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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. Although the Barnett was discovered in the 1950s, it wasn't succesfully drilled until the 1980s when technology evolved to do so.

Oil shale is a fine-grained sedimentary rock containing organic compounds from which liquid hydrocarbons - such as oil and natural gas can be manufactured. Worldwide deposits of petroleum products in oil shales are around 2.8-3.3 Trillion barrel of oil equivalents.^[1]

Oil shales are more expensive to produce because the oil 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 prices are high.

In 2007, with the rapid increase in natural gas prices, production in the Barnett Shale grew dramatically. One company, Chesapeake Energy (CHK)'s June 2007 production in the region was only around 230 MMCfe^[2]; by the end of the year production had nearly doubled, and with 20% of its capital to be concentrated in the area, the company expects growth to continue.

Though between June 2008 and December 2008, the price of oil fell by two-thirds, or more than $100, to less than $50^[3], energy companies continue to increase production, as the 2008 World Energy Outlook, published by the International Energy Agency, predicts that world demand for oil (often used as a proxy for world demand for energy) will increase from 85 million bpd to 106 million bpd^[4].

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.^[5] 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. Without moving the equipment, Devon's 3Q07 Barnett production increased 32% from 3Q06 to 856 million cf/d; with the new equipment in place, Devon expects to reach 1 billion cfe/d in the area by early 2009.^[6]
  

  

  Combustion of oil shale

• Quicksilver Resources (KWK) has acquired cheap acreage northern Texas’ Barnett Shale formation and Canada thanks to an aggressive aquisition 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^[7] 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.

• Devon Energy (DVN) acquired 169,000 net acres in the Barnett Shale region which included proved reserves of 617 billion cubic feet of natural gas from Chief Holdings, LLC.^[8]

• 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.^[9]

• Encana (ECA) holds 220,000 net acres in the Horn River region and 325,000 acres in the Haynesville region of the Barnett Shale.^[10]

• 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.^[11]

• CONOCOPHILLIPS (COP)

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. ↑ Energy Information Administration's 2006 Annual Energy Outlook
2. ↑ Chesapeake Energy, News Releases, "Chesapeake Energy Corporation Reports Financial and Operational Results for the 2007 Third Quarter"
3. ↑ Financial Times: "Crude oil prices tumble $100 in five months"
4. ↑ FinFacts: "World Energy Outlook 2008: Even with demand static over next 22 years, 4 new Saudi Arabias needed to make up decline in existing oil fields"
5. ↑ thebarnettshale.com
6. ↑ Devon Might Boost Barnett Shale Activities
7. ↑ 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"
8. ↑ Devon Energy to Acquire Barnett Shale Acreage from Chief Holdings
9. ↑ XTO Energy: Barnett Shale
10. ↑ Petroleum News: EnCana talks up shale gas plays
11. ↑ Denbury's Texas Barnett Shale Operations