Time + technology = success Featured

7:00pm EDT January 31, 2007

Millennia ago, as the last of three ancient oceans drained from what is now North Texas, layer upon layer of carbonaceous sediment lingered. At some point equally unrecorded, that sediment began to seethe inside a massive geologic pressure-cooker.

Fast-forward to the 1950s when George Mitchell of Mitchell Energy began to uncover and unlock the energy potential in the layers beneath North Texas — an unconventional natural gas hotbed known as the Barnett Shale. Barnett winds beneath 17 counties in the Fort Worth basin. By 2005, it was America’s second-largest land-based oil and gas field, producing more than 492 billion cubic feet of natural gas.

“I’ll be surprised if we don’t ultimately see 25,000 to 50,000 wells at the Barnett field,” says John Barnes, chairman and CEO of B&R Energy LLC. “An immense amount of acreage has yet to be drilled.”

Smart Business spoke with Barnes about the great under-tapped Barnett Shale and how the fuel from that field helps drive the North Texas economy.

Why so much natural gas at the Barnett Shale field?

Geology tells the tale. Three great oceans that covered Texas in the ancient Mississippian Age left an enormous amount of organic matter in their wake. Under geologic pressure, that matter became hydrocarbons and produced oil and gas. A considerable amount of that leaked upward from the Barnett field into some of the overlying formations, which was discovered in earlier drilling. Barnett Shale gas is a more recent discovery. The reserves are very thick; in the Lower Barnett region alone, known reserves are as much as 600 feet thick, while the Upper Barnett is more than 100 feet thick.

How much gas comes out of the Barnett field?

The field is a rich formation that spans a large area yielding about one-and-a-half billion cubic feet of gas per day. If expansion continues, expect output to outstrip New Mexico’s San Juan basin as this country’s largest land-based producer.

To put that in context, Barnett Shale drilling accounts for about 5 percent of the natural gas production in the lower 48 states. And tapping it is still in the early stages: The spacing may ultimately be reduced to 100 acres per horizontal well. Right now, a horizontal Barnett well averages about 300 acres.

What technologies were developed to extract gas from the Barnett Shale?

Horizontal drilling and fracturing both became solutions to the particular challenges of the Barnett Shale. With horizontal drilling, an operator can contact and intersect larger portions of the producing horizon than conventional vertical drilling techniques. Drilling sideways potentially raises both production rates and the ultimate recoveries of hydrocarbons.

Fracturing, or fracing, is the process of pumping fluids into a productive formation at high injection rates to hydraulically break up the rock. As water pressure fractures the rock, channels open for the oil and gas to flow to the well. Barnett Shale wells require really big frac jobs taking up to a million gallons of water.

Is Barnett Shale drilling economical?

The shale has decent porosity, but unfractured molecules of gas and oil can’t flow through the pore space. And while the early wells, all vertical, produced decent economics, horizontal drilling turned night into day. To put it in perspective, one horizontal well can match the output of four or five vertical wells for only double the cost.

What are the Barnett field’s long-term prospects?

The U.S. Geological Survey (USGS) estimates that the Barnett Shale has 26 trillion cubic feet of undiscovered recoverable natural gas. Long-term production there will depend on the price of natural gas, evolving technology, and how people apply that technology as they push the Barnett Shale frontier farther out. The good news is that when you get 167 rigs and a large number of big and small players, a lot of people try new things. That usually brings breakthroughs and new opportunities.

How does the Barnett Shale field affect the Texas economy?

Barnett has been called a perpetual motion machine. It provides a substantial economic impact. Currently, 167 rigs are at work there. That’s about 3,000 active wells. Each rig and the related well completion costs are $4 million or $5 million a month. The wells have an approximate worth of $7 million to $8 million apiece for about $10 billion to $15 billion of economic value to the tax base for cities and counties above Barnett. Local mineral owners garner anywhere from 15 percent to 25 percent of the natural gas sales revenue — about $4 billion per year — a total that also nets the state of Texas up to $300 million in annual tax revenue.

JOHN BARNES is chairman and CEO of B&R Energy LLC. Reach him at john_barnes@BandREnergy.com or (214) 445-6808.