High prices spur drilling in bucolic Texas townsadmin
Standing tall amid sunflowers and bales of hay, a greasy drilling rig roared loudly, a recent addition to an otherwise idyllic ranch north of Dallas, Texas.
Other signs of change sweep across rolling green fields — green-painted gas wells, large trucks trundling across narrow country roads and a mesh of pipes peeking out of bushes.
This is Ponder, Texas, population 507, one of many towns north of Dallas where a natural gas drilling boom is transforming the rural landscape.
Far beneath ranches and fields in North Texas lies the Barnett Shale, a geological formation that has quickly become one of the most sought-after energy exploration hot spots in the United States.
Just a few years ago, it was considered too expensive — laughable even — to extract the vast gas reserves trapped in the Barnett’s dense black rock.
Thanks to a steep rise in energy prices and advances in drilling technology, the Barnett is now the nation’s fastest growing natural gas field and the biggest in Texas.
“The amount of activity here is larger than anything I ever thought I would see” Jay Ewing, a Devon Energy Corp (NYSE:DVN – news) engineer who oversees some of its operations in the Barnett. “People have known that the Barnett’s been here forever. But it was just thought too difficult to produce from.”
The Barnett now produces 1.2 billion cubic feet of natural gas a day, and is estimated to hold as much as 36 trillion cubic feet of reserves that can be recovered — enough to heat 540 million homes for a year.
Now, companies ranging from small private firms to the world’s biggest oil producers are striking deals to grab a slice of its gas wealth, with Devon paying $2.2 billion in June to acquire Barnett Shale-focused Chief Holdings LLC.
CRACKING THE ROCK
The Barnett’s rise began with Mitchell Energy, a Texas producer that drilled the first well in the shale 25 years ago, when the idea was considered off-the-wall at best.
“Some of our own employees were questioning if we were on the right track,” says Ewing, who started out at Mitchell.
But Mitchell’s persistence paid off, and in the 1990s, new technology that eliminated the need for expensive gels and chemicals brought drilling costs down. Mitchell was later acquired by Devon, now the biggest producer in the area.
Still, getting natural gas from the Barnett is a complicated process.
Under a scorching Texas sun one day in May, workers in grimy overalls and hard hats sat atop the Ponder drilling rig, monitoring pressure and the progress of a large pipe drilling thousands of feet into the ground to create a well.
At another site, workers pump sand and water at extremely high pressures to crack the rock, which in turn pushes the natural gas up the well. This so-called “frac” job is not cheap — running as much as $300,000 a time — but with gas prices at historic highs, the economics work fine.
HOTTEST PLAY AROUND
The Barnett is especially attractive to independent U.S. oil and gas producers who shun the risks of exploring overseas, but face limited access to energy-rich areas at home. Devon, for example, is among the most ambitious in the Barnett.
“With a lot of the political issues in other parts of the world, the U.S. is a safe place to look for oil and gas,” said Devon Vice President Brad Foster.
Others have been beefing up their presence as well. Last month, Chesapeake Energy Corp. (NYSE:CHK – news) agreed to buy acreage for $845 million while Range Resources bought out another Barnett Shale player, Stroud Energy Inc., for roughly $456 million.
Larger players in the area include oil majors Royal Dutch Shell Plc (RDSa.L) and ConocoPhillips (NYSE:COP – news), which owns acreage in the Barnett through its recent acquisition of Burlington Resources Inc.
Their arrival has boosted local economies with new jobs, royalty checks and tax dollars that helped one town, for example, build a new high school football stadium that would have made any college proud.
But the companies are also learning to grapple with a growing community backlash as the drilling pushes rapidly into cities like Fort Worth, bringing gas wells and derricks to residential neighborhoods and backyards.
“We’re losing more and more green space and we’re gaining tons of new pollutants into the air,” says Don Young, who leads Fort Worth Citizens Against Neighborhood Drilling Ordinance, which lobbies against drilling permits being awarded.
Still, analysts predict that won’t stop the drilling and acquisition frenzy as companies expand from producing in the core region of the Barnett to outlying areas.
“It is the hottest play to be in right now,” said Jefferies analyst David Tameron. “And the play is still in its infancy.”
Copyright Â© 2006 Reuters Limited. All rights reserved.