The Barnett Shale play is booming, exploding with activity. "It's unbelievable, from where we were five years ago to what's going on now," says Kent A. Bowker, an independent producer and consultant based in The Woodlands, Texas. Some 3,700 wells are making 1.1 billion cubic feet of gas equivalent (Bcfe) per day from what is now the largest gas field in Texas, and in late February more than 80 rigs were at work in the astonishing play. Recently, the U.S. Geological Survey (USGS) estimated that the Barnett Shale contained total mean undiscovered resources of 26.2 trillion cubic feet (Tcf) of gas, along with 1 billion barrels of gas liquids. Already, the North Texas play has produced 1.2 Tcf. "There's one man basically responsible for the Barnett play-George P. Mitchell. He worked the play for 17 years before he started to make money," Bowker says of the founder of The Woodlands, Texas-based Mitchell Energy & Development Corp., which sold its assets to Devon Energy Corp. in 2002. (For more on the Barnett play, see "The Barnett Shale," Oil and Gas Investor, March 2002.) "Mr. Mitchell knew there was something there, and he overcame many obstacles." Larry Nichols, Devon chairman and chief executive, told fellow producers at a program in Houston recently that he had looked at buying Mitchell Energy in 1999 while the Barnett program was somewhat nascent, and "we turned our noses up because we didn't think it would work." About two years later, Nichols made an offer and an apology to George Mitchell. Devon will spend $360 million in the Barnett this year. Not the least of producers' obstacles in the Barnett Shale was its contrary nature. Truly, it is an Alice-in-Wonderland play. Bowker says, "The whole world is upside down in the Barnett Shale. Nothing is as it should be. We look for shale, not conventional reservoir rocks; we want undisturbed sediments without any faults or folds; and we drill downdip of the oil leg so we can find gas." The Barnett is the poster child for unconventional accumulations. A premium source rock, it has generated and captured its own hydrocarbons. Although the shale was deposited across much of the Fort Worth Basin, it is far from uniform. It exhibits widely varying lithologies, and it has endured a long and complicated history of thermal events. Parts of the play produce dry gas, parts have gas and condensate, and parts yield green oil. Too, shale thicknesses vary across the basin from more than 1,000 feet to less than 50 feet. Until quite recently, commercial production was confined to a core area covering some 400 square miles in eastern Wise, western Denton and northern Tarrant counties. Here, the Mississippian-age Barnett is found at depths between 6,500 and 8,500 feet. It reaches thicknesses of more than 400 feet and is amenable to exploitation via vertical wells. Competent carbonate beds occur above and below the Barnett interval and are able to confine hydraulic stimulation treatments. Mitchell Energy spent years perfecting vertical-well completions in this area. The Barnett won't produce unless it's stimulated, and fracs in the past in vertical wells outside the core were spectacularly unsuccessful. Now, horizontal drilling-and specialized horizontal stimulation treatments-have unlocked the potential of the noncore area. That's why the industry is so excited about the play. Vertical wells in the core area recover an average of about 1.25 Bcfe each; in certain noncore areas, horizontal wells appear capable of making an average of 2.5 Bcfe each. And there's a whole lot of territory that looks prospective: the USGS interprets the Barnett Shale as a giant, continuous-type gas accumulation that extends over some 7,000 square miles. Certainly, some limits do exist. On the northeast side of the basin, the shale terminates against (or possibly dives beneath) the Muenster Arch. Here, in the basin's deepest part, the shale carries high concentrations of carbonates that inhibit its productivity. On the north and west sides of the basin, the Barnett is in the oil window, and the shale's ultra-low permeabilities make the fluid phase uneconomic at present. And, to the east, the Ouachita Thrust-Fold Belt provides another physical barrier. That leaves a huge swath of potential in the countryside south and west of the traditional core. "Eventually, the Barnett will get too shallow and too thin to the south and west of the core to support economic production, but we don't know yet where those limits are," says Bowker. "People have spent a bunch of money on leases to find out." Horizontal breakthrough Devon Energy Corp., by far the largest operator in the Barnett, currently produces 560 million net cubic feet of gas per day from its interests in some 1,900 shale wells. More than 90% of its production comes from the core area, but that is rapidly changing. The company's focus has turned to horizontal drilling. It began to push horizontal drilling forward both inside and outside the core area after its acquisition of Mitchell Energy in early 2002. "Some 23% of our total Barnett production is now coming from our 135 horizontal producing wells, and we produce about 40 million per day from outside the core area," says Brad Foster, Devon vice president and general manager, central division. "The horizontal wells have helped us overcome some of the geological complexities of the play." Last year, the company drilled 88 horizontal Barnett wells, bringing to 150 the number it has completed. This year, it plans to drill 156 horizontals. One hundred of those wells will lie outside the core area, a testament to Devon's success with horizontal technology as well as its extensive acreage position. It has rights to some 415,000 acres of leases outside the core, including 93,000 acres in Johnson County and 175,000 acres in Parker County. The company is running 14 rigs at present: eight are drilling horizontal wells outside the core; within the core area, three are drilling horizontal wells and three are at work on vertical wells. Devon's 2005 program is focusing on Johnson and Parker counties, as well as western Wise County. Additionally, it will drill some areas adjacent to the eastern and northern core. This year, as it transitions to increased activity outside the core, Devon's goal is to hold its production flat. Still, the company is not yet finished in the core area. After the Mitchell purchase, Devon embarked on an aggressive program to drill up the vertical-well inventory. Although the core is now mature, Devon still has more than 200 locations on its 120,000-acre position there. This year, it plans to start a downspacing pilot, and it continues to investigate various fracturing techniques. "We're looking at refracing core wells with foam fracs," says Foster. "And we're looking at ways to exploit the Upper Barnett interval." The company has acquired seismic over a vast majority of its acreage, both in and outside of the core area, and has launched an intensive reservoir characterization effort. During 2005, it plans to drill 70 vertical and 56 horizontal wells in the core. There is little question that the Barnett is a phenomenal, world-class asset for Devon. "The Barnett Shale is the gift that keeps on giving," says Foster. "The play keeps growing all the time." Johnson County booms In the past year and a half, the center of Barnett activity has dramatically relocated to Johnson County, south of Fort Worth. At press time, 17 rigs were working in Johnson County alone, and it was home to two of the best Barnett wells in the entire play. Those two wells were drilled by Cleburne, Texas-based Hallwood Energy Corp., which pioneered Johnson County. When privately held Hallwood started working there, the county had no production. Indeed, in its entire history only some 200 million cubic feet of gas had been produced from within its borders. In 2002, the company began a Johnson County drilling program that led directly to the present boom. "We initially started drilling vertical wells and experimented with some different frac and completion approaches," says Bill Marble, Hallwood vice president of land and engineering. "We recognized that we could make commercial vertical wells, which was a big step in itself. Then we moved to horizontal wells." As there was little prior activity in Johnson County, Hallwood had a clean slate on which to work. It was able to orient its wells in the northwest-southeast direction it preferred, develop orderly drilling programs, drill long laterals, and maintain optimum spacing between its wells. And, while it had to lay gas lines and build gathering systems as it progressed, it did not need processing infrastructure. That's because three-quarters of Johnson County lies in the Barnett's dry-gas window. The company has continually pressed the envelope, introducing much larger volumes of water into its completions. These days, horizontal frac treatments are multi-stage and use up to 8 million gallons of water. "We're always looking for new ways to complete the wells, and we try new approaches. Now we're several generations of completions down the road." Last year, Hallwood sold 40% of its assets to Oklahoma City-based producer Chesapeake Energy Corp., which gained Hallwood's 18,000-acre North Block property for $292 million. The asset is just north of Hallwood's 34,000-acre South Block property, in which Chesapeake owns a 44% working interest. At the time of the Chesapeake purchase, the North Block was producing about 25 million cubic feet of gas per day from 31 vertical and 11 horizontal wells. Proved reserves were 135 Bcfe, and Chesapeake noted in a recent conference call that it had identified about 70 proved undeveloped and 90 probable and possible horizontal locations on the acreage. It estimated average costs of $2.2 million for its horizontal wells, with producers expected to make average ultimate reserves of 2.5 Bcfe each. Chesapeake plans to run three rigs, and expects to achieve gas rates of at least 55 million cubic feet per day from the shale by year-end. Hallwood retained 56% ownership and operations of the South Block, Marble notes. "We have continued to expand our holdings, both inside our area of mutual interest (AMI) with Chesapeake in the southern block, and outside the AMI for our own account." Hallwood has already replaced the net acres that were sold to Chesapeake with new Barnett Shale leasing. Beginning in April, Hallwood will have four rigs drilling, making this its busiest year yet in the shale play. "From the acreage that we retained after the sale of the North Block, we have built our production back up to 20 million per day." Hallwood's most recent well is spiking 6- to 8 million cubic feet per day, and the well sold 4.8 million in its second day online. "We regularly exceed the core-area rates in our horizontal wells," says Marble. These days, Devon, Hallwood and Chesapeake have quite a bit of company in Johnson County. Last fall, Houston-based EOG Resources Inc. announced a major initiative in the Barnett, centering on the 93,000 acres it owns in Johnson County. During a recent presentation, president and chief of staff Edmund Segner said the company's goal is to exit 2005 with production of 100 million cubic feet per day, most of that coming from Johnson County. The operator is running five rigs in the Barnett and expects to drill 90 wells this year. Its total position in the play exceeds 400,000 acres, Segner noted. EOG is also looking at the potential for downspacing in Johnson County. It is running a 50-acre downspacing pilot, involving three new wells surrounding an existing production well. Sometime this summer, the company expects to announce results of that project. It is also considering stacked laterals to increase gas recovery from the shale, which exceeds thicknesses of 250 feet through much of Johnson County. (For more on EOG's activity in the Barnett, see "Momentum," Oil and Gas Investor, October 2004.) Growing with the play Privately held Chief Oil & Gas LLC has blossomed right along with the Barnett play. The Dallas-based company started a leasing program in northwestern Tarrant and Denton counties and drilled its first shale well in 1997. By early 2002 it had accumulated about 16,000 acres and drilled 40 vertical wells that were producing 20 million cubic feet of gas per day. Today, Chief is the second-largest producer in the Barnett Shale, and recently completed a volumetric production payment arrangement for $87 million. It has 200,000 net acres, 250 Barnett wells and a production capacity of 110 million cubic feet of gas per day, of which 15% to 20% is curtailed due to market-access issues. The firm is currently running four rigs, and plans to raise that to as many as seven rigs by the end of the year. "The major leasing play is over in the Barnett," says Tony Carvalho, vice president, geology and geophysics. "What we are seeing now is a fundamental shift to cooperation between companies. Now our top challenges are obtaining rigs and seismic crews." After five years of immersion in the Barnett, Chief avoids any broad generalizations about the play. "There is a significant range in well quality, from 1- to 4 Bcfe per well," says Carvalho. "It is certainly possible to drill dry holes and poor wells in the Barnett Shale, and there can be disappointing results." Today, Chief focuses on horizontal drilling. It figures an average all-in cost of $1.6 million for a horizontal well with a 2,500- to 3,000-foot lateral and three to four frac stages. The company makes extensive use of 3-D seismic to site its wells. It has shot more than 20 3-D surveys, and it won't drill a horizontal well without one. "We avoid geologic features in the Barnett like the plague. We look for the most quiet, boring, monoclinal areas to drill." One of the key findings of its extensive seismic program has been the large numbers of karsted and faulted areas it has identified. "Typically, we have been finding that one-quarter to one-third of a lease in the noncore area is not attractive for horizontal drilling." The company also uses microseismic techniques to help fine-tune its frac treatments. "From the microseismic work, we believe the fracture half-length can be more than 2,000 feet. In the Barnett, the effectiveness of the frac job is directly related to the productivity of the well, so we put a great deal of effort into getting the best frac." Chief has been running an aggressive program in Parker County, where it has already drilled 10 wells. Of this batch, two are producing, with a third scheduled to come onstream in mid-March. There is a lack of infrastructure in the area: "The gas marketing situation is not good in Parker County, but a remedy will come within a year as companies build pipelines." (For more on Chief's and other earlier efforts, see "The Barnett Barrels Along," Oil and Gas Investor, December 2003.) Now, in addition to its Parker County work, Chief is adding activity in Johnson County. This summer, it will run two rigs in Johnson County, where it has significant leaseholds in two concentrated areas. Newer players Houston-based Carrizo Oil & Gas Inc. has been in the Barnett since early 2003. "We were looking for a long-lived, manufacturing-type play to complement our onshore Gulf Coast exploration drilling," says president and chief executive officer S.P. "Chip" Johnson IV. Carrizo began by taking small working interests in Barnett wells drilled by several Fort Worth-based independents, then it began acquiring leases in Parker, Hood, southern Tarrant and Johnson counties. At the time, its leases were considered fringe acreage, but the play has expanded to the point that these holdings are now solidly in the desirable fairway. Today, it holds some 40,000 acres of land and is producing 4 million cubic feet of gas equivalent per day from 13 net wells. Another 10 net wells are waiting on completion or pipeline hookups, which will more than double its shale production. Currently, Carrizo is drilling a horizontal well in southern Tarrant County and a vertical well in central Parker County. It is also adding a second horizontal rig in the play. It plans to spend $35 million on drilling in the shale this year, with additional investment in land and seismic. To date, it has shot seven 3-D surveys and has three more in progress. It uses 3-D surveys for all of its horizontal drilling, and it reprocesses the seismic and compares that data to information from formation micro-imaging logs. "We think this technique can help us predict the stress barriers in the Barnett, and help us optimally place and fracture stimulate our laterals," Johnson says. If Carrizo doesn't have 3-D seismic over a lease, or has a small lease, it will consider drilling a vertical well. "We've had really good success in south-central Parker with vertical wells." Drilling and completion costs for these vertical wells are about $500,000 apiece, and third-party reserve estimates are 650- to 750 million cubic feet per well. "The Barnett is a technology-driven play, and there's a lot of experimentation going on. The good news is that almost everything seems to work, but we're looking for the optimum approach," says Johnson. "Between downspacing, refracing and multiple laterals there's a lot of room for upside." Calgary-based EnCana Corp. is another firm that has been growing its Fort Worth Basin presence. The company entered the play early in 2002. In the Barnett, EnCana saw a resource play that nicely complemented its other such efforts in the U.S., including its programs at Mamm Creek Field in the Piceance Basin and Jonah Field in the Green River Basin. EnCana added to its Barnett position with two acquisitions in 2004, including acreage held by Tom Brown Inc., which was also working in the Barnett. At present, EnCana holds 160,000 net acres of leases in the basin. Its drilling program is spreading: in 2003, it drilled five Barnett wells, and last year it drilled 36. This year, EnCana plans to jump to seven rigs from the three it ran in late 2004 in Tarrant and Wise counties. The company expects to be producing up to 100 million cubic feet equivalent per day by year-end, up from its average 2004 Barnett production of close to 30 million per day. Barnett heavyweight The biggest deal to hit the Barnett since Devon's purchase of Mitchell Energy is Fort Worth-based XTO Energy Inc.'s proposed $685-million acquisition of Antero Resources Corp. The privately held Antero, based in Denver, has production of 60 million cubic feet of gas per day and proved reserves of 440 Bcfe in the Barnett. Its properties are in the core area in Tarrant County, and in the horizontal play in Johnson and Parker counties. The buy catapults Fort Worth-based XTO to one of the heavyweights in the Barnett. The company entered the shale play in December 2003, when it began an acreage acquisition program. "We started to really focus on the Barnett Shale when horizontal drilling started working," says Keith Hutton, XTO executive vice president. In February 2004, it acquired a private Fort Worth independent for $120 million, gaining 15 million cubic feet of daily production and nearly 100 Bcfe of proved reserves. With the addition of Antero, expected to close in early April, XTO will hold 149,000 net acres and have net daily production of 80 million cubic feet of gas per day from 215 wells. For the balance of the year, XTO plans to run between 15 and 17 rigs in the Barnett. "Our drilling program will be spread all over. We have wells planned across all our acreage, in Bosque, Johnson, Ellis, Parker and Tarrant counties." Hutton says. The company also continues to lease, with more than 40 land-brokers working on acreage acquisition. "We jumped in big, because the Barnett is the only play we've seen that has per-well initial rates and reserves comparable to our East Texas play. It uses water fracs and many of the same technologies that we are very familiar with." One of the key selling points of the play is that almost every operator is making reasonable wells, says Hutton. "What this tells us is that the Barnett will work over a very large area-recovery of natural gas will be greater than expected. That's what got us excited about it." Another fresh face is Stroud Energy Ltd. A private firm in business since 1985, Stroud relocated to Fort Worth in 2000 and started drilling Austin Chalk wells. Patrick Noyes, formerly with Mitchell Energy, joined Stroud in 2003 as its president and chief executive officer. He came with a vision of diversifying the company's asset base. "We plan to grow the company and use as a platform the Barnett Shale and East Texas," he says. During 2004, the company began to build its position in the Barnett, purchasing some 10,000 gross acres from several entities in three deals in Tarrant, Parker and Johnson counties. It has acquired 3-D seismic over two of its areas and plans to finish its third survey shortly. "Our approach is to apply 3-D seismic and horizontal technology to capitalize on these acreage positions, which are a bit out in front of the core area," Noyes says. This year, the company plans to drill 12 horizontal wells and reenter an existing vertical well. The drilling will be spread across its blocks, with wells planned in each county. "I'm optimistic about the Barnett. I've seen it develop from the early 1980s with Mitchell, into the old core area, into the expansion area and now beyond," says Noyes. Beyond Johnson County Companies are also pushing into counties that are farther afield, such as Hood and Erath. "The Barnett is as good in Parker, Hood and other counties as it is in Wise, Denton, Tarrant and Johnson counties," says Bowker. "It's just that each area has its own geologic particulars that require unique completions." Quicksilver Resources is mounting an aggressive program in northwestern Johnson and southeastern Hood counties. The company has drilled a dozen wells to date, and participated in six nonoperated wells. Its gross production is currently 11 million cubic feet of gas per day. The first wells that it completed flowed at initial rates of 600,000 to 1.8 million cubic feet per day; with modifications to the fracing programs, the company reports that its most recent wells are flowing at initial rates between 2- and 2.8 million per day. During 2005, Quicksilver plans to drill 40 net wells on its 207,000-net-acre North Texas leasehold. It is figuring costs of $1.77 million each in its area, including seismic and lease costs, and ultimate recoveries averaging 2.5 Bcfe. Infrastructure is very skimpy to nonexistent in this part of the play, and Quicksilver plans to construct its own pipeline and processing plant. Meanwhile, Denver-based Infinity Inc. is one of the first firms investigating the potential in Erath County. In late 2004, Infinity acquired a 90% interest in 28,400 gross acres in southern Erath and northern Hamilton counties. It has drilled four horizontal Barnett wells that are in various stages of completion A fifth well is being drilled. "We're encouraged by the results of our test wells," says Jim Dean, Infinity vice president, strategic and corporate development. "The Barnett looks very good in our area." In Infinity's leasehold, the Barnett is between 125 and 200 feet thick and occurs at depths of approximately 4,000 feet. Its first wells have cost nearly $2 million, but the company expects to lower those as it fine-tunes its drilling and completion programs. "The big question in our area was whether the shale would be thick enough to avoid problems with the completions, but we've been satisfied with our initial fracing," he says. Indeed, Infinity treated a dozen stages in one of its wells. In February, the firm was sufficiently encouraged by its experiences to add 24,500 net and gross acres in west-central Comanche County to its position. "The Barnett is thinner and shallower in this area, but we think we have a workable play." The new lands are some 30 miles from its Erath County drilling, and they have some potential in the Marble Falls interval as well as the Barnett Shale. "If everything goes according to plan, starting in June we will take on a rig full-time, and possibly add a second later in the year." says Dean. While there is no market outlet yet for Infinity's gas, that situation should be remedied shortly. At press time, Houston-based Louis Dreyfus Energy Services had nearly completed the first phase of a new system in Eastland, Erath, Bosque and Hill counties that will service the southern portion of the Barnett play. The oil-prone west side Finally, efforts are under way to determine how far into the oil window economic wells can be drilled. Western Parker, Jack and Palo Pinto counties are seeing leasing and some drilling. Notably, EOG Resources recently acquired Jacksboro, Texas-based independent Swan Production Co. and has several wells in progress in Jack County. For some, these areas are attractive because there is existing infrastructure, built to handle the shallower conventional production. And, the well costs are lower because the Barnett is closer to the surface. Dallas-based Five States Energy LLC has taken an acquisition approach to the Barnett. Last year, the company acquired approximately 10,000 gross acres in Wise and Jack counties that had shallow Pennsylvanian production. "We're currently evaluating our options in the Barnett on our held-by-production acreage," says J. Robert Ransone, Five States chief financial officer. "We are excited about the potential on such a substantial block of acreage" He concludes, "There are still companies not in the Barnett that are eyeing the Barnett. It's a wonderful play, and it has a long way to go."