Barnett Shale

Quicksilver sells 25 percent of Barnett operations to Tokyo Gas

Quicksilver Resources and Tokyo Gas on Friday announced that the Japanese utility will buy 25 percent of Quicksilver's Barnett Shale operations for $485 million. The deal comes more than a year after the Fort Worth-based producer hosted a tour of the Barnett Shale for a group of Japanese energy executives. Japan is looking for new sources of natural gas in the wake of its decision to shut down most of its nuclear reactions in the wake of the tsunami-related accident at three Fukushima reactors. For more, see today's Star-Telegram report here.

-- Jim Fuquay

 

Landowners sue Chesapeake over royalty payments

Nearly two dozen Tarrant County landowners, including Fort Worth billionaire Ed Bass, have sued Chesapeake Energy in federal court in Dallas, claiming the producer shorted them on royalty payments. According to the suit filed Wednesday, Chesapeake Operating and Chesapeake Exploration, which hold leases on nearly 4,000 acres owned by the plaintiffs, passed on production costs in breach of their leases and imposed other costs improperly. The suit also claims the company used two affiliates to set below-market sales prices for natural gas produced from the leases. Julie Wilson, Chesapeake's vice president for urban development in the Barnett Shale, declined to comment.

For more, see the Star-Telegram's report.

-- Jim Fuquay

New Barnett Shale study sees production through 2030

The Barnett Shale can be expected to produce about 44 trillion cubic feet over its lifetime, more than three times its production to date, and will still be a  significant producer in 2030, according to a new study by the Bureau of Economic Geology at the University of Texas at Austin. After peaking at about 2 trillion cubic feet a year in 2011, the field will see "slowly declining production" that by the year 2030 is still about 900 billion cubic feet a year. The BEG used data through 2010 from 15,000 wells in the big North Texas field and assumes future natural gas prices averaging $4 per 1,000 cubic feet.

Even though the productivity of the field varies greatly, the study found, "there are still many locations to drill in the better rock," according to a news release describing the study's findings. Scott Tinker, director of the BEG and one of the study's principal investigators, said "drilling the better rock won't last forever, but there are still a few more years of development remaining in the better rock quality areas," according to the release. The study forecasts another 13,000 wells drilled in the field through 2030 after the study's cut-off date, a figure that includes about 2,900 wells drilled in 2011 and 2012.

The BEG said its method of estimating production from shale wells "should offer a more accurate method of forecasting production declines in shale gas wells," a point of dispute between some producers and skeptics such as Houston geologist Art Berman. As the study notes, its estimate "falls in between some of the more optimistic and pessimistic predictions of production from the Barnett." The BEG's release on the study says it "reaffirms the transformative, long-term impact of shale and other unconventional reservoirs of oil and gas on U.S. energy markets." It quotes Tinker as comparing shale gas reserves development as "potentially analogous to offshore oil in terms of impact."

The BEG's release on the study is here. The Star-Telegram reported on some of the report's findings earlier, focusing not just on Tinker's forecasts but also individual well productivity . The BEG's release does not address its findings on the average Barnett well's cumulative production over its lifetime, called the estimated ultimate recovery, or EUR. A link to that report is here.

-- Jim Fuquay

UT Bureau of Economic Geology to release highlights of Barnett Shale study

Some results of a two-year study of the Barnett Shale by the Bureau of Economic Geology at the University of Texas at Austin are scheduled to be released Thursday, a representative of the school says. The study is considered the most comprehensive survey of the field that started the U.S. shale gas boom. The Star-Telegram reported Feb. 12 on some of its findings, including that the field will likely produce about three times the natural gas it has yielded so far, but also that productivity varies widely across the field and individual wells on average might not produce over their lives as much as some producers have estimated. The Star-Telegram's earlier report is here.

-- Jim Fuquay

Quicksilver loses $1.1 billion on big impairment charge

Fort Worth-based Quicksilver Resources joined other producers in taking a big non-cash impairment in the fourth quarter, this on for $1.2 billion that it said was substantially due to a change in hedge accounting. Reserve revisions based on price and performance accounted for just over a third of the charge, which gave the company a $1.1 billion net loss for the quarter. The company also wrote down the value of tax-related assets by $326 million. Not counting the adjustments, Quicksilver said it had a $2 million loss, or a penny a share, for the quarter on revenue of $179.1 million. Financial analysts' consensus estimate was for adjusted net income of one cent on $169 million in revenue. The company's shares were up more than 4 percent in early trading.

Quicksilver averaged daily production of 342 million cubic feet equivalent, with 247 MMcf in the Barnett Shale. Barnett Shale production was down 6 percent from the third quarter "due to a reduction in capital activity." It drilled just 22 gross wells in the field in 2012, including only one in the fourth quarter, and it won't be completed until the year's second half. As of Dec. 31 it had 25 gross operated wells uncompleted or awaiting connection to sales lines.

As previously reported, it said it is "engaged in confidential negotiations with a potential buyer to sell a non-operated minority working interest" in the Barnett.

The company said that in mid-December it started ramping up production in Canada's Horn River Basin to 100 MMcf after it arranged alternative gas treating and transportation services when a planned treating facility by a third party was delayed.

For 2013, Quicksilver said it plans to spend $120 million, less than a third of its 2012 capital budget, mostly on lower spending in the Horn River but also elsewhere. It expects production to decline 5 percent as a result in 2013 from 2012.

-- Jim Fuquay

Barnett Shale takes a bit out of Pioneer Natural Resources earnings

Irving-based Pioneer Natural Resources said it took non-cash impairments totaling nearly $160 million on proved and unproved properties in the Barnett Shale in the fourth quarter of 2012. The charges helped trim the  independent producer's net income to $29 million in the quarter. Pioneer said it made the write-downs, equal to $101 million after taxes, after it decided not to sell its holdings in the field and reduced their value on the books "to their estimated fair value." Pioneer put its Barnett acreage up for sale in September but on Jan. 31 said it dropped those plans when it could not draw an acceptable offer. It entered the field in 2007.

Pioneer said it has 82,000 net acres in the the northwestern portion of the Barnett, the field's so-called "combo play" of natural gas and oil. It said it averaged daily production of 9,000 barrels of oil equivalent -- about 60 percent oil and natural gas liquids and 40 percent gas -- in the Barnett in the fourth quarter, up from 7,000 a day in the third quarter. It expects production in 2013 to be between 9,000 and 12,000 barrels of oil equivalent. It is operating one rig and drilled eight wells in the fourth quarter. It plans to run two rigs in the second quarter of 2013 to hold what it has identified as its best acreage.

Pioneer also said it set a 2013 capital budget of $3 billion, including $2.75 billion for drilling. It plans to spend $185 million in the Barnett Shale. About $400 million of its budget will be met with the anticipated proceeds of the sale of up to 9.2 million shares, it said Wednesday.

-- Jim Fuquay 

Average Barnett Shale well likely to have lower production than many producers expected, new study says

Productivity in the Barnett Shale varies widely across the big natural gas field, where an average horizontal well can be expected to produce about 1.44 billion cubic feet of gas over its life, according to preliminary results of a comprehensive study by the Bureau of Economic Geology at the University of Texas. Wells in the richest portions of the field can top that and be profitable even at relatively low prices, while those in the poorest areas likely can't make money even at record high gas prices. Some results of the study could be released publicly as early as this month or in March, said Scott Tinker, the bureau's director.

The bureau looked at more than 16,000 Barnett wells drilled through June 2011 to make its estimates. Tinker told the Star-Telegram that if no more wells were drilled in the North Texas field, they would ultimately produce between 22 and 23 trillion cubic feet. But he expects the field's total production to be considerably more than that. "You'll see at least three times that before the field is put to bed, and possibly more than that," he said. The 1.44 bcf figure, called the estimate ultimate recovery, or EUR, is considerably less than the 2 bcf to 3 bcf EUR that many producers have historically estimated. But representatives of the field's two largest producers, Devon Energy and Chesapeake Energy, told the newspaper they still expect their Barnett wells to live up to the companies' forecasts.

For a complete report, see today's Star-Telegram. A link is here.

-- Jim Fuquay

Drilling critics cite benzene emissions in Fort Worth, Dish

ShaleTest, a private effort that has been critical of natural gas operations, says two recent air tests showed "elevated" levels of benzene. The Texas Commission on Environmental Quality, which conducted one of the tests, said the short-term measurements aren't necessarily a concern unless they prove to be long-term. The Star-Telegram has a report here.

Benzene, a human carcinogen, is fairly widely used -- it's a component of gasoline, for example -- and has varying levels of risk tied to different concentrations. Hence, it's one of the components of oil and gas operations that TCEQ tracks as part of its air monitoring in the Barnett shale. The concentrations found at a compressor station near downtown Fort Worth and a compressor station west of the Denton County community of Dish exceeded TCEQ's threshold for long-term exposure, but that is based on continuous exposure throughout a lifetime. Additional sources of information on the health effects of benzene can be found at the Centers for Disease Control and Prevention (CDC), here, and at the federal Agency for Toxic Substances and Disease Registry, here.

-- Jim Fuquay

Devon Energy still No. 1 in the Barnett Shale

Last month we published an item noting that by the Texas Railroad Commission's count, Chesapeake Energy had edged past Devon Energy as the biggest  gas producer in the Barnett Shale as of June, the latest figures at the time. But both companies quickly questioned the numbers and we qualified our report, with good reason as it turns out. Gene Powell, the data dean of the Barnett Shale and publisher of Powell Shale Digest, just ran the numbers for production through October 2012, the latest available from the Railroad Commission, and Devon is still No. 1, just ahead of Chesapeake. Both are well ahead of No. 3 XTO Energy.

According to Powell's numbers, Devon in October averaged 1.495 billion cubic feet a day. Chesapeake averaged 1.375 Bcf/d and XTO averaged 826 million cubic feet a day. The difference maker is wells in the Railroad Commission's pending file, which contains wells that are backlogged or contain incomplete information. Production from those wells doesn't  show up on the Railroad Commission's Barnett Shale summary page. Based on our recent conversations with both producers, Devon last year drilled about 300 wells, vs. Chesapeake's fewer than 100, so perhaps that has something to do with it.

Powell notes that the Barnett Shale was still chugging along at 5.2 Bcf/d in October despite the sharp decline in drilling in the field. Some of that doubtless is because wells drilled in the past were finally connected to a sales line. For example, Chesapeake only last year laid an 8-inch line to its Westgate padsite on the southern edge of downtown Fort Worth, and that well was drilled in 2008 and completed in 2009. See our item here. But operators also say that despite their deserved reputation for sharp production declines in the early years, Barnett wells are proving to be pretty decent long-term producers. We've run some numbers ourselves using Powell's data and wells that are 10 years old still produce 11 percent of their peak initial production, while those 20-30 years old are still producing on average 10 percent of their peak. Of the 85 Barnett Shale wells 20 years old or older, all but four were still producing in June, the latest month we have. They averaged 99,000 cubic feet a day.

-- Jim Fuquay

Another Barnett Shale monitor goes online at TCEQ

The latest air monitor in the Barnett Shale to start reporting its results on the website of the Texas Commission on Environmental Quality is in Rhome, in southern Wise County. It's the 11th active automated gas chromatograph (auto GC) monitor in North Texas. To see its exact locations and data, look for "Rhome Seven Hills Road" on the TCEQ's auto GC page.

The Star-Telegram on Sunday carried an extensive report on efforts by the TCEQ and Environmental Protection Agency to keep track of emissions in the Barnett Shale via a network of dozens of monitors. A link to the report is here.

-- Jim Fuquay