Welcome to Prolific Energy

Fort Worth Star-Telegram (TX)
May 1, 2005
Section: News
Edition: FINAL
Page: 1A

THE NEW BOOM

As oil's heyday slips into Texas' past, the future of energy lies

in natural gas and the Barnett Shale
DAN PILLER
Star-Telegram Staff Writer

The Fort Worth skyline is a testament to the enduring power of oil and gas.

The City Center towers owe their origins to Sid Richardson's strike in the Keystone field of far West Texas. Burnett Plaza's heritage goes back to the Burkburnett field north of Wichita Falls. W.T. Waggoner, a North Texas rancher, hit gushers in the Electra field and built a 20-story landmark on Houston Street.

Almost a century later, XTO Energy operates one of the city's top-performing companies from the Waggoner Building, managing a growing collection of natural gas fields. In the grand tradition of the oil barons, the company is considering adding its own downtown silhouette -- a 50-story office building.

XTO symbolizes the new face of energy. Oil built Texas, but natural gas is powering a modern-day drilling boom as entrepreneurs try to extract their own fortunes from the ground beneath North Texas.

Great Texas energy finds have brought riches beyond belief, produced an almost universal caricature of Texans and even helped the Allies win World War II. Oil fields have financed two world-class university systems, created outsize characters -- including two presidents -- and built sports franchises and boomtowns.

Today, as production from established oil and gas fields in East and West Texas dwindles, it is the Barnett Shale field in North Texas that represents the next big strike.

It's already showing signs of a gold rush.

Dozens of jackknife towers are popping up around the edges of the Metroplex, many within sight of urban commuters. There are nearly as many drilling rigs in North Texas as in the Permian Basin, the historic center of the state's oil and gas industry.

The promise of riches is attracting investment from far and wide. Devon Energy of Oklahoma, EOG Resources of Houston, Chief Oil & Gas of Dallas and XTO Energy are among the companies spending hundreds of millions of dollars to sink wells around Fort Worth.

"I took a lot of ribbing in the Permian Basin when I said I was going to the Barnett Shale," said David Arrington of Midland, who is drilling in Johnson County. "But the Barnett is going to be a great field for a long time."

Over the past five years, at a pace rarely seen in energy fields, the Barnett Shale has become the largest gas-producing field in Texas -- and the third-largest in the United States.

More than 3,000 wells have been drilled since Mitchell Energy widened development in the field in 1999. Last year, the play moved from its original base northwest of Fort Worth into Johnson, Parker and Hood counties. Land agents are scouting sites in Ellis, Hill and Bosque counties to the south and Erath and Palo Pinto counties to the west.

Ross Perot Jr. is in the game, with 19 wells drilled in the past year on his Alliance property and elsewhere. Gas wells sit on evangelist Kenneth Copeland's ranch northwest of Fort Worth.

Surveys have been conducted on the Pecan Plantation golf course near Granbury. Wells extend under Lake Pat Cleburne in Johnson County and the giant Wal-Mart distribution center in Cleburne.

Industry dynamics have helped fuel the boom. The price of natural gas has tripled since 2000, driven largely by the federal Clean Air Act, which promoted demand for gas-fired power plants. By the end of January, 518 of the 544 working rigs in Texas were drilling for natural gas.

"We're in what you could call the golden age of natural gas," said Stephen Holditch, chairman of the Petroleum Engineering Department at Texas A&M University.

The ultimate payoff will be measured in the billions. Bernard Weinstein, an economist at the University of North Texas, estimates the annual impact of natural gas at $2 billion to $3 billion.

Much of the money will come in the form of rising property tax revenues, which have already boosted local governments and school districts in Wise and Denton counties and on the northern rim of Tarrant County.

Fort Worth has leased land for royalty-producing wells. Crowley, Cleburne and several school districts have done the same.

Weinstein said there are also plenty of trickle-down benefits. The big drilling companies contract out almost all their work.

"You're seeing a lot of business flowing down to equipment contractors, truckers, landscapers, fence builders and even sign makers," he said.

A culture of oil

For most of the 20th century, petroleum was king in Texas. When James Dean's character, Jett Rink, struck it big in Giant, he was doused in black crude, not natural-gas fumes.

Giant premiered in 1956 during the heyday of oil production. Oil rigs outnumbered natural gas wells by a ratio of 4-to-1. Today, an overwhelming majority of rigs are drilling for natural gas.

Still, oil continues to define Texas and its people, either fictional characters like Rink and J.R. Ewing or real-life ones such as President Bush and wildcatters Richardson and W.A. "Monty" Moncrief.

Most of the state's oil discoveries were by wildcatters, and their fortunes are easily identifiable even today. Their names are Hunt, Murchison, Richardson, Bass and Moncrief.

The wildcatters became legends because of the huge risks they took speculating for oil, usually with their own money. Richardson made a fortune in the early 1920s, lost it, then regained it in the 1930s. And his experience was not unique.

The wildcatters, in turn, often sunk their earnings back into their hometowns.

In Fort Worth, art lovers benefit from the Kimbell and Fortson fortune. Cancer sufferers can get treatment in the Moncrief Cancer Center. Newspaper readers can thank former Star-Telegram Publisher Amon Carter.

Golf great Ben Hogan and department store impresarios Marvin and O.P. Leonard put together the bulk of their fortunes not from the links or dry goods but from oil and gas.

A flourishing business

Today, natural gas production relies less on larger-than-life wildcatters and more on technology and corporate dollars.

But it could turn out to be just as lucrative for plenty of North Texans.

Signs of a drilling boom are visible in places like Godley, along Texas 171 south of Fort Worth.

Terri Steward opened a barbecue restaurant with her husband and reports that business has doubled from a year ago.

"We took a risk when we gave up our old convenience store," Steward said. "But the drilling workers keep us busy every noon."

On the other side of Texas 171, Lex Lewis oversees a 31-acre yard filled with 5.5-inch steel drilling pipe bound for rig sites.

Lewis and his company, PCT Phillips Casing & Tubing, are based in Midland. The company decided late last year to establish a Johnson County field office that employs five and keeps a Cleburne trucking company busy.

"We saw that companies like EOG Resources, Chesapeake Energy, XTO Energy and Devon were in the Barnett Shale," Lewis said. "Those aren't fly-by-nights. This thing is for real."

In Cleburne, unemployment has fallen from more than 8 percent in the past year to 5.1 percent in March, according to figures from the Texas Workforce Commission.

"We've also seen a 30 percent increase in real estate transactions," said Jerry Cash, Cleburne's director of economic development.

Cleburne noticed more business in hotels and restaurants about a year ago, Cash said. Then office leasing picked up. Now, few empty spaces are left.

"The big demand is for storage space for equipment," said Cash, who has been shepherding representatives from the international drilling giant Schlumberger around the city to find office and storage sites.

There is not yet evidence of Jed Clampett rags-to-riches stories from gas royalties in Johnson County. But "money from the wells is starting to come into the banks," Cash said. "Retail sales are up about 10 percent."

Cleburne even has its own coterie of energy lawyers. One of them, Jim Hallman, said energy makes up 70 percent of his workload.

Leases have been going for $500 to $1,000 an acre, he said. The royalty owner -- or the person who owns the mineral rights to a property -- typically gets 18 percent to 20 percent of the revenues from a well after taxes and pipeline and processing costs.

"One thing is for sure," Hallman said. "People are a lot more careful about what they do with their mineral rights."

Flo Williams owns the mineral rights to her land. She has received three lease offers from energy companies on her 100 acres south of Weatherford.

But she's being careful.

"I'm not doing a thing until my lawyer looks them over," she said. "But if it's good enough, I'll probably let them drill."

She just might get rich.

Barnett Shale wells average about 2 million cubic feet a day when they first come in. Under the standard royalties, that yields $11,250 per well per month, or $135,000 a year, to whoever owns the mineral rights.

That's a good payoff, but the big money is made by production companies with the scientific and engineering know-how to conquer the tricky geology of the Barnett Shale.

Investors in Hallwood Energy of Cleburne, for example, sold much of their position in the field last year to Chesapeake Energy of Oklahoma City for $360 million.

The owners of Denver-based Antero Resources cashed in even bigger, selling their holdings to XTO this year for $700 million.

That was XTO's entry into the Barnett Shale. But the Fort Worth company has already grown rapidly on the strength of natural gas production.

XTO's stock is more than 25 times higher than it was when the company went public in 1993; last year, it was added to the Standard & Poor's 500 index.

Bob Simpson, one of the company's founders and its chief executive, holds 11.5 million shares, worth more than $340 million at last week's prices.

It's enough to make a wildcatter proud.

Oil was then

On the decline

In 1935, Texas' supply met the country's entire demand for oil. Last year, the state produced 355 million barrels -- less than 10 percent of U.S. demand and down from 542 million in 1994.

Big personalities

The East Texas boom made multimillionaires of H.L. Hunt, W.A. Moncrief, Clint Murchison Sr. and others. They helped inspire the image of the Texas oilman, later depicted on television and in films.

Changing methods

The great oil strikes of old were made with gut instinct and luck. Today, prospecting uses 3-D imaging and new methods to squeeze oil from dwindling reserves.

Pay at the pump

Most consumers are hyperaware of the effect of the price of oil: They see it every time they fill up their cars' gas tanks.

Going away

Now that the "easy" oil in Texas has been pumped, the major oil companies are going overseas to drill in Africa and Asia.

Gas is now

On the rise

The Barnett Shale lies beneath about 10 North Texas counties, including Tarrant. The country's third-largest gas field, it is thought to hold enough gas to meet U.S. demand for a full year.

Big companies

Today, natural gas production relies on engineering and new technology, but the promise of riches is attracting major investment from companies such as EOG Resources of Houston and XTO Energy of Fort Worth.

High-tech hunt

The search uses seismic imaging -- a sonogram of Mother Earth. Extraction requires the use of water at high pressure to crack the shale and release the gas.

Invisible power

Most consumers have little direct connection to natural gas, though it is used to make most of our electricity.

Coming here

The race is on to get into the Barnett Shale field, with dozens of companies jockeying for position and financing for their ventures.

Dan Piller, (817) 390-7719 dpiller@star-telegram.com -eoptag-

#-PHOTO- 1. Photo: STAR-TELEGRAM/JOYCE MARSHALL PCT Phillips Casing & Tubing has set up a pipe yard near Godley that contains steel drilling pipe bound for rig sites. From left are Joe Phillips II, vice president; Mike Duhaime, yard manager; and Lex Lewis, general manager.

2. Photo: STAR-TELEGRAM/JOYCE MARSHALL PCT Phillips Casing & Tubing has set up a pipe yard near Godley that contains steel drilling pipe bound for rig sites. From left are Joe Phillips II, vice president; Mike Duhaime, yard manager; and Lex Lewis, general manager.

3. Photo: STAR-TELEGRAM/JOYCE MARSHALL PCT Phillips Casing & Tubing has set up a pipe yard near Godley that contains steel drilling pipe bound for rig sites. From left are Joe Phillips II, vice president; Mike Duhaime, yard manager; and Lex Lewis, general manager.

4. Photo: STAR-TELEGRAM/JOYCE MARSHALL PCT Phillips Casing & Tubing has set up a pipe yard near Godley that contains steel drilling pipe bound for rig sites. From left are Joe Phillips II, vice president; Mike Duhaime, yard manager; and Lex Lewis, general manager.

5. Photo: STAR-TELEGRAM/JOYCE MARSHALL PCT Phillips Casing & Tubing has set up a pipe yard near Godley that contains steel drilling pipe bound for rig sites. From left are Joe Phillips II, vice president; Mike Duhaime, yard manager; and Lex Lewis, general manager.

6. Photo: STAR-TELEGRAM/JOYCE MARSHALL PCT Phillips Casing & Tubing has set up a pipe yard near Godley that contains steel drilling pipe bound for rig sites. From left are Joe Phillips II, vice president; Mike Duhaime, yard manager; and Lex Lewis, general manager.

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