And then there was one.
In October 2008, there were about 200 drilling rigs searching primarily for natural gas in the Barnett Shale. Everywhere you turned, someone was poking a hole in the ground. Money, as well as gas, was flowing.
But by last week, there was only one rig reportedly working in the Barnett. The derrick in an industrial area along Loop 820 in east Fort Worth almost seemed to be hiding behind its tan sound barrier.
While three additional rigs were brought in this week, the fact you can count the number of area rigs on one hand is a sign of how things have changed in the once highflying Barnett, the 5,000-acre laboratory for shale exploration that ignited a domestic energy revolution.
Plummeting oil and gas prices, along with the seductive lure of bigger payouts in other parts of Texas and across the country, have brought exploration in North Texas nearly to a halt.
“That is just extraordinary, that is almost unbelievable! I would say that is bordering on shocking, yes,” said Karr Ingham, an economist for the Texas Alliance of Energy Producers, when told that for one week there was just one rig operating in the Barnett.
Will Brackett, managing editor of the Powell Shale Digest in Fort Worth, could hardly believe his eyes when the weekly report arrived from RigData, a company that tracks activity in the Barnett. And he already knew that there had been no new drilling permits issued during the previous two weeks.
“When I got RigData’s email last Friday and opened their PDF, I was taken aback and replied to them with the message of ‘One! All I can say is Wow!’ RigData replied that the number was indeed correct and that it had taken them aback a bit too,” Brackett said.
Dave Pursell, managing director of Tudor Pickering Holt & Co., an energy investment banking firm in Houston, is actually surprised it didn’t happen sooner. He said that while the Barnett Shale used to be the place to be, that’s simply not the case anymore.
Like in real estate, Pursell said “Good ZIP codes can change and the Barnett Shale was the desirable ZIP code. Now it is not.”
Where the gas is greener
Regarding the Barnett’s collapse, the handwriting had been on the wall for some time.
The shale field’s heyday was in 2008. In June of that year, the average monthly price of gas was a whopping $12.78 per million British thermal units (Btu), which stirred so much interest that by the first week of September there were 194 rigs in the field, the highest recorded by RigData, according to a report from the Powell Shale Digest.
Oklahoma City energy giant Chesapeake Energy along with XTO Energy swooped in and scooped up leases, sometimes paying tens of thousands of dollars per acre for the right to drill, using the hydraulic fracturing technique that had been perfected in the Barnett by Mitchell Energy years before.
Quicksilver Resources, the Fort Worth wildcatter that filed for Chapter 11 bankruptcy this week, also made a big bet on the Barnett. In 2008, at the height of natural gas prices, it bought 13,000 acres and assets near Alliance Airport for $1.3 billion, most of it borrowed.
Those were heady days and it is hard not to see how important the Barnett was to the local economy. Last year, Waco economist Ray Perryman reported that the Barnett created $11.8 billion in gross product a year and more than 107,000 jobs. Cities, school districts and other government bodies collected tens of millions of dollars in royalties from drilling on their lands.
Tommy Lee Jones was on TV touting the Barnett’s benefits, and people went to cocktail parties and talked about their lease offers.
It wasn’t long, though, before things began to slow down as natural gas prices began their fall from historic highs. In 2009, the number of rigs dropped below 100, never to see triple digits again. Three years later, the number of rigs dipped below 50 for the first time.
Hastening the decline were moves by the Barnett’s biggest players to take what they learned about drilling unconventional wells in hard shale rock and head where the gas was greener. The Marcellus and Utica formations in Pennsylvania and Ohio are considered more productive.
In 2011, Range Resources, for example, sold most of its Barnett properties for $900 million and expanded its portfolio in the Marcellus, which also underlies West Virginia and New York. “A lot of people cashed out” and moved on, Ingham said.
In the early part of 2014, as the boom in oil drilling in the Permian and Eagle Ford continued at a hectic pace, the number of rigs drilling for mostly gas in the Barnett slid comfortably into the 20s even as the price of gas did a slight rebound from its 2012 average price of $2.82 to $4.28.
But by January, after the price of oil plunged by about 60 percent and the price of natural gas slipped yet again, the rig count slid into the teens and then into the single digits. During the week of Feb. 20, there were only eight rigs working in the Barnett. Then five. Then three.
Finally, by March 13, there was only one.
While the rig count went up to four this week, with natural gas selling for slightly less than $3, the immediate future doesn’t look good for a return of rigs any time soon.
“We’re never going to see nearly 200 rigs here again. We’re not going to see that frenzied pace like we did in the early days when the Barnett was the only shale game around,” Brackett said.
Devon, which bought out Mitchell Energy and is the biggest producer in the Barnett with 623,000 net acres, said in recent financial statements that it will spend $4.1 billion to $4.4 billion on drilling in 2015, 20 percent less than last year. But it doesn’t plan to run any rigs in the Barnett this year.
Chesapeake, another of the top Barnett companies, will run 35 to 45 rigs — down from 64 in 2014 — under a capital expenditure plan of $4 billion to $4.5 billion, but most of that money will be spent in the Eagle Ford, Utica, and Haynesville shale in Louisiana. The Barnett is in a category known as “other” with 1 to 2 rigs.
“It is just striking to me that in the Barnett Shale, one of the nation’s premier natural gas regions, one would have thought it (the price of gas) would have to get to $1.50 to get it to one rig,” Ingham said. “You’d think that would be sufficient to keep natural gas drilling activity.”
Down, but not done
Any pronouncement about the death of the Barnett, however, may be greatly exaggerated.
Despite the drop in activity, production in the Barnett Shale remains high and the wells that have been drilled in recent years are more productive. Data from the Texas Railroad Commission in December shows the Barnett wells producing about 5 billion cubic feet of gas per day.
A report prepared by the Powell Shale Digest also shows that Barnett wells were producing 4.6 billion cubic feet of gas per day in 2008 and 5.2 billion cubic feet in 2013. The publication credited not only better technology, but also wells being drilled in higher-quality areas.
The cost of drilling a Barnett well, at $3 million to $4 million, is cheaper than in other parts of the country. Marcellus wells are more productive, but it costs about $10 million a rig there, Pursell said.
There is also an established pipeline structure to get the gas to market, said Ed Ireland, executive director of the Barnett Shale Energy Education Council, an industry-sponsored group. On the East Coast, drillers are having to create a system to handle the high-pressure gas, he said.
“It is one of the cheapest places to drill a natural gas well,” Ireland said.
But for the Barnett to turn around, several things have to happen, economists and analysts said.
First, there will actually have to be a drop in the relentless production nationally to reduce a massive oversupply that is driving down prices. The U.S. Energy Information Agency predicts by the end of March inventories will total 1.7 trillion cubic feet, which the agency has said is a factor that is “likely limiting any upward price response.”
“There is too much of this stuff around and that is why you are not seeing any drilling in the Barnett,” said Bernard Weinstein, an economist at Southern Methodist University’s Maguire Energy Institute. “You see it in the Barnett and you see it everywhere.”
The price of oil will also have to increase. While the two are traded separately on commodity markets, when exploration companies slashed their drilling budgets because of low oil prices, they stopped looking for natural gas too, analysts and economists said.
“I think what happened more or less is the shock of the drastic decline in crude oil,” Ireland said. “Most [companies] drill for both and they slashed their budgets in general. … Everyone ran to the bunker to preserve their cash and try to see how it shakes out.”
Pursell said the Barnett is a great asset and will continue to produce, although it will decline as the wells get older. He also said he is not “putting the RIP on the Barnett yet” and added that over time — not in the next five years, but into the next decade — there could be a resurgence.
He compares the Barnett to “a supermodel who is now 40 years old and doing deodorant commercials It’s lost its luster, but it’s still pretty.”
Max B. Baker, 817-390-7714