Barnett Boom Continues; Where Are the Super-Majors?
There's still a bit of room left to squeeze into the hottest gas play in the United States, says at least one Barnett Shale producer, as the play continues to boom in the Fort Worth Basin of North-Central Texas. Things have been so hot for so long now that it has some asking, where are the super-majors in all of this?
Range Resources had multiple opportunities to pick up acreage in the Barnett and passed on all of them, Chad Stephens, Range senior vice president, corporate development, told attendees at Platts Oil & Gas Acquisition & Divestiture conference in Houston Thursday. But it wasn't long before Range could no longer say no. In June the company doubled its Barnett leasehold when it closed on the acquisition of Fort Worth-based Stroud Energy Inc. for $456 million (see Daily GPI, May 12).
Range, an acquire-and-exploit producer, is a relative latecomer to the Barnett, and Stephens doesn't have to venture far from his Fort Worth home to be reminded of this. Recently he was able to count nine rigs within a one-mile radius of where he was standing, at a recent soccer game of his son's.
"We're late to the game and we're still making good money," Stephens said. Indeed, more than 80% of the play remains untapped, according to Devon CEO J. Larry Nichols (see Daily GPI, Sept. 7).
And Stephens said it's not too late for others to enter the Barnett even though prices have skyrocketed to $13,000/acre in some instances. Acquirers should be prepared to pay something for probable and possible reserves in addition to proved. "You have to give some value to the probable and possible or you're not going to be successful," he said.
Glenn Adams, CEO of Adexco Production Co., also spoke at the conference. He said the "conventional wisdom" that all of the leases in the Barnett have been bought and no drilling rigs are available is not correct. However, "leasing a 30,000-acre consolidated block isn't going to happen."
Barnett players include Devon Energy Corp. (see Daily GPI, May 3), XTO Energy Inc. (see Daily GPI, June 2), Chesapeake Energy Corp. (see Daily GPI, June 6), EOG Resources Inc. (see Daily GPI, Sept. 8, 2004), Denbury Resources Inc. (see Daily GPI, April 19, 2001), Quicksilver Resources Inc. (see Daily GPI, Feb. 1), the Southern California Public Power Authority (see Daily GPI, Oct. 27), Royal Dutch Shell (see Daily GPI, Jan. 18) and DTE Gas Resources (see Daily GPI, Aug. 29).
Although Shell has a presence in the Barnett it is not a large one. "One of the questions we ask ourselves is where are the 600-pound gorillas? How can companies like ExxonMobil, Shell, ConocoPhillips, let's say, how can they ignore the largest onshore gas field in the U.S.?" said Adams, who wondered aloud why the industry has yet to see a super-major like Shell or ExxonMobil buy up a company like Devon, the Barnett's largest leaseholder; XTO, its second, or Chesapeake, for instance.
As a resource play, the Barnett has continued to exceed the expectations of some of the industry's most optimistic, and based on past experience in the play, there is still likely room for improvement. "Eighty percent of the industry has always been behind the curve in estimating the size of this field," Adams said.
Adams, whose company holds 170,000 net acres in the Barnett, said rig availability is generally not an issue for independent producers. There are about 165 rigs in the Barnett now with that number expected to grow to more than 200 next year, he said. The challenges for Barnett producers are the development of takeaway pipeline capacity, access to water due to an ongoing drought and urban congestion that complicates drilling activities around Fort Worth.
In 2004 there were 1,387 drilling permits issued for the Barnett. Last year there were 2006, and so far this year 2,322 permits have been issued. As activity continues to grow, producers climb the learning curve. For instance, of the producing wells, only about 25% are horizontal, Stephens said. But 80% of the rigs currently drilling are boring horizontal wells. Clearly, the industry has learned that horizontal is best for the Barnett. The top six drillers account for about 70% of the rig count. Look for the rig count to increase substantially in the next 12 to 18 months, Stephens said.
Rob Lindermanis, co-founder and managing director of Petrobridge Investment Management LLC, said the Barnett Shale is ripe for more midstream development. "We think the missing piece is the midstream piece or the infrastructure out there. True to urban development, it is something that takes twice as long and takes 25% more capital. From a producer's perspective you need to take a very forward look at that in planning any kind of development plan that might come into place. Probably one of the bigger challenges is getting those wells hooked up in a timely manner."
He noted, however, that companies such as Energy Transfer Partners LP (see Daily GPI, Sept. 21), and Crosstex Energy (see Daily GPI, April 6), have been expanding pipeline systems to serve Barnett producers. And earlier this month Boardwalk Pipeline Partners announced plans to build a new pipeline from North Texas near Sherman to the Perryville, LA, area with Barnett Shale production in mind. The project includes an extension of the Enterprise Texas Pipeline system (see Daily GPI, Nov. 13).
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