Filed Under:
Tickers in this Article: DVN, EOG, XTO, EPD, DEP, EOG, CHK
Shale plays are gaining a lot of attention lately, and there are a lot for investors to choose from. The Barnett shale can be called the mother of all shale plays in North America, due to its age and amount of development.

IN PICTURES: 9 Ways To Go Bankrupt

Geology

The Barnett shale is located in the Ft. Worth Basin in Texas, and is present in up to 20 counties, although the productive capacity varies greatly by location. The shale is a Mississippian age formation, which makes it approximately 330 million years old. Depending on where an operator is drilling, the shale thickness can vary from 200 to 800 feet. The shale has low permeability, so in order to be commercially successful, hydraulic fracturing is usually required to get the wells to produce sufficient quantities. (Drill down into financial statements to tap into the right companies and let returns flow, read Unearth Profits In Oil Exploration And Production.)

The Barnett shale is divided into a core and non-core area. The core areas, which are mostly in Tarrant and Denton counties, are the most productive wells, with high reserves and protection provided by a limestone-barrier, called the Viola, at the bottom of the shale. The non-core areas have fewer reserves, but in most cases can produce enough to be economic.

In March 2004, the U.S. Geological Service (USGS) estimated the amount of total undiscovered resources in the Barnett shale as 26.2 TCF (trillion cubic feet) of natural gas. The Texas Railroad Commission, which regulates oil and gas drilling in that state, said that gas production in the field was 1.396 TCF in 2008, and more than 4000 wells were permitted in 2008.

The Players
Devon Energy (NYSE:DVN) is the largest operator in the Barnett and produced 414 Bcf of natural gas in 2008 from this area. Devon acquired properties in the Barnett in 2001 when it purchased Mitchell Energy for $3.5 billion. Interestingly, the press release on the day that the deal was announced didn't even mention the Barnett. It's possible that Devon didn't want to focus attention on the shale so that acreage wouldn't be bid up in price.

XTO Energy (NYSE:XTO) has 288,000 acres under lease and currently is running 16 rigs, even after the fall in natural gas prices. The company's average daily production in the fourth quarter of 2008 was 554 mmcfe/day (million cubic feet of equivalent/day).

EnCana Corp. (NYSE:ECA), a large Canadian independent, also holds significant acreage in the play, and produced an average of 145 mmcf/day in 2008. The company plans on drilling 32 gross wells in 2009. Other large producers in the Barnett are Chesapeake Energy (NYSE:CHK) and EOG Resources (NYSE:EOG), which produced 195 and 160 Bcf of natural gas in 2008, respectively.

Pipeline
One problem with such high growth in drilling and production is lack of capacity to transport the production to the end customer. Enterprise Products Partners (NYSE:EPD) and Duncan Energy Partners L.P. (NYSE:DEP) just completed a 174-mile pipeline extension with an initial capacity of 360 mmcf/d. The companies expect capacity to reach 950 mmcf/d by April 2009.

The Bottom Line
Despite the recent fall in natural gas prices, the development of the Barnett Shale continues as the industry applies more and more of its technological expertise to the shale. (Find out how the everyday items you use can affect your investments Commodities That Move The Markets.)

comments powered by Disqus

Trading Center