They're going gaga for shale

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IT'S ALL SHALE, BUT ...

Oil shale and natural gas shale are similar but not identical.

How they're alike

Both are rocks that formed millions of years ago in areas once covered by water. Organic matter trapped in the rock as it hardened turned into hydrocarbons.

How they're different

Oil shale is any sedimentary rock that contains solid bituminous material, called kerogen, that turns into petroleum-like liquids when the rock is heated without oxygen.

Gas shale is fine-grained rock that contains methane, the predominant ingredient in natural gas. It must be fractured to create holes and cracks that allow access to the gas.

Where they are

Sometimes shale formations contain both oil and gas, while others are predominantly one or the other. Most U.S. shale production today is gas. Significant oil shale formations are in the Rocky Mountains and Montana and North Dakota, while producing gas shale formations include those in north Texas, Arkansas and Oklahoma.

Sources: U.S. Geological Survey, American Association of Petroleum Geologists, Devon Energy

They're going gaga for shale

The promise of abundant natural gas in thick rock formations has companies eager to nab drilling rights and perfect techniques to get the valuable resource

By KRISTEN HAYS

2008 Houston Chronicle

DENTON — The Barnett Shale, sprawled across 18 counties in north Texas, is more than a bountiful source of natural gas. It's the granddaddy of a modern shale frenzy that has companies racing to nab drilling rights from the Rockies to the Appalachians.

In the last five years or so, the Barnett's production has ballooned from minimal to 3 billion cubic feet per day, as operators perfected drilling techniques to maximize access to gas trapped in the thick rock underneath pastures, farmhouses, suburbs and even strip malls.

Eager to export that success to other shale plays, companies are snapping up drilling rights — sometimes at $25,000 or more per acre — close to urban areas in the Barnett, as well as in the Haynesville Shale field in East Texas and northern Louisiana.

Other hot spots for natural gas production include the Marcellus Shale in Pennsylvania, Ohio and New York, and the Piceance Basin in western Colorado.

"Everybody has shale fever," said Richard Mason, publisher of the Land Rig Newsletter in Lubbock, which tracks natural gas shale activity across the country.

He's not kidding. The fever has hit such a pitch that Oklahoma City-based Chesapeake Energy last week announced plans to launch an online video channel this fall, Shale.TV — all about gas production in the Barnett Shale.

That move came a little more than a week after analysts swooned at Chesapeake's $1.7 billion sale of 20 percent of its 550,000 net acres in the Haynesville play to Houston-based Plains Exploration & Production Co., creating a new joint venture.

Shale also can contain oil. But getting it is even more difficult than producing gas because its molecules are much larger, so it's harder to force out of the rock.

Companies are just beginning to develop new oil-shale technology as soaring crude prices have made it potentially profitable, while gas shale production is established and growing.

Gas shale, however, is nothing new. Mason said the real grandfather was a shale play in Kentucky dating back to the World War I era.

But the Barnett, with core areas in Tarrant, Wise and Denton counties, became something of a laboratory for perfecting well-stimulation methods pioneered by The Woodlands-based Mitchell Energy, which drilled the first Barnett well in 1981.

Horizontal drilling

The Barnett is the largest producing natural gas field in Texas, and some experts say it could be the largest in the U.S. The U.S. Geological Survey estimates that the Barnett field has about 27 trillion cubic feet of gas.

But the gas is hard to get. Unlike conventional wells, which extract gas from porous rock formations, shale is hard and nonporous.

By the late 1990s, Mitchell had perfected a method to fracture shale to create cracks and holes from which gas could flow.

In the old days, drillers dropped dynamite down a well to break up the rock, said Kevin Delay, an engineer for Devon Energy.

Now companies inject water and sand under high pressure to create pathways for the gas to be released, he said.

But the big breakthrough came in 2003 with horizontal drilling.

When Oklahoma City-based Devon acquired Mitchell in 2002, its wells were drilled vertically and produced about 3 million cubic feet of gas per day, said John Richels, Devon's president.

By 2003 the company started drilling horizontal wells, descending vertically 7,000 to 8,000 feet and then curving horizontally for about 2,500 feet. This method allows access to multiple areas from one drill site.

Also, drill bits cutting horizontal wells can reach shale otherwise inaccessible because it lies under farmhouses, barns, suburban homes and even strip malls in urban areas.

"With horizontal drilling since 2006, we've seen a dramatic increase in production," Richels said. "Last year it went up 33 percent."

Devon, which has rights to 727,000 acres in the Barnett, mostly avoids urban areas, said John Raines, an acquisition and divestitures landman for the company.

Landmen seek and acquire drilling rights from landowners, known in the business as "surface" owners.

"Prices of acreage are out of control, plus you have legal issues of drilling in backyards," Raines said. "Leases can cost $25,000 per acre, and then you pay 25 percent royalties. Those economics are, frankly, too slim for Devon."

Another challenge in any shale operation is water use. Mason said a single well in the Barnett can require 5 million gallons of water to fracture the rock, which can be problematic if it means siphoning water from municipalities.

Water reused

Devon has a water recycling operation in the Barnett that allows up to one-fourth of water used in wells to be recovered.

The water is heated to clean out brine gained during the fracturing process, and nearly all of that distilled product can be reused.

The company can't just reuse the dirty water because chemicals picked up during the first use would corrode drilling pipes.

Delay said Devon's daily production of 1 billion cubic feet — one-third of the Barnett's overall production — taps about 20 percent of what's there.

That leaves 80 percent that could be extracted with improved recovery and more technological breakthroughs, he said.

The 1 billion cubic feet per day produced now is about 2 percent of the nation's natural gas production.

Devon is the biggest Barnett producer, followed by XTO Energy and Chesapeake.

Chesapeake has been particularly aggressive in shale plays, now leasing 14 million acres overall with stakes in the Haynesville and Barnett as well as Arkansas' Fayetteville Shale, Oklahoma's Woodford Shale, and Pennsylvania's Marcellus.

Mason said the Haynesville and Marcellus plays "are still exploratory in nature," as companies gain acreage and scope out possibilities.

However, Chesapeake CEO Aubrey McClendon told analysts earlier this year that Haynesville was a "major" find and the company believes it has 7.5 trillion to 20 trillion cubic feet equivalent of gas. Chesapeake expects costs of $6.5 million per well.

Jeff Hayden, a senior analyst with Pritchard Capital Partners in Houston, noted that shale production in fields like the Barnett, Haynesville, Woodford and Fayetteville is profitable when natural gas trades at around $8 per million British thermal units. Current prices above $12 paint an even rosier picture.

"Gas prices have risen significantly, which increases the value of what you get from the reserves you produce," Hayden said. "And a lot of plays don't need $13 for the economics to be good. At $8, they generate very good returns."

http://www.chron.com/disp/story.mpl/headli...iz/5884410.html

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http://geology.com/articles/marcellus-shale.shtml

"Although signing bonuses generate an enormous amount of interest because they are guaranteed income, royalties can be significantly higher. A royalty is a share of a well's income. The customary royalty rate is 12.5 percent of the value of gas produced by a well. Higher royalty rates are sometimes paid by aggressive buyers for highly desirable properties.

The royalties paid to eligible property owners from a well yielding over one million cubic feet of natural gas per day can be millions of dollars per year. These royalties are divided by all eligible property owners within a production unit (an area of land that is thought to contribute gas to a producing well - typically 640 acres). The amount paid to each eligible property owner is based upon their ownership share.

If the Marcellus Shale holds up to the optimistic expectations of some natural gas experts, Pennsylvania, Ohio, New York and West Virginia could temporarily have an enormous boost in income that might be sustained for a few decades."

[Amby 490]

yesssssssssssssssssss we have 2000 acres of land and bucketloads of shale.

eta: no one will let anyone do any sort of drilling or anything on our property. maybe when money gets low

Edited July 13, 2008 by Amby