Barnett not hot – but still producing

June 1, 2012
of US shale plays, only the Haynesville has higher daily gas production than the venerable Barnett Shale.

of US shale plays, only the Haynesville has higher daily gas production than the venerable Barnett Shale.

North Texas sits atop one of the richest gas deposits in North America – the Barnett Shale. Among natural gas plays, it is rivaled only by the Haynesville Shale in northwest Louisiana and northeast Texas.

Unfortunately, the "Grand Daddy of All Shale Plays," as some refer to the Barnett, is not mentioned as prominently as it once was because natural gas prices have been chronically low, dropping below the $2 level at one point. For several years now, operators and investors have focused their attention on crude oil plays or ones in which natural gas liquids are found in higher concentrations. Although some oil and NGLs are found in parts of the Barnett, it is not present to the degree it is in other plays, such as the Eagle Ford in South Texas, the Permian Basin of West Texas, the Niobrara in the Rockies, the Mississippi Lime of northern Oklahoma and southern Kansas, the Bakken in North Dakota, Montana, and several Canadian provinces, and the emerging Utica Shale in Ohio and Pennsylvania.

That said, the Barnett remains one of the most productive gas plays today, second only to the Haynesville in daily production. American power plants, commercial and industrial users, and residential users will be burning natural gas from the Barnett for decades to come.

Here is a summary of recent activity in the Barnett Shale:

• EGPI Firecreek of Scottsdale, Ariz., said in April that it plans to conduct a drilling program in the Barnett Shale in west-central Texas with UK-based Cubo Energy as a partner. Initial plans are to prepare and conduct a 3-D seismic study for 240 acres covering the Boyette property in Shackelford County. The study will focus on specific Barnett shale characteristics that will assist in the drilling of one or possibly two horizontal wells or an equivalent of eight vertical wells. Proposed depth of future drilling is 5,200 to 5,500 feet. Barnett wells in the immediate area have been productive in the oil segment.

• New York-based private equity firm Kohlberg Kravis Roberts & Co. LP (KKR) and Tulsa-based Premier Natural Resources (Premier) have agreed to acquire certain Barnett Shale and Arkoma Basin properties from Tulsa, Oklahoma-based WPX Energy for $306 million. The last major acquisitions KKR/Premier made in the Barnett were in 2011 when the group purchased Barnett Shale properties from both Carrizo Oil & Gas and ConocoPhillips. The transaction is expected to close by July 1. Since inception, KKR has acquired over $900 million of assets, including over $600 million of assets to date in 2012, and now operates over 150 MMcfe/d of net production. The company has $1 billion of capital currently available for investment and the capacity to purchase over $2 billion of additional properties.

• Carrizo Oil & Gas has sold a portion of its properties in the Barnett Shale to a subsidiary of Atlas Resource Partners for $190 million in cash. The sale closed in late April. The deal builds on the Houston company's plan to monetize certain dry gas assets in an effort to focus on its liquids-rich resources. In April of 2011, the company signed an agreement to sell nearly all of its Barnett Tier 1 properties to KKR for $104 million. With a portion of the proceeds, Carrizo later added 13,000 acres in the Eagle Ford Shale to its portfolio for roughly $93 million. In this most recent sale of Barnett Shale assets, the buyer gains producing properties including 221 gross (approx. 110 net) wells currently producing at an approximate net rate of 35 MMcfe per day (predominantly dry gas). Estimated total proved reserves associated with the divested properties, as determined by Carrizo's third party engineer at year-end 2011, is approximately 312 Bcfe (comprised of 177 Bcfe of proved developed and 135 Bcfe of proved undeveloped reserves), of which 53 Bcfe are non-operated. Carrizo said that its corporate strategy is to focus on the highest return plays, such as its liquids-rich Eagle Ford and Niobrara properties.

• Houston-based EV Energy Partners and certain other parties related to EnerVest have acquired over $1.2 billion in Barnett Shale assets in Montague, Wise, Denton, Parker, and Tarrant counties (Texas). Encana Oil & Gas (USA) Inc., a subsidiary of Encana Corp., is the seller of $975 million in North Texas assets. The second set of assets was acquired from an undisclosed private seller for $233 million. The properties sold currently produce about 125 million cubic feet equivalent per day (MMcfe/d) and include the associated gathering pipelines on about 50,000 net acres of land in the Fort Worth Basin. A note to investors from Global Hunter Securities (GHS) puts the Encana portion of the transaction with an implied valuation of $7,800 per flowing mcfe, while the combined Encana and private portion of the transaction implies an $8,700 per flowing mcfe valuation. Overall, the transaction includes 82,000 net acres, implying a valuation of $14,732 per acre. The combined transaction includes 763 active wells as well as 300 identified PUD drilling locations.

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