What We Learned About the Barnett Shale During Second Quarter of 2012 Earnings Season
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The Barnett Shale was the first domestic resource play to be developed by the exploration and production industry using hydraulic fracturing and horizontal drilling, and many operators have since moved on to other plays in the United States. Despite this inattention, I feel that a review of recent activity here is warranted and necessary to form a complete picture of conditions in the energy sector.
Production Shut In
Quicksilver Resources (NYSE: KWK) is active in the Barnett Shale with approximately 140,000 net acres in the Fort Worth Basin. The company has cut capital spending on development here over the last few years as it pursues a goal of maintaining spending within its cash flow. Quicksilver Resources was operating two rigs in the Barnett Shale during the first quarter of 2012 and plans to operate only one for the rest of 2012.
Quicksilver Resources shut in production from several pads in the Barnett Shale during the second quarter of 2012 that were uneconomic at current commodity prices. The company’s development plan for the final six months of the year includes drilling four wells, completing six wells and putting eight wells onto sales.
Quicksilver Resources’ long term plan for its Barnett Shale properties is to contribute them to Quicksilver Production Partners LP, a subsidiary of the company, and then conduct an initial public offering of this new entity. The company has delayed the plan due to current market conditions.
Goodbye PUD’s
Chesapeake Energy (NYSE: CHK) reported in its second quarter of 2012 earnings report that the company added proved reserves of 4.2 trillion cubic feet equivalent in the first half of the year. While this is a significant achievement, it only told half the story as Chesapeake Energy eliminated 4.6 Tcfe of reserves from the proved category with most of the revision due to the removal of proved undeveloped reserves (PUD’s) in the Barnett and Haynesville Shale.
Chesapeake Energy indicated during its second quarter of 2012 conference call that these reserves may be added back in 2013. This prediction is based on the current NYMEX futures price.
Barnett Shale Combo
EOG Resources (NYSE: EOG) also has a large position in the Barnett Shale and over the last few years has transitioned much of its development here to properties located north of the dry gas areas. This Barnett Shale combo play produces a mix of oil, natural gas and natural gas liquids and EOG Resources plans to drill 200 net wells here in 2012.
EOG Resources reported several recent wells drilled and completed in the Barnett Shale combo during the second quarter of 2012. These wells had initial crude oil production rates ranging from 400 to 600 barrels per day along with significant natural gas liquids production.
First Mover
Devon Energy (NYSE: DVN) is generally credited with launching the shale revolution in the Barnett Shale through its purchase of Mitchell Energy in 2002. The company is still active in the Barnett Shale and has 625,000 net acres under lease, with plans to drill 300 wells in 2012. Devon Energy is the largest producer here and reported average production of approximately 220,000 barrels of oil equivalent (BOE) per day in the second quarter of 2012.
Goodbye Barnett
Other exploration and production companies have abandoned the Barnett Shale and divested these assets. WPX Energy (NYSE: WPX) closed on the sale of oil and gas properties in the Barnett Shale during the second quarter of 2012. The company received $306 million for these assets and others properties in Oklahoma. These properties were not a significant part of the company base and represented only 5% of its proved reserves.
The Barnett Shale is down but not out as many operators continued development of this area during the second quarter of 2012. The industry needs a strong rebound in natural gas prices before development of the Barnett Shale reaches previous levels.
shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of Devon Energy and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
