Barnett Shale

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Geoffrey Jordan

The Barnett Shale is a natural gas deposit that stretches over a dozen counties in northern and eastern Texas. It is the second largest producing on-shore domestic natural gas field in the United States after the San Juan Basin in New Mexico and Colorado, covering an area of around 5,000 square miles (13,000 square kilometers). Although the Barnett was discovered in the 1950s, it wasn't succesfully drilled until the 1980s when technology evolved to do so. The field is proven to have 2.5 trillion cubic feet of natural gas.^[1]

What is shale?

Shale is a fine-grained sedimentary rock containing organic compounds from which liquid hydrocarbons such as oil and natural gas can be extracted. Worldwide deposits of petroleum products in oil shales are around 2.8-3.3 trillion barrels of oil equivalent.^[2]

Extracting natural gas from shale deposits

Extracting natural gas from shale is more expensive than extracting it from wells because the natural gas has been absorbed into sedimentary rock and must be released through a complex heating process. As a result, natural gas extraction from shale is only profitable when energy prices are high. After reaching a peak of about $14 per million BTU (MMBtu) in 2008, natural gas prices have stabilized at around $4-5 MMBtu.

The natural gas stored in shale is locked into hard rock under immense pressure, often deeper than conventional gas wells. Current shale-gas extraction uses a technique called hydraulic fracturing, often known as "fracking." A well is drilled through the upper strata into the shale bed, generally 1.5-6km below the surface, and a mixture of water and solid particles - often sand, sometimes manmade ceramic beads - is pumped down into the shale at pressures up to 100 MPa (145,000psi).^[3] This fractures the rock and the solid particles hold the crack open.

Much of the Barnett Shale is underneath the cities of Dallas and Fort Worth. A technique called horizontal drilling has allowed natural gas drillers to access the shale under urban and residential areas. However, researchers at the Jackson School of Geosciences have warned that natural gas drilling could put pressure on water supplies, endangering drinking water.^[3] With some 80 new wells being drilled every month, demand for water is already rising steeply.

There is also concern that fracking could itself be harmful to drinking water. Drills sometimes have to go through drinking-water acquifers and there have been cases of water being contaminated; in April 2010, the state of Pennsylvania banned one company, Cabot Oil & Gas (COG), from drilling, after combustible gas found its way into water supplies and a water well exploded.^[3] Shale-gas drilling in Colorado has also been controversial, with a documentary called "Gasland" showing people igniting gas coming off their household water supplies.^[3]

Companies with exposure to the Barnett Shale

Natural Gas Production Companies

• Devon Energy (DVN) Devon controls nearly 75% of production, by volume, in the North Texas Barnett Shale.^[4] In November 2007, Devon announced that because of the royalty increase in the Alberta Oil Sands, it would move some of its capital from Canada to the Barnett Shale.

• Quicksilver Resources (KWK) has acquired cheap acreage northern Texas’ Barnett Shale formation and Canada thanks to an aggressive acquisition strategy, and these two areas now serve as the company’s main vehicle for growth.

• Chesapeake Energy (CHK) With the company's production in the resource at over 400 MMCfe net per day, the Texas Barnett Shale^[5] is already one of Chesapeake's main unconventional production centers.

• Range Resources (RRC) owns reserves in the Barnett shale.

• Energen (EGN) has oil and gas operations in the North Louisiana/East Texas oil fields that include the Barnett and Woodford Shales.

• EOG Resources (EOG) has holdings in the Barnett Shale.

• XTO Energy (XTO) owns 18 drilling rigs on about 280,000 net acres. Gross natural gas production as of the first quarter of 2009 is 730 MMcf/d.^[6]

• Encana (ECA) holds 220,000 net acres in the Horn River region and 325,000 acres in the Haynesville region of the Barnett Shale.^[7]

• Denbury Resources, Inc. (Holding Company) (DNR) owns approximately 20,441 gross acres and 19,457 net acres in the Barnett Shale area. In 2008, Denbury drilled and completed 38 horizontal wells which kept production from this area about the same throughout the year, averaging approximately 73 MMcfe/d during the fourth quarter of 2008.^[8]

• CONOCOPHILLIPS (COP)

Natural Gas Production

During 2008, the Barnett Shale produced 1.396 Tcf (trillions of cubic feet) of natural gas. The top ten producers of natural gas were:

Transportation / Pipeline Companies

• Atmos Energy (ATO) operates one of the largest pipelines in Texas, with links to major oil and gas reserves like the Barnett Shale.

• Enterprise Products Partners has an onshore natural gas pipeline system which gathers and transmits natural gas from onshore developments such as the San Juan, Barnett Shale, Permian, Piceance and Greater Green River supply basins in the Western United States.

Both Transportation and Production

• Energy Transfer Equity (ETE) both produces and transports natural gas in the Barnett Shale. The Company's midstream segment focuses on the gathering, compression, treating, blending, processing and marketing of natural gas concentrated in the Austin Chalk trend of southeast Texas, the Permian Basin of west Texas, the Barnett Shale in north Texas and the Bossier Sands in east Texas. The Fort Worth Basin Pipeline is a 55-mile, 24-inch natural gas pipeline that connects ETE's existing pipelines in north Texas and transports natural gas from the Barnett Shale area.

References

1. ↑ Barnett Shale Economic Impact Study, May 2007, p.16
2. ↑ Energy Information Administration's 2006 Annual Energy Outlook
3. ↑ ^{3.0 3.1 3.2 3.3} iStockAnalyst: "ENERGY: Unlock the rock" July 26, 2010
4. ↑ thebarnettshale.com
5. ↑ Chesapeake Energy, News Releases, "Chesapeake Energy Corporation Announces Transaction with Paloma Barnett, LLC in the Barnett Shale While Chesapeake's Barnett Shale Production Hits 600 MMcfe Per Day Mark"
6. ↑ XTO Energy: Barnett Shale
7. ↑ Petroleum News: EnCana talks up shale gas plays
8. ↑ Denbury's Texas Barnett Shale Operations
9. ↑ "Barnett Shale"