As US gas prices remain in the doldrums, and exploration-and-production companies continue to shift their focus from dry-gas basins to more liquids-rich plays, the venerable Barnett Shale play of northern Texas is continuing to see a drop in gas drilling activity.
In the most recent indication that producers were looking to decrease their presence in the play, on Wednesday, Chesapeake Energy, the second biggest producer in the region announced that if "natural gas prices remain at currently depressed levels, Chesapeake will further reduce its drilling capital expenditures on dry natural gas plays."
The Chesapeake statement, part of the Oklahoma City-based producer's touting of progress in meeting its debt-reduction plan, marks the continuation of a trend that has been going on for several years, said Ed Ireland, executive director of the Barnett Shale Energy Education Council. "That's really old news," Ireland said, noting that Chesapeake CEO Aubrey McClendon "had been saying words to that effect," beginning at a Developing Unconventional Gas Conference two years ago.
Similarly, EOG Resources, the fourth biggest gas producer in the play, in the past several years has been "saying they're going to be focusing their operations in Montague County," in the more liquids-rich region of the Barnett that EOG calls the Barnett Combo play, Ireland said.
In addition, in 2011, several big Barnett Shale operators announced plans to exit the play altogether, in search of greener pastures. In November, Encana Oil & Gas, a subsidiary of Calgary-based Encana Corp. said it had agreed to sell its North Texas gas-producing properties to certain partnerships managed by Houston-based EnerVest for about $975 million.
Encana spokesman Doug Hock said Thursday the sale of its Barnett properties was part of the producer's strategy to divest itself of non-core assets and focus on growth regions such as the Haynesville Shale of western Louisiana and northeastern Texas, where Encana expects to grow its production to 750,000 Mcf/d in 2012.
In February 2011, Range Resources sold its Barnett assets to Katy, Texas-based private operator Legend Natural Gas IV for $900 million. Range said it planned to use the proceeds of the sale to pay off all its debt and invest more heavily in the Marcellus Shale play in the Appalachian Basin.
The number of rigs drilling in the Barnett Shale play has dropped precipitously, from about 190 three years ago, to about a third of that number -- averaging between 60 and 65 rigs -- currently, said Kenneth Medlock, a fellow with the James A Baker III Institute at Rice University.
However, in spite of the drop in number of rigs in the play, "the Barnett Shale is producing more than it was three years ago," Medlock said.
According to Texas Railroad Commission data, for the period of January 2011 through July 2011, Barnett Shale gas production totaled 1.092 Tcf, or about 5.15 Bcf/d, accounting for 31% of total Texas gas production. In 2008, total Barnett production was 1,612 Tcf, or about 4.42 Bcf/d.
Medlock said the companies operating in the play through years of experience have dramatically increased their drilling efficiency, enabling them to produce more gas with fewer rigs.
"The operators have figured out how to cycle rigs more quickly. They've also learned [more] about the shale, where the sweet spots are and how to construct their laterals to maximize production," he said.
This has allowed the operators to redirect rigs to producing basins with higher initial economic returns, such as the more liquids-rich Eagle Ford Shale of southern Texas, Medlock said.
"This is Economics 101. When the gas price is low, producers shift to other plays," he said. "It's been going on for several years. It certainly doesn't spell the end for the Barnett Shale."
Medlock added that despite the migration of operators toward more oil and natural gas liquids production, the US is not likely to see a drop in gas production in the near term. "When you're producing liquids you're still producing gas," he said.
He added that "the growth in gas production is going to abate a little bit." However, over time, the drop-off in drilling in gas-centric plays such as the Barnett eventually will result in a decrease in gas supplies, which in turn will lead to higher gas prices. "The two trends will meet in the middle," he said.
