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Barnett Shale Now Largest Gas Producer in Texas, Crosstex to Build Pipe

From a trend once thought to be unpromising because of its dense rock formations, the Barnett Shale natural gas field in North Texas, unlocked by technology, has officially become the largest gas producer in the state, with output up 22% in 2004.

The Railroad Commission of Texas (RRC) said the Barnett Shale field solidified its position in 2004 with production at almost 370 Bcf. Devon Energy Corp. led the way, with its Barnett output at 200 Bcf.

The news concerning the growth of the Barnett Shale preceded an announcement Thursday by Crosstex Energy LP, which has entered into definitive agreements to begin construction of its North Texas gas pipeline project. The pipe would bring gas out of the Barnett Shale into markets in the Midwest and East. The pipeline was first announced in December (see NGI, Dec. 20, 2004).

"We are very excited to have the opportunity to build the needed additional pipeline capacity and provide market outlets for the rapidly growing Barnett Shale production," said Barry E. Davis, CEO of Crosstex.

Based on commitments from producers operating in the Barnett Shale, including independent Chief Oil & Gas LLC, Crosstex will begin the construction of a 122-mile, 24-inch diameter pipeline from a point just north of Fort Worth, to interconnect with Natural Gas Pipeline of America, Houston Pipeline Co. and Kinder Morgan in Lamar County, TX. The pipeline will have initial capacity of 250 MMcf/d. With additional volumes, compression could be added to expand the capacity up to a maximum of 375 MMcf/d.

Crosstex also has commitments from producers to construct an additional 11 miles of gathering pipeline to interconnect supply from the Tarrant County area into the North Texas Pipeline. The construction cost is estimated at $98 million and is expected to be completed by January 2006.

"Crosstex's North Texas Pipeline brings access to new market outlets from the Barnett Shale play, allowing Chief and other producers to focus on executing our exploration and development strategy," said Trevor Rees-Jones, CEO of Chief Oil & Gas.

The Barnett Shale first caught the eye of independents following Mitchell Energy & Development Corp.'s success in the late 1990s. Mitchell began developing the trend in 1999 with a hydraulic fracturing technique that horizontally drills into the hard rock. Since 1999, the area has produced nearly 1.3 Tcf of gas. The U.S. Geological Survey estimates the Barnett Shale may hold up to 30 Tcf of gas.

Devon acquired Mitchell in 2001 (see NGI, Aug. 20, 2001), and since then, Devon's gas production has steadily grown. Last year, Devon drilled more than 1,900 wells in the Barnett Shale, and overall, it holds 390,000 net acres in the trend.

The Barnett Shale also has encouraged many of the smaller and junior independents to move into the prolific region.

For instance, Tradestar Corp., a Hot Springs, AR junior independent, acquired an option on Friday to purchase 1,008 acres in the formation. The acreage has two existing wells that can be horizontally reentered and an additional nine new horizontal well locations. Reserves are estimated at 2-4 Bcf per well, with daily production estimated at 1,500 Mcf/d for each well. If the acquisition is completed, the field would give Tradestar a total of 15 Barnett Shale locations.

"This is one of those once-in-a-lifetime opportunities," said Tom Feimster, Tradestar's CEO. "Tradestar is committed to producing the Barnett Shale in a big, big way. This acquisition would put Tradestar in an elite class of producers, the big leagues if you will."

Total gas output in Texas last year reached 5.8 Tcf, nearly equal to 2003 gas production. The 2004 total, which includes preliminary figures for December, was within the production range of between 5.6-5.8 Tcf annually over the last seven years. In 1972, gas production in Texas peaked at 9.6 Tcf. Still, the Lone Star State remains the largest domestic gas producer. It accounts for about 25% of the 20 Tcf produced annually.

Devon also led in gas production for Texas, producing 337.2 Bcf in Texas last year, with about 6.9% of total state gas output. Anadarko Petroleum and Anadarko E&P Co. LP combined produced 248.2 Bcf, slightly more than ConocoPhillips, the 2003 leader, which reported 245.9 Bcf, or 5% of the total output.

XTO Energy, also fueled by growing acquisitions in the Barnett play, moved into fourth place in 2004 for statewide production, with 223.2 Bcf. Until last year, XTO had concentrated its gas drilling in East Texas, but since the beginning of 2004, it has purchased North Texas property from Antero Resources and a private seller, both large leaseholders in the Barnett Shale (see NGI, Jan. 17; March 1, 2004).

Rounding out the top five Texas gas producers for 2004 was perennial leader ExxonMobil, with 195.6 Bcf. EOG Resources Inc. was sixth with 173.8 Bcf. EOG also has been ramping up Barnett Shale production and at the end of the year had 400,000 acres under lease in the play.

El Paso Production Oil & Gas Co. was in seventh place in Texas production, with 144.7 Bcf, followed by Chevron U.S.A. Inc., 144.4 Bcf; BP America Production Co., 125 Bcf; and Chesapeake Operating Co. with 103 Bcf.

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