Barnett shale area expansion expected in 2005

March 7, 2005
The Newark East (Barnett shale) field, in Texas Gas District 9, is one of the few prorated gas fields in the state.

The Newark East (Barnett shale) field, in Texas Gas District 9, is one of the few prorated gas fields in the state. According to the Texas Railroad Commission, announcing new production allowables for February 2005, gas well gas from prorated fields accounts for only 7% of total gas well production in Texas.

The core area of the Barnett shale play is in Wise, Denton, and Tarrant counties in North Texas. Operators have leased acreage in at least eight additional counties in hopes of expanding development of the play, known for its high margins and high returns.

XTO Energy

On Jan. 11, 2005, Fort Worth-based XTO Energy Inc. announced that it would acquire the Barnett shale assets of privately held, Denver-based Antero Resources Corp. for nearly equal parts cash and equity worth a total $685 million. Not including this acquisition, XTO controls about 148,000 net acres (50% in core area) with about 215 wells producing 80 MMcfd. XTO is also keeping 13-17 rigs active. Antero controls about 50,000 net acres in the core area and 11,000 net noncore acres, according to XTO's announcement.

When the acquisition closes on Apr. 1, 2005, XTO will be the second largest producer from the Barnett shale, at slightly more than 100 MMcfd. Bob R. Simpson, chairman and chief executive officer of XTO, said "our team envisions a program of steady low-risk drilling."

In the January announcement, Steffen E, Palko, the company's vice-chairman and president said, "Horizontal wells and evolved fracturing techniques are showing consistent results... Seismic data [are] mitigating drilling risk. Refracturing existing wellbores is delivering significant production and reserve boosts. Finally, tighter well spacing will likely be required to access the abundant gas held in place."

XTO anticipates new well costs of $1.5-1.7 million in the core area and $1.2-1.5 million in the adjoining "Tier 1" area to the southwest (demarcated by the limit of the Ordovician Viola limestone).

The company announced an $850 million 2005 development budget on Jan. 17, 2005; $170 million will be spent on the Barnett shale.

Chief Oil & Gas

Dallas-based Chief Oil & Gas LLC is specifically focused on the Barnett shale play. The company has been the second largest gas producer in the area, now producing more than 90 MMcfd from more than 200 producing wells. The company's drilling budget was more than $50 million/year in both 2003 and 2004. Chief has 400 additional wells planned and will drill 80-85 wells in 2005.

Chief drills horizontal wells typically ranging in length 2,500-3,000 ft. Cliff Thomson, vice-president of operations at Chief told OGJ that the company spudded a 6,000-ft horizontal hole in the highly developed Alliance area of Tarrant County in the first week of February.

Patterson-UTI Drilling Co.'s Rig 450 is on the well, along with Directional Drilling Contractors LLC for directional drilling services. BJ Services Co. USA will run the hydraulic fracture job after casing has been cemented.

Chief uses pad drilling in the Alliance area, minimizing surface impact. The company typically cases the Barnett shale interval with 51/2-in. diameter, 17 lb/ft casing. For each stage of a typical Barnett shale frac job, Chief uses 30,000 gal fluid and 400,000 lb sand, in three to four stages.

Quicksilver Resources

In early February, Fort Worth-based Quicksilver Resources Inc. announced plans to spend $105 million to drill 40 net Barnett shale wells, run seismic, and install facilities in 2005, accounting for nearly half of the company's 2005 capital expenditure budget of $235 million. Quicksilver has 205,000 net acres under lease in the Barnett shale play.

The company began selling gas from its Barnett shale wells in 2004; 10 wells were planned for the year. Quicksilver's Pres. and CEO Glenn Darden said of the Barnett play in November 2004, "we are in the early stages of what now appears to be a very attractive project for Quicksilver. We continue to add to our acreage position, and our initial production results combined with surrounding offset wells are confirming the quality and large scale of this fractured shale play."

Quicksilver operated as a private independent for 35 years before going public in March 1999.

Chesapeake, Hallwood

On Dec. 15, 2004, Oklahoma City-based independent Chesapeake Energy Corp. completed its acquisition of additional Barnett shale property from privately held Hallwood Energy Corp. (HEC), a subsidiary of Midland-based Pure Resources Inc. Hallwood Group Inc. owned 28% of HEC, and disclosed details of the sale in Form 8-K, filed with the US Securities and Exchange Commission. The deal was first announced in a June 2004 article in the Fort Worth Star-Telegram.

This latest purchase is Hallwood's 18,000-acre North Block property in Johnson County, Tex., for a total price of $292 million, including $277 million in cash.

Chesapeake plans a three-rig drilling program for the North Block property and plans to drill 45-50 wells in Johnson County in 2005, among 160 possible drilling locations. The company anticipates drilling and development costs of about $2.2 million/well. The property was producing 25 MMcfd in December 2004 from 31 vertical wells and 11 horizontal wells. Chesapeake hopes to reach 55 MMcfd by December 2005, and 85 MMcfd by December 2006.

In June 2002, Chesapeake acquired a 44% working interest in Hallwood's South Block property when it purchased Canaan Energy Corp.

Hallwood Energy maintains an office in Cleburne, Tex. In the June 2004 announcement, Bill Marble, Hallwood's vice-president, said "We aren't going away; we'll continue to take out leases and drill wells." In December 2004, Hallwood was operating two rigs in the South Block area, according to Chesapeake's Form 8-K filed with the SEC Dec. 27.

EOG Resources

On Feb. 3, 2005, Mark G. Papa, chairman and CEO of Houston-based EOG Resources Inc. announced in its fourth-quarter 2004 conference call that the company would drill as many as 90 Barnett shale wells this year. EOG has drilled predominantly in Johnson County, Tex., but plans to expand into Jack, Erath, Hood, and Hill counties.

EOG also holds acreage in Palo Pinto and Somervell counties. Papa said the company expects to produce an average 60 MMcfd in 2005 and reach a yearend exit rate of 100 MMcfd.

Papa said the focal point of EOG's 2005 operations would be on "increasing production and determining the play's ultimate reserve size. We continue to be very enthusiastic about the Barnett shale and expect to have further definition before yearend regarding its aerial extent and optimum well spacing." The company has already begun a 50-acre downspacing pilot project in Johnson County and expects results in August 2005.

EOG's 2005 strategy is a "shift from capture to exploit mode" in its Barnett shale extension play, and the company will experiment with stacked laterals. The company cited drilling and completion costs of $1.5 million/well and additional $100,000/well for land, 3D seismic, and pipeline access.

At yearend 2004, EOG had about 400,000 acres under lease in the Barnett shale and net natural gas production reached 30 MMcfd during December. EOG had drilled only 5 Barnett shale wells through 2003 and added 30 more Barnett shale wells in Johnson Country in 2004. EOG also has its eyes on an unrisked Barnett look-alike play in Texas that it plans to begin studying in second-half 2005.