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From The Publisher:

Barnett Shale Development Encroaches on DFW Metroplex as Play Grows by Leaps and Bounds; Spreads South

By: Patrick C. Forbis

       When early southeast Texas oil wells blew in during the early twentieth century and kicked off the salt dome craze in the area it was known shortly after the discovery well was dug, that a major strike was at hand. Texas’ early discoveries with the Lucas #1, Daisy Bradford #3, and Roche #3 marked the beginning of the oil craze at the Spindletop, East Texas , and Sour Lake Fields, respectively, with a bang.The Newark, East (Barnett Shale) Field, now rivaling the Carthage (Cotton Valley) Field as the state’s top producing gas field, had a much more modest beginning. The Barnett Shale by no way turned the sleepy towns of Newark, Justin, Rhome or Boyd into the boom towns of old such as Kilgore or Beaumont. There will never be a comparison between the impact of the Newark, East Field to the profound impact the Southeast Texas salt dome fields or elephant fields in west Texas had on the world economy in the past hundred years. Nor will it compare to the East Texas Field’s effect on industry regulation and the Railroad Commission’s oversight powers. The Barnett Shale is, however, proving to be a massive, reliable source for natural gas over the long term as monthly production is now consistently in excess of 10 Bcf. Through November of 2001 the field had produced 116.2 Bcf of gas (in 11 months). In 1993 the field produced 10.7 Bcf for the year. Now this elephant gas field is producing more than that figure in less than a month.

        The Newark, E. (Barnett Shale) first became a Railroad Commission recognized field in early 1981 when Mitchell Energy Corp. made the first economic completion in the Formation with its C.W. Slay #1, located four miles east of Newark, Texas. This truly could not be considered a "discovery" since the Barnett Shale was known to exist in the Fort Worth Basin for some time. Many wells had been drilled for years in the area to the shallower Boonsville (Bend Congl., Gas) Field or to deeper Viola Limestone intervals, while penetrating the Barnett Shale. The development of the Barnett Shale can truly be considered a function of technology, as modern, much larger, fracture stimulation methods have led to greater investments by operators in the field to boost its output. The growth of a field based on technological change can create much of the same frenzy a 3,000 bbl per day or 70,000 bbl per day well sunk into a salt dome feature can cause. This phenomenon was greatly illustrated twenty years ago when horizontal drilling techniques gave way to fame of the Lower Cretaceous aged reservoirs in east-central Texas, most notably of which is the Austin Chalk in the Giddings Field.

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Field Production in 2001 by County (through December):
Wise - 75,022,246 mcf
Denton - 52,956,604 mcf
Tarrant - 3,015,105 mcf
Jack - 26,277 mcf*
Palo Pinto - 12,264 mcf*
Parker - 76,188 mcf*
Hood - 35,836
*- Indicates County where production in the Countyfrom the Newark, East Field
began after January ‘01

Field Production Since 1993:
1993 - 10,791,643 mcf
1994 - 14,005,415 mcf
1995 - 19,665,947 mcf
1996 - 25,558,493 mcf
1997 - 28,448,496 mcf
1998 - 34,411,286 mcf
1999 - 40,792,803 mcf
2000 - 78,964,234 mcf
2001 - 116,234,469 mcf (through November)

        The expanse of the Newark, East (Barnett Shale) Field has also caused action by the City of Fort Worth, which overlies the Barnett Shale Formation, to pass ordinances dealing with drilling gas wells in the city limits of Fort Worth. Those who participated in the development of the drilling ordinances in the late fall of 2001 were representatives of the oil and gas industry, mainly the Texas Alliance of Energy Producers, Mitchell Energy Co. (now Devon Energy) and Chief Oil & Gas, developers, the Railroad Commission, and city staff. Prior to the gas well ordinance, which became effective January 1st, gas well drilling within the city limits of Fort Worth was handled as a zoning issue and required an application for planned development. Once the Barnett Shale play began to spread south, Ft. Worth decided a permit application process should be applied to handle gas well drilling within the city limits. Mitchell and Chief were integral in the drafting of the drilling ordinance. Chief has an application pending under the new ordinance concerning multiple wells (over 20 wells) on a single lease, known as a "blanket gas well permit". Mitchell has already been granted one application pursuant to the new ordinance concerning a location within the city. Mitchell has completed a well within the city limits of Ft. Worth, but approval was granted for this well under the old zoning process. The ordinance requires an applicant to have already received a drilling permit by the Railroad Commission, a $1,500 application fee and well as other requirements. All applications made under the ordinance must be reviewed by the city’s gas inspector. The gas inspector is also in charge of enforcing all restrictions in the ordinance that include: distances wells must be from dwelling, parks, and other public structures, noise level restrictions for drilling and service operations, notice requirements regarding well service and stimulation operations, hours that work on wells can be done, and fencing requirements around drilling and production equipment. The ordinance also requires applicants to post a bond or letter of credit for drilling and production operations as well as liability insurance. These strict requirements regarding drilling in Ft. Worth represent a vast departure from the lack of regulations and conservation measures in place in the cradle of the oil and gas industry, Texas, during the early 20th century. These ordinances represent the effect when the oilpatch literally comes to town. With a tight blanket formation in the ground, advances in fracture stimulation technology, state and federal regulations in effect thanks to Texas’ early black giants, and now city ordinances approved, the Barnett Shale has truly arrived with great benefits to the nation’s natural gas supply.

Is Gas Proration in step with the Changing Gas Market?

    At the last regulatory reform, members dismissed gas and oil proration reform as too controversial and complex. Since the state has not set the oil market  demand since 1977 and the majority of the oil wells do not produce even close to there allowables, the term becomes almost a misnomer. With the shift is Texas’ role as a big oil state to its present and future role as a big gas state, it is evident that the state’s role as a producer has changed. Texas currently produces over 30% of the nation’s demand and its contribution to the increase in demand through 2015 is expected to rise by 15%. With most of the state’s big gas fields on 100% AOF, Giddings (Austin Chalk, Gas), Boonsville (Bend Conglomerate, Gas), Puckett (Ellenburger) and others, gas proration will surely dwindle.

    Currently only 13% of gas produced is prorated. Even the "poster child" of proration, the Panhandle, West field changed its methods of allocation to a more effective system. The field no longer relies on G-10 potential and the filings of MD-1’s. The field, and other similar highly competitive fields, require some proration to protect correlative rights and operators who may be unable to install line compression. As the reform effort pushes forward, it appears that the proration issue is one that the members and the Commission, who remain neutral on the issue, are not enthusiastic about addressing. One desired change in the system would be allowing AOF to be the system’s default and allowing proration to be the exception which could be reviewed on a case by case basis.

    Over the past eight years there have been two notable changes in the gas proration system. In 1992 the Commission eliminated its Form T-3 which was filed by the purchasers to report their expected monthly take. The Commission replaced this with the MD-1, which an operator can file to report its expected market. In the absence of this filing, the Commission performs a look back on production to report demand. Second, in 1996 the Commission adopted a new policy on AOF. This new policy no longer required a recertification process on AOF fields and thus the Commission no longer monitored the fields, leaving it up to the operators in the field to pursue allocation reinstatement if necessary. The  notice sent to operators in June 1996 stated "The March 1996 survey found that among 1,833 AOF fields in Texas, eligibility concerns were present in less than one percent of the fields studied. Because of this, the Commission has decided on less restrictive enforcement measures and is taking a complaint-driven approach."

    Whether the reform team pursues gas proration remains to be seen, but it has been overhauled in the past and many would like to see the end of a complicated, many times flawed system, that has analysts jumping through regulatory hoops to obtain an appropriate allowable and operators seeking relief via field balances. I refer to this system as the Commission's version of the IRS.In a time where gas will have an ever increasing market, producers will continue seeking AOF in future gas discoveries where there is no curtailment and an abundance of equipment to gather gas. Whether that AOF status has to be fought for or remains in the field when it ceases to be a one well entity remains to be seen.

 photograph shown above ("Luling Field") from Shell Oil Co.

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