has not hindered companies from coming into the area. Beside Devon, Hallwood and EOG, XTO, Chief, Quicksilver, Tom Brown and Burlington Resources have acreage in the area. "That area is going to be more of a technology play than the rest of the Barnett," Ransone said. "You have to do your homework to get the gas out and to get the most gas out, whereas with the core area of Barnett it is almost a no-brainer."
Technology plays are where service companies and companies such as Flotek Industries of Houston are making sales to the companies drilling in the Barnett Shale. Flotek recently opened a sales office in Fort Worth to sell its Petrovalve vales for bottom hole gas pumps.
Parker County is probably where Johnson County was 18 months ago, said Tony Carvalho, manager of geology for Chief Oil in Dallas. "We probably have about eight 3D seismic surveys going in Parker County," he said. Carvalho said Parker County is similar to Johnson County and southern Tarrant County in that there is no limestone frac barrier. "The gas there is not as 'wet' either, which means you may not be able to get as much out of it in terms of liquid natural gas. So it is a little different, but we're all still learning a bit about it," he said.
For long-time oil industry observers, the Barnett Shale almost seems like a dream come true, as rigs begin to show up right in Fort Worth's backyard. "The beauty of the Barnett Shale is that there is a long curve to this field, said Texas Capital's McCarter. “It's going to be here awhile and it has a lot of economic benefits, for people in the industry, for people that own the mineral rights and for those that collect the taxes. Most of the great fields aren't so attractively located. This one is."

Contact Francis at rfrancis@bizpress.net

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