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Not far afield Big gas producers take fresh look at N. Texas' Barnett

Now that independent wildcatters have proved the Barnett Shale natural gas field is so vast and rich, it's beginning to attract some bigger players. Driller Eric Vernon works at a Chief oil rig site in Azle. Chief is the No. 3 producer of the Barnett Shale.

The turning point came this year as Royal Dutch Shell PLC and Marathon Oil Corp. each bought operations in the North Texas field. With a couple of big leases up for sale in coming months, other energy multinationals are expected to search for drilling opportunities in the cow pastures and suburban back yards of the Dallas-Fort Worth area. "Everybody's been traveling to the far reaches of the world. Lo and behold, they've been sitting on this the whole time," said Joseph Christopher, president of Oil America Group, which finds financing for a tiny independent producer in Mineral Wells.

Experts anticipate some leading producers - perhaps even giant Exxon Mobil Corp. - will swoop in, potentially reversing a decades-old trend among major firms to shift operations off of U.S. soil.

"The Barnett Shale is the modern natural gas equivalent of the East Texas oil field," said Trevor Rees-Jones, chief executive of Chief Oil & Gas, the No. 3 producer of the Barnett Shale.

Some independents welcome the added attention. Mr. Rees-Jones, for example, stands ready to sell his leases and wells and start over from scratch. But the global players also could shake up traditions, including the network of relationships that independents have built in local communities over the years. "People like doing business with people they've known," said Mr. Rees-Jones.

Major source

A formation composed largely of tight, black rock, the Barnett Shale represents the energy industry's largest and most active domestic play in natural gas.

The field - which extends from Denton County south to Hill County, and as far west as Palo Pinto County - supplies more than 2 percent of the natural gas used in the United States.

"It's living up to its hype," said Jack Lafield, executive vice president of Crosstex Energy, which operates natural gas pipelines in the Barnett Shale area. Mitchell Energy first drilled the Barnett in the early 1980s, as founder George Mitchell experimented with technology to fracture the tight shale and release natural gas. Devon Energy Corp. bought Mitchell in 2001 and kicked off the Barnett rush as the company developed new drilling techniques and became the largest producer on the field.

In the past four years, more than 100 independent producers have risked their fortunes, and sometimes their lives, for the thrill of hitting it big on the Barnett Shale. The Barnett attracts wildcatters because the technology to drill and crack the shale is relatively simple. With natural gas prices near record highs, even a low-producing well can make money for a small company.

"Barnett is actually a pretty low-risk operation. You'll nearly always get some gas," said William Fisher, dean of geosciences for the University of Texas. "Small increment yield is normally more profitable to small operators." But some analysts say the way to make the most of the Barnett field is to acquire a huge tract of land, increasing the odds of hitting a sweet spot. In August, Shell acquired 25,000 acres in Parker County to explore the Barnett. The company says it's interested in diversifying its portfolio with "a fast-growing North American resource."

And last week, Houston-based Marathon said it had acquired Barnett leases as well.

Officials at Exxon Mobil declined to comment on whether the Irving-based energy concern would be interested in Barnett. "If somebody who's a bigger company, let's say a Shell or a company you might think of as an international player, is successful in this bidding, that may signal some of these companies that have spent the last decade or so international, they may retrench and refocus on North America," said David Pursell, an analyst with Pickering in Houston.

Local relationships

A major oil company, with few ties to North Texas, may approach the Barnett Shale communities differently than the native independent producers. The independents take pride in how they have educated residents about natural gas fields, including how the rigs work, how long they might be in use and how the royalty process works. They also address environmental concerns.

Like many independent producers, Mr. Rees-Jones, a Dallas native, knows many of his landowners personally and says some business has come his way due solely to his reputation and network of friends.

Although the Dartmouth-educated former lawyer aims to sell his Tarrant County leases and wells, he will probably keep the Chief brand (named after his late Labrador retriever), retain his Highland Park office and find new land to drill. Already Shell and other potential bidders have called, he said.
Dallas/Fort Worth International Airport is also collecting bids to lease mineral rights on its 18,000 acres.

Officials say the airport has received inquiries from both independent producers and major oil companies. The airport plans to factor into its choice whether the bidder is local or at least commits to hiring local contractors.

A spokesman for Devon, still the largest producer of the Barnett, said the Oklahoma City company is taking a look at Chief and is "monitoring" the D/FW Airport lease process. Devon pays particularly close attention to community relations, partly because of some water contamination lawsuits against Mitchell, which were overturned.

The company instituted community education programs and scholarship funds. When residents complained about ugly Devon equipment in their neighborhood, Devon painted everything green to blend in.

George Jackson, an operations supervisor with Devon's Bridgeport office, spends so much time with some landowners, he even knows what some plan to do with their royalty payments. He said one landowner urged him to begin production quickly so she could keep her promise to buy her best friend a Cadillac.

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REPRINTED WITH PERMISSION OF THE DALLAS MORNING NEWS.
THE DALLAS MORNING NEWS 11/29/2005
ELIZABETH SOUDER
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