'Old' Barnett Shale play still yields some surprises

The Barnett Shale gas play of North Central Texas may be the grandfather of shale gas plays in the United States, but it is still making news. Despite its maturity, the Barnett occasionally still produces a surprise.

One of those surprises occurred in 2010 when Chesapeake Energy's White South #1H well set a record for production volume from the formation. It made national news and was quickly dubbed a "monster" well because of the high volume of natural gas it was producing – an average of more than 17.8 million cubic feet of gas per day in September, or more than 534.7 million cubic feet for the month, a figure that Chesapeake has confirmed.

That production volume makes it the all-time biggest producing well in the Barnett, with a 30-day production average around 37% higher than the previous top producer, the Day Kimball Hill #A1 well. Both wells are southwest of Arlington in Tarrant County and both are operated by Chesapeake. A company spokesman declined to elaborate as to what the drilling crew did to successfully complete the well to get the extraordinary production, saying merely that that information is proprietary.

Since September, Chesapeake has restrained production from the White South #1H well along with seven other wells on the same pad site due to low natural gas prices. The wells produce dry gas, but no oil, condensate, or natural gas liquids that can be sold at higher prices.

Currently, Oklahoma-based Chesapeake is the second-largest producer in the Barnett after Devon Energy, another Oklahoma company. XTO Energy, which is now wholly owned by ExxonMobil, is the third-ranked producer. Other large Barnett producers include EOG Resources and Quicksilver Resources.

"This play already covers parts of 15 or more counties," says Eric Potter, associate director of the Bureau of Economic Geology at the University of Texas at Austin. "It compares favorably with the biggest of the old oil booms of the early 20th century."

Recent Barnett activity

There have been several key developments in the Barnett Shale in the past year, one of the major deals involving Chesapeake, which executed a $2.25 billion joint venture with France's Total last January. Under terms of the agreement, Total acquired a 25% interest in Chesapeake's Barnett Shale assets. Total paid $800 million in cash and also agreed to pay an additional $1.45 billion by funding 60% of Chesapeake's share of drilling and completion expenditures. The assets include roughly 270,000 net acres of leasehold in the Core and Tier 1 areas of the Barnett, about 700 million cubic feet of natural gas equivalent per day of current net production, and around 3.0 trillion cubic feet of natural gas equivalent of proved reserves.

At the time the deal was announced, Chesapeake said it believed its leasehold position will support the drilling of about 3,100 additional net locations. Approximately 60% of Chesapeake's Core and Tier 1 leasehold is held by production and therefore considered developed.

Total has partnered with Chesapeake and several other North American energy companies in an effort to gain technological know-how as well as access to the energy supplies. Total and other European and Asian energy giants have signed partnership agreements in the Barnett, Marcellus, Eagle Ford, and other shale plays, to learn more about drilling and completion techniques, which they plan to apply elsewhere in the world.

For example, Italy's Eni SpA recently said it is applying knowledge gained from a partnership with Quicksilver Resources in the Barnett to a Polish shale gas play. Eni acquired Minsk Energy Resources and now has three operating licenses in the Polish Baltic Basin. The company says it plans to expand its position in European unconventional resources.

Other Barnett deals

On Sept. 30, Chesapeake monetized certain of its producing assets in the Barnett. The company sold a five-year volumetric production payment (VPP) to an affiliate of Barclays Bank for proceeds of $1.15 billion. The deal includes roughly 390 billion cubic feet of proved reserves and about 280 million cubic feet per day of net production in 2011. Chesapeake retained drilling rights on the properties below currently producing intervals and outside of existing producing wellbores. Chesapeake is responsible for all production costs associated with the VPP.

Houston-based EnerVest Ltd. has entered the Barnett Shale with an agreement to purchase oil and natural gas assets from privately-held Talon Oil & Gas LLC for $967 million. Privately-held EnerVest Ltd., which manages oil and natural gas assets for institutional investors, entered the deal along with affiliated partners, including EV Energy partners LP, which will pay $300 million to acquire a 31% interest in the assets.

The majority of the 20,207 held-by-production gross acres acquired from Talon are considered Core to the play with 212 active wells producing 87 million cubic feet per day of gas equivalent from 1.1 trillion cubic feet of gas equivalent in reserves. Production is 29% natural gas liquids and 71% natural gas with a reserves-to-production ratio of 33 years.

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