07/13/2003 Star Telegram


Devon to expand gas well operations

By Dan Piller
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ENERGY: Devon Energy will drill 400 natural gas wells north of Fort Worth this year, plus its first test wells in Johnson and Parker counties.

FORT WORTH--Two years after it bought Mitchell Energy and its extensive Barnett Shale natural gas holdings north and west of Fort Worth, Devon Energy continues to pursue an aggressive drilling program in the area.

"We'll be on a schedule to put in about 400 new wells this year, and we'll spend about $350 million in the Barnett field alone," said Brad Foster, Devon vice president who oversees operations in the Barnett Shale.

The Barnett Shale has quietly become one of the largest natural gas plays in Texas and the United States, with 1,300 new wells since Mitchell began exploiting it four years ago. Devon, which paid $3.5 billion in 2001 for Mitchell, is taking about 530 million cubic feet of natural gas daily from the Barnett Shale formation, which extends about 7,000 feet underground.

"This is a huge resource base, and looking back, it was a great acquisition for us," Foster said.

Devon has been joined by some independents who are taking smaller pieces of the action. One is Adexco Production Co., a partnership organized seven years ago by Bill Adams, former president of the Union Pacific Resources Group; his sons Glenn and Craig; and Mark Caffey. UPR was acquired by Anadarko Petroleum in 2000.

Adexco has assembled a 40,000-acre field and has drilled three wells in northern Tarrant County near the Fort Worth city line. Vice President Craig Adams said the partnership may eventually drill as many as 70 wells in the area.

This year, Devon is gingerly expanding its reach west and south of Fort Worth, with three test wells in central Johnson County and two others in southeast Parker County. Those will be the first wells outside the traditional boundaries of the Barnett Shale, which run from northern Tarrant through Denton and Wise counties.

The jury is still out on how much production can be coaxed from wells west and south of Fort Worth. The tight rock in the Barnett Shale has always represented a test for exploration companies. "There are some real geological challenges south and west of Fort Worth," Foster said. "We still have a lot to learn."

Adexco also plans to try Johnson County. "There is believed to be tremendous potential there, but it is unproven," Craig Adams said.

Foster said Devon isn't likely to drill inside the Fort Worth city limits. A handful of independent drillers have applied to drill in incorporated areas of Keller, Haslet and Trophy Club. But Devon isn't likely to get into urban drilling.

"Our leases don't go into the city of Fort Worth," Foster said. "Mitchell's strategy was to stay out of the city, and we are following it."

Several northern Tarrant County communities, most recently Trophy Club, have received applications for drilling. This year, Haslet removed restrictions on drilling within the city limits to allow residents to sign leases for royalties. In November, Keller set up a system for getting drilling permits in anticipation that it will soon receive applications.

The market timing is excellent for drilling and gas production. This year, shortages of natural gas in the United States have pushed prices above $5 per thousand cubic feet, a record for the normally slack early summer period. Earlier fears of an outright shortage this winter have abated, but the U.S. Energy Department said last week that natural gas supplies will still be tight enough to support an average price of just under $5 per thousand cubic feet.

A year ago, natural gas sold for about $3.50 per thousand cubic feet, and that price was considered strong compared to sub-$3 prices that were the norm throughout most of the 1990s.

So Devon stands to gain handsomely from its work in the Barnett field. Foster calls the field "a tremendous resource," and said Devon is working to exploit it "as fast as our resources will allow."

Analyst Fadel Gheit of Fahnestock & Co. in New York calls the Barnett Shale "the crown jewel" of Devon's energy mix, which now extends offshore and worldwide after the company purchased Ocean Energy this year.

"Devon will be able to exploit the Barnett Shale better than Mitchell because Devon has more financial resources," Gheit said.

Until very recently, most Barnett Shale drilling has been the traditional vertical. But Devon and others have begun to use horizontal wells in hopes of coaxing more gas from the tight rock. Twenty-four of Devon's wells are horizontal, and all of Adexco's drilling has been on the slant. Geologists believe that slanted wells release more gas.

"When we first did it, we weren't sure it would work," Foster said of the horizontal wells that have been used for a decade or more in the Austin Chalk of South Texas. "Now we think we can get nearly double the production from a horizontal well as a vertical."

Others are following suit, including Adexco.

The Barnett Shale field has long captivated geologists and energy explorers because it is believed to hold up to 30 years' supply of natural gas, compared with 12 to 15 years for average natural gas reservoirs in the continental United States.

But getting that gas is another matter. Texas energy pioneer George Mitchell presciently took out extensive leases in the Barnett field a half-century ago, but most of the original drilling was confined to the Booneville formation about 3,000 feet deep.

The deeper Barnett formation awaited advances in technology to refracture, or "frac," the tight rock that holds the gas. New refracturing techniques that mix water with fine sand have proven successful in getting more gas from the Barnett Shale rock, Foster said.

"George Mitchell was visionary in his belief that someday the technology would someday exist to enable him to exploit the Barnett Shale," Foster said.

Devon Energy Corp.

* Headquarters: Oklahoma City

Chief executive: Larry Nichols

* Employees: 3,438

* Operations: In the United States, production operations in the Permian Basin and the Barnett Shale north of Fort Worth; the midcontinent; the Rocky Mountains; and the onshore and offshore Gulf Coast. In Canada, the western Canadian sedimentary basin in Alberta and British Columbia. Overseas in Azerbaijan, Brazil, China and West Africa.

Dan Piller, (817) 390-7719 This email address is being protected from spambots. You need JavaScript enabled to view it.

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