Has the Barnett Shale left its best days behind?

By Jack Z. Smith

Natural gas production is declining in North Texas' Barnett Shale after hitting an all-time high in May, and the Haynesville Shale in Louisiana and East Texas has eclipsed the Barnett as the nation's top shale-gas producer.

But cry not for the Barnett, industry veterans say. The granddaddy of U.S. shale-gas plays is home to more than 17,000 producing wells, and thousands more are expected to be drilled in coming years. If natural gas prices make a sustained rise, after three years in the doldrums, drilling activity would surge and the Barnett again could hit record highs in production, experts say.

Higher gas prices are "all you need to get production high again," said Gene Powell, publisher of the Powell Shale Digest and a longtime chronicler of drilling and production trends in the Barnett, which lies beneath more than 20 North Texas counties and has made Tarrant County the biggest gas-producing county in the state.

Barnett Shale production hit an all-time high in May, averaging 5.87 billion cubic feet of gas per day, according to Powell's calculations based on Texas Railroad Commission data. But Barnett production declined in the next three months, with the average tumbling to 5.49 billion cubic feet per day in August, the last month for which data is available.

Gas prices topped $13 per 1,000 cubic feet in 2008, with Barnett drilling activity peaking at 203 rigs in early September of that year. But gas prices began a dramatic plunge in the latter months of 2008 and generally have been on a downward trend since, with the current price below $3.60. As a result, production companies have shifted their focus to other fields, particularly those with oil and natural gas liquids. Barnett drilling activity recently hit a seven-year low, with the rig count barely more than one-fourth the peak level.

The drilling downturn has reduced the number of new wells coming on line at the high-output levels that are characteristic of shale wells in their initial production phase. and that factor has contributed to the recent production decline.

Ed Ireland, executive director of the Barnett Shale Energy Education Council, an industry group, said Barnett wells typically experience steep production declines in their first 12 to 18 months, with output potentially falling 50 to 80 percent. After that, production tends to "pretty much level off," although there might be some modest further decline, he said.

With gas prices low, Barnett Shale operations generally are "right at break-even," Ireland said. Operators who can drill multiple wells from one pad site and already have critical infrastructure, such as gas compressor stations and pipelines, in place are likely to find drilling more feasible amid low gas prices, he said.

In contrast to the Barnett, the younger, emerging Haynesville field in northwest Louisiana and part of East Texas has surpassed the Barnett in output, according to the latest available data from the Texas Railroad Commission and Louisiana Department of Natural Resources, the chief state agencies regulating oil and gas operations.

Haynesville wells are generally drilled deeper and under higher pressure than Barnett wells, making drilling more costly. But Haynesville wells typically produce more than Barnett wells, giving them an economic advantage, Ireland said. While Barnett production peaked this spring, Haynesville production is continuing to show steady month-to-month growth.

The Haynesville is producing more than 6.67 billion cubic feet of gas per day, according to Powell's figures assembled from the latest available state data. In Louisiana, Haynesville production averaged just under 5.5 billion cubic feet of gas per day in May, the last month with available data. That output, coupled with Texas' Haynesville production of nearly 1.18 billion cubic feet of gas per day in August, puts the total Haynesville yield at more than 6.67 billion cubic feet per day.

The two-state Haynesville production number is nearly 22 percent higher than the Barnett output of 5.49 billion cubic feet per day in August.

Barnett wells aren't exactly slouches, however. An XTO Energy well near Eagle Mountain Lake in northwest Tarrant County, which began producing in June 2005, has yielded about 5.6 billion cubic feet of gas, more than any other Barnett well, according to a Powell Shale Digest report issued Sept. 6. That's enough gas to supply 73,800 homes for a year, according to the American Gas Association.

Fort Worth-based XTO, a subsidiary of Exxon Mobil Corp., has produced more than 14.8 billion cubic feet of natural gas from the six wells at that pad site, spokesman Jeff Neu said. The wells are still cumulatively yielding 5.1 million cubic feet of gas per day, he said.

"We've drilled more than 1,500 wells in the Barnett and we have more than 4,000 wells planned for the future," Neu said. "We're not halfway through our development plan for the Barnett."

Likewise, Oklahoma City-based Devon Energy, the biggest Barnett producer, has lots of activity planned.

Although it slashed its number of active Barnett drilling rigs to 12, Devon brought 77 new wells online in the third quarter and achieved record production equivalent to 1.3 billion cubic feet of gas per day in the play. That included 46,000 barrels of natural gas liquids that fetch better prices than the "dry gas" produced in much of the Barnett.

Devon plans to complete expansion of its Bridgeport gas processing plant in early 2013, when the company expects its production to reach an all-time high equivalent to more than 1.4 billion cubic feet of gas per day.

Devon spokesman Chip Minty said the company has boosted Barnett production by lengthening its "laterals," the horizontal legs of wells, allowing them to tap into more gas-laden rock. Devon's Barnett laterals are now likely to extend 5,000 feet, compared with 2,000 to 4,000 feet for earlier wells.

Nevertheless, with gas prices low, Devon and other energy companies have focused more on areas such as West Texas' Permian Basin that are producing large volumes of oil and natural gas liquids from new wells benefiting from technologies developed in the Barnett, such as horizontal drilling and hydraulic fracturing.

But Devon still sees the Barnett as a solid long-term revenue stream, particularly if an improving economy raises gas prices.

"We have 20 years of identified drilling locations throughout the Barnett," Minty said. "We have a lot of running room remaining for us in the Barnett Shale."

Ireland said a sustained gas price above $5 per 1,000 cubic feet is needed to produce an uptick in drilling. But producers could also benefit from further technological advances that might, for example, increase the percentage of gas recovered from the shale, Ireland said. Only about 25 percent of gas is now recovered, he said.

Increased local regulation of Barnett Shale activity could also affect the level of drilling and production. For example, restrictions in Southlake caused XTO Energy to abandon plans to drill there.

In coming years, many wells are expected to undergo new hydraulic fracturing, or "re-fracking," to boost flagging production. There's a widespread belief that most producing Barnett wells "are good for another 20 to 30 years," Ireland said.

Powell said he thinks that many Barnett wells could produce for 35 years and that the play isn't likely to run its course until deep into this century, perhaps around 2070 or 2080.

Despite weak gas prices, Ireland said he doesn't "perceive a lot of pessimism."

"I think everybody's still very happy with the Barnett Shale and its potential," he said.

Jack Z. Smith, 817-390-7724

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