- Devon Energy's Barnett Shale Bet Pays Off
Monday, August 15, 2011
Fort Worth Star-Telegram, Texas
by Jack Z. Smith
Ten years ago Sunday, Devon Energy made a multibillion-dollar bet on the Barnett Shale.
On Aug. 14, 2001, the Oklahoma City-based oil and gas company announced a deal to acquire Mitchell Energy & Development of Houston for $3.5 billion.
Mitchell Energy, led by legendary oilman George Mitchell, was the pioneering company that cracked the code of the Barnett's dense shale rock by using new hydraulic fracturing techniques and experimenting with horizontal drilling. At the time, it had drilled about 400 wells in the Barnett, and executives saw the potential for 1,200.
But over the decade, Devon would advance the ball significantly with improved horizontal drilling and an expansion of drilling far beyond areas north of Fort Worth where Mitchell Energy had focused. The result would be a drilling boom that by 2008 would draw numerous rivals into the field and make the Barnett the biggest gas-producing area in the U.S. Tarrant and Johnson counties would emerge as the top two gas-producing counties in Texas.
Today, Devon has drilled more than 4,700 wells in the Barnett. The field now accounts for 39 percent of the company's total production, which includes operations that stretch to the Rocky Mountains and into Canada.
In the Barnett, "our drilling costs are down, our production is up and our efficiencies are increasing," said Brad Foster, senior vice president of Devon's Central Division, which includes Barnett operations.
Devon has achieved, or is on the verge of, several Barnett milestones:
It posted record production in this year's second quarter, averaging the equivalent of 1.28 billion cubic feet of gas per day, even while keeping only 12 drilling rigs busy. That's less than a third as many as it ran in 2008, before gas prices cratered.
Devon's total Barnett production since the Mitchell acquisition is expected to hit the equivalent of 3 trillion cubic feet by year's end, spokesman Chip Minty said. It's at 2.8 trillion now.
Despite weak gas prices, now about $4 per 1,000 cubic feet, Devon is realizing solid returns from the Barnett because "our ability to drill wells economically just gets better every year," said Chairman Larry Nichols, who was CEO during the Mitchell acquisition.
A 35-well pad site
Devon's advances in the Barnett are exemplified at a rural 12-acre drilling site in far southwest Tarrant County. The 31st well there was drilled last week by contractor Patterson-UTI Drilling Co.
Devon expects to have 35 producing wells at the site by March, said Jay Ewing, its manager of Barnett well completions.
That will be the most wells ever on a single Barnett Shale pad site, but the project development has "been pretty routine. ... It's been pretty close to plan," Ewing said. Horizontal legs of the wells, called "laterals," will be steered thousands of feet under Benbrook Lake.
Devon estimates that the 350 Barnett wells it drills this year will yield, on average, the equivalent of 3.2 billion cubic feet of gas apiece over their producing lifetimes. By that measure, the 35 at the southwest Tarrant pad site cumulatively would produce 112 billion cubic feet.
That's enough fuel for gas heating and cooking at more than 1.5 million homes for a year, based on American Gas Association data.
If Devon maintains its current drilling pace, it will drill its 5,000th well next year. Less than 1 percent of Devon's Barnett wells have been dry or otherwise not worth putting into production.
Devon, which has more than 600 Barnett employees and an office in downtown Fort Worth, has boosted its Barnett reserves for seven straight years. Proven reserves are now the equivalent of 6.7 trillion cubic feet.
Drilling time slashed
When Devon began drilling in the Barnett in 2002, it took three to six weeks to drill a single horizontal well, said David Fortenberry, Devon vice president of technology.
"The rigs we used were really too small and underpowered for horizontal wells," he said.
Now, with higher-efficiency rigs and much more experience, Devon averages only about 12 days to drill a Barnett well, and "we've actually drilled some wells down in southwest Johnson County in about six days," Foster said.
Drilling-rig design "has improved dramatically in the past 10 years," with rigs now "ideally suited to drill these horizontal wells," Nichols said.
Devon uses a "walking rig" device to scoot a 156-foot-high rig between surface well bores at its southwest Tarrant pad site. If well bores are 20 feet apart, the rig can move that far in just an hour. Without the walking device, it could take two days to disassemble a rig and set it up 20 feet away.
The Barnett wells that Devon has drilled this year have provided "some of the best results we've ever gotten," Nichols said.
Supply rises, prices fall
Ample supplies from dramatic increases in U.S. shale-gas production have kept prices low, as the industry has become "in part ... a victim of our own success," Nichols said.
Devon has dropped to 12 drilling rigs because it can keep production at least flat at that level of activity and because "at this time, the country just doesn't need any more natural gas," Nichols said.
Production declines have been lower than expected in Barnett wells, he said. There will be "steep declines in the first year, but it flattens out a lot sooner than we originally thought" -- often after 12 to 18 months of production, he said.
The Barnett may soon lose its spot as the top gas-producing area, if it hasn't been already, to the Haynesville Shale in northwest Louisiana and East Texas. But Devon has lots more drilling to do in the Barnett.
7,500 drill sites left
Foster said Devon still has "7,500 potential drilling locations," which represent "probably over 20 years of inventory" for future drilling.
About 2,500 are in "the liquids-rich portion of the play," Foster said. Natural gas liquids such as ethane, propane and butane generate higher profit margins.
Future gas prices will determine how many of the 7,500 locations are eventually drilled, he said.
On average, drilling and completing a Barnett well costs Devon $2.8 million. Wells are 6,500 to 9,200 feet deep, and the average lateral length is more than 4,000 feet.
Devon's Barnett production is 78 percent natural gas, 21 percent natural gas liquids, and 1 percent oil.
In announcing Devon's purchase of Mitchell Energy 10 years ago, Nichols said the Mitchell properties "fit perfectly with our long-term objectives."
That appears perhaps even more so now, as Devon has sold international and Gulf of Mexico properties in the last two years as it embraces a new focus on onshore production in North America.
Copyright (c) 2011, Fort Worth Star-Telegram, Texas
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