Report questions long-term productivity of gas wells in Barnett Shale

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A brief history of the Barnett Shale

The Barnett Shale became the world's first full-blown shale gas field, where drilling and production techniques were adapted, refined and quickly copied around the nation. More than 18,000 wells have produced more than 13 trillion cubic feet of natural gas. Here are some benchmarks in the life of the field.

November 1981: Drilling begins on the C.W. Slay No. 1 in Wise County, the field's first well. It started producing in June 1982 and has produced 1.8 billion cubic feet of natural gas.

1991: Drilling begins on the T.P. Sims B1 in Wise County, the field's first horizontal well. It started producing in March 1992 and has produced 3.1 billion cubic feet of gas.

1998: The S.H. Griffin Estate No. 4 in Denton County is the field's first successful "slickwater" hydraulic fracturing. It started producing in July 1998 and has produced 2.3 billion cubic feet of gas.

2003: The Barnett becomes the largest single natural gas producing field in Texas at 839 million cubic feet a day.

2008: The Barnett becomes the largest single natural gas producing field in the United States at 4,453 million cubic feet a day

2011: The Barnett produces 5,959 million cubic feet a day, its record annual average.

Barnett production

Daily production of natural gas from Barnett Shale wells has not declined nearly as much as the number of rigs drilling new wells.

Average daily production by year, in million cubic feet

Year

Daily prod. avg.

Rig count

2003

862

47

2004

1,080

61

2005

1,431

101

2006

2,040

142

2007

3,144

175

2008

4,618

183

2009

5,088

81

2010

5,271

86

2011

5,959

69

2012*

5,731

49

* as of Sept. 30, 2012

SOURCE: Powell Shale Digest, Texas Railroad Commission, RigData

How much gas?

A study by the UT Bureau of Economic Geology found production in the Barnett Shale may be less than expected.

1.44 billion cubic feet: Estimated ultimate recovery per well

2-3 billion cubic feet: Industry projections for estimated ultimate recovery

22-23 trillion cubic feet: Estimated production if drilling stopped today.

39 trillion cubic feet: Estimated production based on projected prices

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As natural gas fields go, the rise of the Barnett Shale from a novelty to the nation's largest by 2008 was extraordinary.

But when it comes to the output from the thousands of wells that have been drilled in the North Texas field since 1981, ordinary is perhaps a better word.

An as-yet-unreleased study of the Barnett Shale by the Bureau of Economic Geology at the University of Texas at Austin, which looked at the performance of more than 16,000 wells through June 2011, projects an average lifetime production of about 1.44 billion cubic feet for a model horizontal well, according to preliminary results presented at an Austin energy conference in November.

That figure, called the estimated ultimate recovery, or EUR, is well below many industry estimates of at least 2 billion cubic feet (bcf) of gas and as much as 3 bcf per well.

Scott Tinker, director of the Bureau of Economic Geology, declined to release more specifics on the study to the Star-Telegram, saying reviews of the findings are still under way. Some results could be released this month or next, he said.

But he cautioned against reading too much into a single EUR figure, saying that ignores how productivity varies greatly by location and technology, as well as price, so a field-wide per-well average is "meaningless" for judging the field's potential.

He said one thing the bureau's study shows is that there is a vast range of productivity across the field. There are areas that can be profitable at low prices, and there are areas that aren't profitable even at record prices.

He called the Barnett Shale -- which spawned a wave of drilling in shale fields across the country -- a clear success in creating a major new source of domestic energy. He said the field has already produced about 13 trillion cubic feet of natural gas -- more than half of the nation's use in a year.

"You'll see at least three times that before the field is put to bed, and possibly more than that," he predicted.

Still, there's plenty riding on how much gas eventually comes out of the ground.

There are literally hundreds of billions of dollars on the line, from wells drilled and pipelines laid to processing plants built. Tens of billions more are being committed by chemical manufacturers to take advantage of cheap U.S. gas supplies.

Rising production in the Barnett Shale and the Eagle Ford Shale field in South Texas, which produces oil and gas, has given the state's economy a leg up, leading Texas Comptroller Susan Combs in her most recent budget outlook to call shale production in Texas and elsewhere "an extraordinarily important economic driver."

In Tarrant County, the leasing and drilling boom in the Barnett Shale generated hundreds of millions of dollars and created thousands of jobs with producers as well as service companies.

But as prices slumped last year -- a product of record U.S. gas production, much of it from shale -- drilling activity dipped to the lowest level since at least 2003, according to Texas Railroad Commission records. And royalty payments have decreased.

For example, the city of Fort Worth, which has taken in $186 million from gas drilling on city land thus far, received $23.1 million in gas revenues in the fiscal year ended Sept. 30, down from a high of $36.4 million the previous year. Reduced drilling and lower prices have also reduced the taxable value of gas assets. The appraised value of mineral rights in Tarrant County dropped to $3.6 billion in 2012 from $4.6 billion in 2011, said Lonnie Richardson, who oversees business and personal property valuations for the Tarrant Appraisal District.

Deborah Rogers, executive director of Energy Policy Forum and a doubter of shale's staying power, said the Barnett is declining and Tinker's estimates might still prove optimistic. The Fort Worth resident says producers are already running short of good drilling locations.

But Tinker told the Star-Telegram that such views, while common, are off-base.

"These fields tend to have longer lives than people give them credit for," he said.

'A marginal operation'

While the Bureau of Economic Geology's projected EUR isn't as high as most industry estimates, it's still a bit better than what some have predicted.

For example, the U.S. Geological Survey last year put a 1 bcf estimate on Barnett wells. The most prominent shale skeptic, Houston geologist Art Berman, since 2007 has variously estimated total output from the average Barnett well as low as 810 million cubic feet and, more recently, as high as 1.3 bcf. His forecasts have long been challenged by the industry but embraced by drilling opponents.

Berman said he attended a preview of the UT study in Austin, and he agrees with Tinker's assessment that it is an exhaustive look at the Barnett Shale. In Berman's view, the production estimate clouds the financial sustainability of the Barnett and other shale fields.

Given that it costs roughly $3 million to drill and complete an average Barnett Shale well, Berman said, at prevailing prices "that's not commercial," meaning profitable. "At the very best, it's a marginal operation."

The field's largest producers don't necessarily agree, other than to acknowledge that the decade-low prices seen in 2012 made it hard to make money.

Devon Energy is the field's largest and oldest operator by virtue of its 2002 purchase of Mitchell Energy, which drilled the first Barnett Shale wells in the 1980s. It operates nearly all of the 85 Barnett Shale wells that are 20 years old or older, the oldest of which turned 30 last year, according to Powell Shale News data.

"Even with the low-price environment for gas and gas liquids, Devon's Barnett Shale" operation cleared more than $500 million in 2012 in net cash, said Devon Energy spokesman Tim Hartley.

Natural gas futures bottomed out last year at $1.91 per million Btu and averaged just $2.83. By comparison, the average futures price in the 10 years ending in 2012 was $5.96. One million Btu is roughly equivalent to 1,000 cubic feet of dry gas.

Despite a big drop in drilling, production from the Barnett has not decreased nearly as much.

Oil and gas wells of all types experience what's known as a decline curve, producing less and less each year, absent some intervention to stimulate production. Through the first nine months of 2012, the Barnett Shale produced an average 5.73 billion cubic feet a day, according to Powell Shale Digest, a Fort Worth-based newsletter. That was down less than 4 percent from the same period in 2011, even though the number of new drilling permits was the lowest since at least 2003.

While shale wells are known for having production fall rapidly in early years, operators say it also levels out for years or even decades. Indeed, that projected lifespan is one cause of differing estimates on EUR among the various researchers and producers.

Producers and researchers say that, depending on prices and the operator's costs, a gas well can remain economically viable with production as low as 30,000 to 40,000 cubic feet a day.

"Most producing lives are 40 to 60 years," said Gregg Jacob, Devon Energy's business unit manager for the Barnett Shale. That's one of the reasons Devon expects its 4,800-plus Barnett Shale wells to produce the equivalent of nearly 3 billion cubic feet of gas, natural gas liquids and oil over their lives, he said.

Chesapeake Energy, the field's No. 2 producer, says it's doing what Tinker says producers do when confronted with low prices -- moving into better areas.

Sean Woolverton, district manager for the Barnett Shale, said the Oklahoma City-based company has boosted its results by concentrating on its best locations, drilling longer laterals -- the horizontal portion of the well bore -- and improving its hydraulic fracturing designs. The company has also greatly cut back its drilling in the Barnett, running just two rigs in the past year compared to the dozens it operated at the peak in 2008.

According to Railroad Commission data, Chesapeake's wells drilled between June 2011 and June 2012 were about 40 percent better than wells it drilled before 2008. That is based on each wells' best month of production, a measure that Powell Shale Digest publisher Gene Powell said he uses because it is a more dependable measure of a well's peak output.

As the Bureau of Economic Geology study shows and as confirmed by Railroad Commission data, productivity varies widely by county and by technology used.

Impact of price

How much a Barnett Shale well produces over its life, and whether it makes money, depends largely on the price of natural gas, oil and liquids. That will help also to determine an operator's investments in the well, such as whether it is refractured or otherwise serviced again to boost production.

"People tend to underestimate technology, and they don't understand price" when it comes to the impact on oil and gas development, Tinker said.

For example, shale wells, more so than conventional oil and gas wells, only recover a relatively small percentage of the oil and gas that's there.

Texas A&M University's Stephen Holditch, who recently retired as head of the school's petroleum engineering department, estimates that the Barnett could give up as little as 25 percent of its gas or as much as 75 percent, depending on prices and well costs.

But what about producers' estimates of 2 bcf or even 3 bcf?

Only 512 wells in the Barnett Shale, or less than 3 percent, have produced 2 bcf or more in their lives, according to the Railroad Commission/ Powell Shale Digest data. A mere 70 wells, less than 1 percent, have hit 3 bcf or more.

Many in the industry insist that wells producing 3 bcf and more will become commonplace as the field ages. Most expect its wells to produce for at least 30 years, and many estimate they will last 40, 50, even 70 years.

Gene Powell told the Star-Telegram that one thing most reports, including the Bureau's, fail to appreciate is the boost to be had by refracturing an older well. "If you do, you could get two or three times" the production otherwise possible, he said. But producers aren't going to do that, he said, until the price improves.

Jim Fuquay, 817-390-7552

Twitter: @jimfuquay

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