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ENERGY REPORT

June 19, 2008

Ben Fortson Jr.


Marvin Gearhart
2008 Legends
Luncheon
Honorees
T
Inside
Barnett Shale Symposium Speakers
4 MARK METZLER • Texas Alliance of Energy Producer
5 JOHN S. BAEN • University of North Texas
6 DAN JARVIE • TCU Energy Institute
7 JOHN HOLDEN • Jackson Walker LLP
9 ROGER BEECHAM • Shannon, Gracey, Ratliff and Miller, LLP

10 Seeking oil in the Barnett Shale


EOG goes for the crude

12 Refurbishing the past


XTO remakes historic building for Barnett Shale duties

15 The new Barnetts


New shale plays are developing around the country

18 Q&A
The shale doesn’t stop here anymore Dan Steward, author of The Barnett Shale Play:
Phoenix to the Fort Worth Basin, A History
I received a call a few weeks ago from a woman who had been approached by
an “agent,” she said, who wanted to give her a bonus for some mineral rights to 21 Texas Alliance of Energy Producers
her land. She said the “agent” said her property was directly above some shale
2008 Fort Worth Legends Award Winners
rock that was important to several energy companies. She wondered what she • Marvin Gearhart
should do. • Ben Fortson
This would be typical of the calls I’ve received for the past several years, except
this call was not from Tanglewood, East Fort Worth, Cleburne or even
Weatherford. It was from New York state.
24 Fort Worth Museum of Science and History
That’s right, the little shale play that started here has grown up, put on long Journey to the center of the Barnett Shale
pants, graduated and headed east.
We knew it would happen, but so soon? 27 Finding the right spot
Despite the fact that shale plays are exploding from here to New York, we still Fort Worth Energy works with large independents
have plenty to talk about here. As you will see, we’re just getting started and there
are still plenty of topics for analysis, argument and discussion. And not just here 29 Patrick Reardon
either, but around the state, the nation and the world. Our Barnett Shale Breakfast
Changes in oil and gas reserve rules
Symposiums are the perfect place to start the discussion.

Robert Francis 30 Barnett Shale Education


Editor Local community colleges begin training
Fort Worth Business Press
31 James Frederick Korth
Publisher Reporters Advertising Executives Cantey Hanger LLP
Banks Dishmon Elizabeth Bassett, Betty Dillard Mary Schlegel, Elizabeth Northern
Aleshia Howe, John-Laurent Tronche Andrea Benford, Robert Southerland
Chairman, Advisory Board Leslie Wimmer Annie Warren
Richard L. Connor 32 Alex Mills
Correspondents Vice President/Operations
Editor John Armistead, Will Brackett Texas Alliance of Energy Producers
Shevoyd Hamilton
Robert Francis Tonie Auer, Dell Cain
Receptionist
Associate Editor Production
Brent Latimer Olivia Jacobs 33 Ed Ireland
Michael H. Price
Clayton Gardner Barnett Shale Energy Education Council
Photographers
Managing Editor Glen E. Ellman
Lists
Crystal Forester Mary Kennan Jon P. Uzzel
35 When the past returns
Accounting Office
Anjanette Hamilton Don Woodard’s oilfield classic

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Cover art by Jon P. Uzzel
June 19, 2008 Energy Report ✦ 3
SYMPOSIUM SPEAKERS

Barnett Shale’s oil potential creates stir in gas play


The Energy Information Administration predicts

T
he excitement intensi- price is expected to average $9.69 per Mcf in 2008
fied about the poten- demand for natural gas and crude oil to continue and $9.41 per Mcf in 2009, increases of $1.10 and
tial of oil in the to increase the remainder of this year and next $1.09 per Mcf, respectively, from last month’s
Barnett Shale when news year. Energy Information Administration Outlook.
leaked out about new wells
being completed in the Natural gas Crude Oil
northern part of the tradi- Total natural gas consumption is expected to Production. In 2007, domestic crude oil output
tional natural gas play. increase by 1.4 percent in 2008 and by 0.5 percent averaged 5.1 million barrel per day (bbl/d),
Mark Papa, CEO of in 2009. The residential and commercial sectors are unchanged from 2006, according to the EIA. Total
Houston-based EOG MARK METZLER expected to lead consumption growth in 2008 output in 2008 is projected to grow by only 10,000
Resources Inc., said the oil because of the projected 5.4 percent increase in bbl/d. In 2009, domestic crude oil production is
Texas Alliance of
play is something new and Energy Producers heating degree-days compared with 2007. In con- projected to average 5.3 million bbl/d, up 210,000
has become efficient trast, the projected 12.4 percent decline in cooling bbl/d from 2008. Federal Gulf of Mexico output is
because of the new technology being developed. degree-days from the warm summer of 2007 is expected to rise by 260,000 bbl/d, but declines are
“We are in the early stages of a major sea expected to leave consumption of natural gas in projected for Alaska (30,000 bbl/d) and the lower-
change in the onshore oil and gas business caused the electric power sector relatively unchanged. 48 states (20,000 bbl/d).
by technical improvements in horizontal drilling,” Finally, the declining real value of the U.S. dollar Total petroleum consumption of liquid fuels and
Papa told reporters at the company’s annual ana- and some recovery in the fertilizer market are other petroleum products averaged 20.7 million
lysts meeting. expected to contribute to slight growth in industrial bbl/d in 2007, essentially unchanged from 2006.
“It is a really, really big deal,” he said. “The sector output and natural gas consumption in both Based on projections of weak economic growth
magnitude is underestimated by Wall Street and by 2008 and 2009. and record high crude oil and product prices, con-
other exploration-and production companies.” Total U.S. marketed natural gas production is sumption is projected to decline by 190,000 bbl/d
He believes the horizontal drilling techniques expected to increase by 4.6 percent in 2008, then in 2008, a sharper drop than the 90,000 bbl/d
developed in drilling for gas reserves in the Barnett decline by 1.1 percent in 2009. Despite current decline projected in the previous outlook. After
Shale will have major implications for oil drilling repairs at the Independence Hub, production from accounting for projected increases in ethanol use,
and production, too. the Federal Gulf of Mexico is expected to increase U.S. petroleum consumption is projected to fall by
Apparently, oil and gas analysts took Papa’s by 4.2 percent in 2008. Sustained high rig counts 330,000 bbl/d. In 2009, total petroleum and other
comments to heart as EOG’s stock surged to a 52- in the lower-48 onshore region are expected to liquid fuel consumption is projected to rise by
week high of $124.73 immediately after the lead to an increase in onshore production of 4.9 210,000 bbl/d.
announcement. percent in 2008, according to the EIA.
EOG has drilled several new oil wells in Through the first four months of 2008 liquefied Oil Prices
Montague and Clay counties, which border the natural gas (LNG) imports totaled an estimated 115 West Texas Intermediate crude oil prices, which
Red River. Montague County has the second high- billion cubic feet (Bcf), considerably lower than the averaged $72.32 per barrel in 2007 are projected
est oil production in the 19-county region with 1.2 import total of 283 Bcf at this time last year. The to average $110 per barrel in 2008, up about $9
million barrels of production so far. Wise County, shift of LNG away from the United States this year per barrel from the projection in last month’s
immediately south of Montague, has had 4.1 mil- results from higher prices available to LNG suppliers Outlook, and $103 per barrel in 2009, up about
lion barrels of production and is the largest oil pro- for deliveries to both the Asia-Pacific region and $11 per barrel from the previous outlook.
ducer in the Barnett Shale. Europe. Although EIA still expects significant addi- The Energy Information Administration projects
Leasing activity has picked up in Archer and tions to world LNG productive capacity through regular-grade motor gasoline retail prices, which
Young counties, too. 2009, recent delays in bringing new liquefaction averaged $2.81 per gallon in 2007, to average
EOG is trying to keep the information as quiet projects to full operational capacity and current $3.52 per gallon this year, up 16 cents from last
as possible until they get its acreage under lease. high demand in other parts of the world will con- month’s outlook. The motor gasoline price is
tinue to constrain LNG shipments to the United expected to average $3.66 over this summer (April
Economic impact States. In 2007, LNG imports totaled 771 Bcf. The through September). These projections reflect our
The Fort Worth Chamber of Commerce com- 2008 LNG import forecast is revised downward to assumption of a sizable narrowing of refiner gaso-
missioned economist Ray Perryman to conduct a 580 Bcf from 680 Bcf in last month’s EIA Outlook. line margins from last year, attributable to weak-
study of the economic impact the natural gas play As of April 25, working natural gas in storage ness in gasoline demand and growth in ethanol
is having on the citizens of North Texas. was 1,371 Bcf, 3 Bcf below the five-year average supply. In 2009, regular-grade gasoline retail prices
He noted that last year he predicted a 20 per- (2003-2007), and 255 Bcf below the level during are projected to average $3.44 per gallon, 20 cents
cent increase per year, but the economy increased the corresponding week last year. higher than in the previous outlook.
50 percent in 2007. The Henry Hub spot price averaged $10.49 per EIA estimates that diesel fuel retail prices in
He also found activity in the Barnett Shale is million cubic feet (Mcf) in April, $0.74 per Mcf 2008 will average $3.94 per gallon, up from $2.88
responsible for 8 percent of the economic activity above the average March spot price. Continuing per gallon last year. This reflects global strength in
in North Texas. cool weather (heating degree-days were 6 percent diesel demand that is contributing to a widening of
Perryman said the activity created 83,823 per- higher than normal in April), sagging imports of the margin between diesel prices and crude oil
manent jobs and pumped more than $8.2 billion LNG, lower inventories and higher oil prices have costs since last year. Retail diesel prices are project-
into the local economy. all contributed to the recent strength in spot prices. ed to average $3.67 per gallon in 2009. ER
With the natural gas play in full bloom and the Uncertainty over natural gas demand by the electric
oil play beginning to bud, the oil and gas economy power sector during the summer and the possibility Mark Metzler is chairman of the Texas Alliance of
of North Texas appears to be on the verge of a of hurricane-related supply disruptions later this Energy Producers and president of Felderhoff
year could impact spot prices in the coming Production Co. in Gainsville.
bountiful harvest.
months. On an annual basis, the Henry Hub spot

4 ✦ Energy Report Fort Worth Business Press


SYMPOSIUM SPEAKERS

Valuation and tax implications of the Barnet Shale


the end of the year by the oil company but is ly be due and payable or your rights can be sold

A
long with the bless-
ings of various more income than you actually received. Danger – on the courthouse steps.
forms of income Most oil companies send a gross income state- • The Texas law and valuation model on royal-
from the current oil and gas ment before legitimate expenses (you did not ty/mineral taxes is complicated, but in my opinion,
boom, also comes the receive this amount of money). friendly to the oil companies and royalty owners,
“curses” of those pesky Question: How can I reduce these taxes? and is much less than “true market value.”
taxes that help keep this Keep every check stub, and every monthly report, Pipeline easements and damage payments:
great country, state, coun- which is called a “check and well/lease detail All income is reportable to the IRS but not all
ties, cities and school dis- statement.” Common deductable expenses income is taxable the year received if you have
tricts running. The only include, but are not limited to, the following. good representation at the time an easement is
JOHN S. BAEN
thing worse than no cash • State severance taxes signed and also have a good professional and
University of North Texas
or having no direct income • Marketing changes (rip off to us) qualified CPA and appraiser. The actual damage
from the oil and gas boom, is getting lease bonus • Compressor charges income to the value of the land and remainder of
money, damages money and royalty • Pipeline/Transportation charges your land can be deferred until the land is sold,
payments….and being ignorant about your taxes • Other exotic charges (there are many) similar to the well-site damages. I recommend
that are due at the end of the year. Worse yet is Texas State Severance Taxes: two checks: one for the granting of the easement
not realizing that these income blessings are all No options here, everyone pays and your (taxable) and one for damages, marked damages.
taxable, if not now, eventually. check always has this tax taken out first. Estate taxes on mineral rights to the IRS:
I am not a CPA, not a lawyer, however, I am Texas is a wealthy state and has no state Danger – You are likely unaware that you have
wise enough to know I need one of each in my income taxes due to our blessings of oil and gas. a Texas lotto ticket that you have won that has an
life to maximize my income and honestly defer, A visit by the Penn State Team in my office should income stream from royalty that has a market
reduce or avoid altogether my federal, state and lead to Pennsylvania following the Texas model. value of 50 months to 60 months of income plus
local taxes. They pay no severance taxes. Our Texas $8 billion potential mineral right values worth much more
The valuation of pipeline rights of ways and surplus is due to the following taxes collected at (all known and unknown oil and gas producing
mineral rights, (undeveloped, leased, drilled/pro- the well head on every drop and cubic foot of zones). Without estate planning at your death,
ducing, partially developed or fully developed) is natural gas. the present value of your mineral estate will be
important for many reasons and the conclusions Severance taxes: values by the IRS and will be added to your estate
require multiple approaches to estimate their Oil = 7.5 percent on every barrel produced at and taxed at 35 percent to 55 percent on monies
value depending on the intended use and pur- market value. That is $9.75 per barrel of oil at you or your heirs have not yet received. If you
pose of the appraisal. $130 per barrel. receive $10,000 per month royalty checks and
The basic over-simplified version of oil and gas Natural gas = 5.6 percent or 50 cents per you are over the estate exclusion limits after con-
associated income and tax issues are as follows: 1,000 square feet (mcf) at $9. sidering the value of all your other assets, (house,
Bonus payments at signing of a lease: Question: How do I know if I am getting paid business, cash, collectibles, stocks, bonds, etc.)
This taxable income in the year received and is fairly or how much oil and gas is actually being your estate could easily owe an additional
added to your other ordinary income. sold under my land? $200,000 to $300,000 to the IRS because of the
Question: Could you defer, not sign, the lease Trust me, you are not getting cheated and I value of your royalty and minerals rights.
until January? This could delay taxes until the fol- will explain this at the seminar. Question: How can I reduce these estate
lowing year. Local ad valorum taxes and royalty: taxes and liabilities, but yet still get the money to
Well-site damages on your land Oil and gas rights and their values in Texas are spend in my life?
Can be claimed as ordinary IRS income or not taxable as part of your real estate until oil and • Time your death carefully. Fifty-five percent
preferably treated as “damages” that reduce your gas is produced and sold. One of the biggest little will be the new tax after Bush’s tax relief expires
basis or cost/price paid at the time you acquired “dirty” secrets in the oil and gas boom is that you and greatly depends on year of your death and
the property. While still reportable, this changes will get an end-of-the-year tax statement from the exclusion amounts for any given year through
the “value” of the damage payment and converts the appraisal district on the present accessed/mar- 2011.
the “income” from ordinary income to capital ket value of your royalty income stream – just like • Deed your minerals to a trust or family limit-
gains (taxed at 15 percent in 2008) when and if you do on your house. A good idea is to save 5 ed partnership.
the property is sold. percent to 8 percent of your monthly income to The “best” of the two options are topics of
Question: If they drill on my homestead and pay your city and school taxes in December. Oil huge discussions between CPAs, estate planners,
there are no taxes due on the sale (zero taxes due companies pay their part, but never yours. lawyers, professors and owners. Oil and gas
up to $500,000 – tax free profit) of my home- There is much confusion on this for several income are blessings, but taxes will be paid.
stead, is it ever taxed? reasons: Dividing your land into two estates (surface and
Royalty payment IRS taxes: • The tax offices are running months behind minerals) is a wise decision for many reasons and
Yes, these payments are taxable every year by due to the 8,600 wells drilled in North Texas and only requires a mineral deed ($350 to $500 per
the IRS and there are few expenses or deductions delays in information, reporting and royalty pay- deed) and a valuation of both estates to establish
to reduce or avoid paying the tax. ments held in suspension on many wells. an IRS basis or remaining values. ER
Question: How can I minimize these taxes? • Outside contracting firms handle your oil
Now you need a CPA. and gas valuation and tax statements from far- Baen is a professor of business at University of North
away places, like Austin. Texas and offers several articles on the Barnett Shale
• Depletion allowance: A small portion of and oil and gas topics at
the income is excluded from taxation. • The appeal process is cumbersome, time www.coba.unt.edu/firel/baen
• Your annual royalty income statement: consuming and quite often the information pro-
The statement will be sent to you and the IRS at vided on your statement is wrong. Not all wells
show up in the data, but local taxes will eventual-
June 19, 2008 Energy Report ✦ 5
SYMPOSIUM SPEAKERS

Petroleum source rock: A trap for natural gas


the Barnett Shale, which were later eroded, i.e., gas and thus, becomes a potential shale oil play

W
here is the most
likely place to removed by surface geological processes, during where primarily oil would be produced. This is
find hydrocar- uplift of the basin resulting in the present-day semantically different from oil shale such as the
bons in a sedimentary depth of burial of the Barnett Shale. This is why Green River Oil Shale, found in various Rocky
basin? In a petroleum there is more gas production to the east and Mountain basins, which can be converted to large
source rock. more oil production to the north and west – high- amounts of oil by physically heating masses of the
Petroleum source rocks er temperatures were reached in the gas prone rock. However, when these processes are con-
are formed from the depo- areas. ducted over short periods of time (days to years),
sition, preservation and Thus, a key role for the geochemist is to iden- the temperature requirements for such a process
decomposition of biological DAN JARVIE tify the degree of cooking of the source rock in are much higher (350°C). One then has to consid-
matter. This biological mat- the geological past. er the energy balance from such a process: the
Worldwide Geochemistry
ter can range from micro- energy input has to be less than potential energy
organisms such as plankton, bacteria and algae to The trap output of the generated oil, otherwise the process
plant debris. Globally, it is estimated that only 1 A petroleum source rock will generate oil and is a waste of energy. It increases supply, but the
percent of deposited organic matter is preserved, gas, much of which is expelled out of the source energy balance can be a net gain of zero or even
the remaining portion being consumed or altered rock and migrates into a trap. Conventional negative.
by biological activity requiring the presence of exploration looks for such traps and then, if suc- How do we evaluate the Barnett Shale or
oxygen. cessful, produces oil or gas or a mixture of the other shales for their native oil and gas produc-
Preservation of organic matter occurs under two from the reservoir rock. tion potential? A geological chemist (geochemist)
specific environments such as oxygen-deprived A petroleum system involves all the compo- analyzes pieces of the rock or samples of oil or
conditions in deep water marine settings. The nents and processes necessary to generate, expel, gas to assess various characteristics. For example,
Barnett Shale is one such accumulation containing migrate and trap petroleum. Conventional pro- we want to know if shale is sufficiently organic
preserved organic matter deposited and preserved duction is from a trap, i.e., a closed container, rich to yield commercial amounts of petroleum so
under oxygen-deprived, marine conditions. How where it was filled with oil and gas that migrated we measure total organic carbon. Typically the
do we know that it is a marine sediment? The from a petroleum source rock that may be nearby, Barnett Shale in the main producing area aver-
answer is the presence of marine fossils. This also i.e., hundreds to thousands of feet away, or far ages 4.5 weight percent organic carbon in the
means that about 300 million years ago, the away, from tens of miles to upward of hundreds total rock mass. However, its original organic car-
future Fort Worth basin was under several hun- of miles away from the trap. bon content was likely about 7 weight percent or
dred feet of sea water. What is different about the Barnett Shale? It is higher. The difference is the amount of carbon
Most petroleum (oil and gas) is formed from source, trap and seal – it is a self-contained petro- that would be found in all the oil and gas gener-
the thermal decomposition of organic matter, leum system. There is no need to identify a specif- ated, i.e., 2.5 weight percent. This amount of
which requires exposure to heat. In geologic ic trap and account for hydrocarbon charge via generative organic matter may appear to be a low
terms this is accomplished primarily by burial of expulsion and migration from a source rock. Thus, amount, but when converted to oil or gas equiva-
sediments and then exposing them to elevated rather than looking for subtle traps where petro- lents, this amounts to about 150 million barrels of
temperatures as heat from the mantle is conduct- leum might be trapped, a shale resource play such oil equivalent per square mile where the Barnett
ed through sediments to the surface. as the Barnett Shale can be mapped in terms of Shale is 350 feet thick.
Temperatures for thermal oil and gas formation depth and thickness of the shale rock “kitchen” Remember the Barnett Shale has expelled a lot
from biological material is relatively high – about over miles and hydrocarbon charge is present of hydrocarbons and this is verified by conven-
80°C to 200°C – with the bulk of oil being because… it is the source rock for petroleum. tional oil and gas production. In fact we estimate
formed between 80°C and 150°C (ca. 175°F - The keys to successful Barnett Shale gas pro- the Barnett Shale has previously expelled approxi-
400°F) and the bulk of gas forming between duction are identifying those areas where the for- mately 60 percent of the hydrocarbons that it
150°C and 200°C (300°F -400°F). mation is organic-rich, sufficiently thick, and suffi- generated. Thus, only 40 percent of its total
Present-day temperatures of the Barnett Shale ciently cooked to convert the preserved organic hydrocarbon generative potential remains in the
at 4,000 feet to 8,000 feet are about 80°C matter to hydrocarbons. shale, and only a small portion of this is being
(175°F). Thus, we know it had to have been The next problem is for production geologists produced.
buried to much greater depths in the geological and engineers – how do we get it to flow petrole- The second key parameter that we need to
past, perhaps as deep as 15,000 feet in order to um – either gas or oil? This was a key to the com- know is the extent of cooking of the shale – its
account for the thermal decomposition of the mercial development of the Barnett Shale and thermal maturity – is it in the oil window or the
organic matter to petroleum. Mitchell Energy personnel figured out how to do gas window? Barnett Shale in the oil window will
How did this burial and subsequent uplift tran- this, and Devon Energy figured out how to make flow some gas with oil, but the rates will be sub-
spire? First, the South American craton pushed marginally economic wells into highly economic stantially lower due to the incomplete conversion
upward and over the North American craton, wells by drilling horizontally. of organic matter
which we identify as the Ouachita Thrust Front When compared to other source rocks around
(just east of Fort Worth). This resulted in subduc- Two plays the world in terms of its total generative poten-
tion and subsidence of the already deposited There are two plays in the Barnett Shale: shale tial, the Barnett Shale ranks in the top 20 percent
Barnett Shale downward closer to the mantle gas and shale oil. The primary interest in the Fort of all petroleum source rocks. ER
resulting in a high heat flux through the sedi- Worth Basin is shale gas as a large portion of the
ments. There may also have been hot fluids shale has been sufficiently cooked to convert both Jarvie is president of Worldwide Geochemistry LLC
preserved organic matter and retained oil to gas. and a member of TCU’s Energy Institute Board of
pushed through more porous sediments from the Directors.
thrust front resulting in even more heat exposure. However, the Barnett Shale does generate oil in
Additional sediments were deposited on top of areas where it has not been sufficiently cooked to

6 ✦ Energy Report Fort Worth Business Press


SYMPOSIUM SPEAKERS

Continued conflict: mineral developer and surface owner


question of what amount of damages will be

T
he nature of the mineral development is being sought. Often the
activity in the Barnett negotiation of restrictions on mineral develop- paid.
Shale has increased ment occurs at the time the owner of both the The same issue of what constitutes damages
the conflict between the surface and the minerals attempts to sell the sur- and how damages are calculated is at issue in
mineral developer and the face while retaining ownership of the minerals. If pipeline rights of way and in mineral develop-
surface owner. The the purchaser of the surface is unable to obtain ment. Conflict has increased between the mineral
encroachment of the ownership of the minerals along with the pur- owner and surface owner regarding the location
Barnett Shale and other oil chase of the surface, the purchaser will seek to of wells and the right of ingress and egress for
and gas developments into restrict the development of those minerals by purposes of gathering lines and access to drill
urban areas and the expan- JOHN HOLDEN excluding the use of the surface for such develop- sites. While it is generally true that the mineral
sion of urban development Jackson Walker LLP ment entirely. owner has a right to burden the surface estate to
into traditional mineral The Barnett Shale formation is ideal for such a the extent necessary to develop the minerals
development areas have increased the historical solution because most minerals are developed under that surface, special rules and facts can
friction between the surface and the minerals. from wells with locations as far away as 4,000 result in limitations on the methodology and
This conflict has affected homeowners, developers feet from the tract being developed. While it is extent of the mineral developer’s activities. The
and ranchers alike. difficult to foresee both the surface use and the same thing is true with regard to geophysical
Mark Papa, CEO of Houston-based EOG mineral development needs in advance, the fact activity on the properties. Surface owners should
Resources Inc., said the oil play is something new that the surface footprint used is small in relation consult with professionals to determine the man-
and has become efficient because of the new to the aerial extent of the minerals developed pro- ner in which activities are being conducted is con-
technology being developed. vides an opportunity to resolve the issue in a sistent with the rights of all parties involved.
Many people are wondering why the mineral manner that meets everyone’s needs. Another significant development has resulted
estate is the dominant estate. As the original Problems naturally arise from the inability of from the creation and revision of municipal ordi-
courts involved with that determination reasoned, the parties to know exactly what will be needed nances. Municipalities have attempted to divide
were the minerals not the dominant estate, the by both the surface and mineral developer in the the line between meeting the desires of their citi-
surface owners, especially those who did not own future because precise uses are frequently zens while encouraging a growing revenue source
any minerals, would not permit the development unknown at the time an agreement is reached. during times of growing revenue needs.
of the tract and thus the minerals would never be Many parties are content to reach an accommo- Frequently municipalities have increasing restricted
developed. Thus, those minerals would never con- dation with the lessee oil company developer and delineated the timing and manner in which
tribute to the energy needs of the country. attempting to drill a well on the property. They mineral activities can be conducted. It has become
While the mineral estate is the dominant are overlooking the fact that leases expire and increasingly important for all parties to participate
estate, the courts have attempted to provide future owners will not be bound by such an in the development of the ordinances to ensure
some protection to the owner of the surface. The agreement unless all mineral owners and the then the needs of all parties are met to the greatest
accommodation doctrine was developed in the lessee have agreed to any surface restriction. Care extent possible.
Getty case. There it was held that an oil company should be taken to get all the parties to the table We will see increased activity in the develop-
that had other means by which its mineral estate and resolve the issues forever. For logical reasons, ment of law regarding municipal ordinances. The
could be developed should accommodate a sur- the earlier this is done, the better it is for every- supremacy of municipal ordinances that conflict
face owner that had a pre-existing irrigation sys- one. with the powers of other entities will be tested.
tem that had no other means to use its surface Recently, landowners, through the Internet
for its existing agricultural purposes. In essence, Pipeline tensions and other communication technology, have
where an existing surface use could be accommo- Additional tension is created by pipelines and become more united in demanding concessions
dated by the mineral owner, the mineral owner their right of condemnation. Increased production from oil companies and making others aware of
would be required to do so. has increased the need for the expansion of their rights. They have banded together to collec-
There have also been legislative attempts to pipelines of every nature. Obviously bringing tively achieve results that were previously unob-
level the playing field, such as statewide Rule 76, pipelines through urban areas can be expensive tainable by individual owners. With the develop-
where under certain specified circumstances, a and time consuming for pipeline companies and ment of minerals in “rooftop” areas or housing
surface developer could require a hearing before disruptive for surface users. The negotiation of developments, oil companies have encountered
the Railroad Commission of Texas to create a rights of way and easements tend to achieve bet- organized negotiation of leases and activities,
“qualified subdivision.” In essence, surface devel- ter results for all parties. which has impacted both the results achieved and
opers could obtain through a hearing before the Frequently pipelines will accommodate surface the manner in which all parties approach attain-
commission a determination that limited the min- owners both in terms of route and other desired ing their objectives.
eral development of the subject surface to speci- objectives. For the surface owner, a negotiated The future undoubtedly will be shaped by leg-
fied drilling locations. resolution almost always provides a better solu- islation, judicial determinations and the increased
Today the most common method of reaching tion for there is a significant likelihood that unless use of technology and technological advance-
an accommodation between the mineral and sur- the pipeline operator has made an error, it will ments. ER
face owner is the use of a surface use agreement. prevail in obtaining the right of way. So long as
the pipeline operator has properly registered with John Holden is a partner in the Business Transaction
The surface use agreement can be created at
the Railroad Commission of Texas and has the section and a member of the Energy practice group
almost any time. Frequently a surface use agree- of Jackson Walker LLP.
ment is created at the time the minerals are sepa- right of condemnation, it is not a question of
rated from the surface or at a later date when whether the pipeline will go through, it is simply a

June 19, 2008 Energy Report ✦ 7


SYMPOSIUM SPEAKERS

Unique title issues in the Barnett Shale gas play


tor is deemed to know all the facts of the liens other rights to a fourth company but referenced

N
one of the title
issues discussed included in this chain-of-title through which he an operating agreement between the second and
below is collectively acquires his oil and gas lease. For example, if a lot third company that was not filed of record. The
unique. They have evolved is pledged as collateral by a deed of trust securing third company drilled and earned assignments of
as oil and gas law devel- a purchase money loan, and the owner subse- oil and gas interests under its farmout. The fourth
oped. The development of quently leases the minerals under his lot, the lease company brought suit against the third company
the Barnett Shale has creat- will be subject to the deed of trust. If production claiming it did not have notice of the first farmout
ed an economic boom for is obtained under the oil and gas lease before the agreement because it was not filed of record. The
North Texas that has caused royalty can be paid, a subordination or a release court said due to the operating agreement being
title issues to come to the of the deed of trust covering his property must be referenced in the second farmout agreement, the
ROGER E. BEECHAM
forefront concerning title to obtained. The same requirement applies to all fourth company was charged with knowledge of
Shannon, Gracey,
the minerals that underlie other liens that may be filed on the property. If the first farmout agreement and took subject to
Ratliff and Miller, LLP
the urban areas. While subordination or a release is not obtained, the it. Westland Oil Development Corp. v. Gulf Oil
there are more title issues that may affect proper- operator may escrow and hold the royalty pay- Corp., 637 S.W. 2d 903 (Tex. 1982). These types
ty interests, I have chosen a few that are worthy ments until such subordination or release has of transactions usually affect the oil and gas oper-
of discussion. They are unique to mineral owner- been obtained. Without a subordination, if the ator more often than the land or mineral owners.
ship and to operators concerning their ability to property is foreclosed, the lease may be terminat- If a landowner or mineral owner is examining title
drill and operate in the close quarters of urban ed. Williams v. Jennings, 755 S.W.2d 874 (Tex. to the minerals underlying a tract of land, if
areas. App. – Houston [14th Dist.] 1988); Stowe v. Head, extrinsic instruments are referenced in the public
278 S.W.2d 120 (Tex. App.—Tyler 1987, no writ). record but not recorded, a thorough search
Restrictive covenants and deed restrictions should be made to locate and examine the refer-
These restrictions may limit an operator’s use of Strips and gores enced instruments.
the surface and subsurface for drilling an oil and Under Texas law, when a deed conveys land
gas well. These restrictions are normally of record abutting a right-of-way, title to the center of the Reserved minerals
and included in the deed conveying the property right-of-way also passes by the deed. State v. While one may acquire a tract of land insured
or in a separate instrument filed of record. These Fuller, 407 S.W.2d 215 (Tex. 1966); Cox v. by a title policy, he or she may not know if he or
limitations will be enforceable if they are created Campbell, 135 Tex. 428, 143 S.W.2d 361 (1940); she owns the minerals unless a title search is con-
prior to the severance of the minerals from the Rio Bravo Oil Co. v. Weed, 121 Tex. 427, 50 ducted. If the minerals are not present, they may
surface estate. Dyegard Land Partnership v. S.W.2d 1080 (1932); Reagan v. Marathon Oil have been reserved in a prior deed or conveyed to
Hoover, 39 S.W.3d 300 (Tex. App.—Fort Worth Company, 50 S.W.3d 70 (Tex. App.—Waco 2001, a third party. If one does not own the minerals,
2001). no pet.). This general rule applies even if the he or she is not entitled to royalties under a lease
description of the land terminates at the right-of- but may have his or her surface used for drilling
Non-surface use way, unless a contrary intention is expressed in purposes. Humphreys-Mexia Co. v. Gammon, 113
An operator has the right to the reasonable use plain and unequivocal terms. Under the strips- Tex. 247, 254 S.W. 296 (1923).
of the surface to conduct drilling operations sub- and-gores doctrine, it is presumed that a grantor
ject only to limits imposed by the lease. Some of has no intention of reserving a fee interest in a Pooling and unitization
the problems can be avoided by the landowner if narrow, adjoining strip of land when such land Most leases allow interests from one or more
he enters into a surface use agreement. This ceases to be useful to the grantor after the con- leases to be pooled into a drilling unit or unitized
agreement may provide for the non-use of the veyance. To overcome this presumption, the to cover an entire reservoir. This action in most
surface in drilling operations. A landowner should grantor must explicitly reserve in the deed with cases is voluntary on the part of the operator. The
be aware that such agreement providing for sur- plain and specific language an interest in a nar- pooling of interests may cause ones royalty inter-
face damages will not require the lessee to reme- row strip of land adjoining the conveyed land. est to be only a portion of the royalty expected if
diate subsurface contamination or damages. Cantley v. Gulf Production Co., 135 Tex. 339, 143 not all of the lease is pooled. Smith and Weaver,
Unless the surface use provisions are contained in S.W.2d 912 (1940); Cox v. Campbell, 135 Tex. Texas Law of Oil and Gas § 1.1.D (LexisNexis
the lease, this agreement must be negotiated as a 428, 143 S.W.2d 361 (1940). This rule applies to 2007).
separate contract. Humble Oil & Ref. Co. v. city lots for they are adjoining streets and ease-
Williams, 420 S.W.2d 133 (Tex. 1967); Jones v. ments that were acquired by public dedication, Conclusion
Getty Oil Co., 470 S.W.2d 618 (Tex. 1971) and easement or eminent domain. If the right-of-way In the Barnett Shale, urban area tracts are
Fenner v. Samson Resources Co., Not Reported in is acquired by deed, this doctrine may not apply being drilled that have never been subject to oil
S.W.3d, 2005 WL 2123043 (Tex. App.—Houston and the mineral interest underlying the interest and gas development. One may own the surface
[1st Dist.] (mem.op.). may belong to the grantee. but not own the underlying minerals or one may
own all the minerals under a lease but not receive
Deeds of trust and other liens References to documents not filed of records all the royalty he or she feels is due. If one owns
In most subdivisions, the properties are going The chain-of-title doctrine may also affect property, his or her surface acreage may be deter-
to be subject to deeds of trusts securing notes instruments referenced in recorded documents. In mined by title insurance but to ascertain owner-
financing each individual lot located within the the Westland Oil case, several sections of land ship of his or her mineral interest, a title examina-
subdivision. This deed of trust creates a lien on were leased to the oil company. This oil company tion must be conducted. ER
the property. Other liens may be created on the entered into a farmout agreement with a second
lots by home improvement loans, home equity company who in turn transferred these rights to a Roger E. Beecham is a partner at Shannon, Gracey,
loans, delinquent taxes, judgments and other obli- third company. The second company subsequently Ratliff and Miller LLP.
gations. Under the chain-of-title rule, any opera- farmed out these same rights along with some

June 19, 2008 Energy Report ✦ 9


PHOTO BY GLEN E. ELLMAN

Robert L. Gaudin, CEO


of Grande Energy Co.

EOG’s quest for oil in the Barnett Shale


By John Armistead tion, and initially we’ll probably realize a production of only about 2.5 per-
Special to the Business Press cent of the available in the Barnett.”
Papa says his company has proven that high quality oil is in the north-

T
he Barnett Shale in the Fort Worth Basin of North Texas is synony- ern extension of the Barnett Shale in substantial enough quantities to pro-
mous with natural gas – and a lot of it. But one company, already ceed with exploration and realize a good return on the investments. The
flush with success in finding natural gas in the area is also making a chairman and CEO of the Houston-based energy company spoke on the
case for getting oil out of the Barnett Shale. oil prospects for the Barnett Shale a Stanford C. Bernstein and Co.
Crude oil? In the Barnett Shale? Houston-based EOG Resources Inc., Strategic Decisions Conference on May 28.
the No. 4 producer of natural gas in the Barnett, is betting that it can Papa added as techniques for oil drilling and recovery in the shale
recover plenty by using the right technologies. improve – just as they did for gas – the percentage of recoverable oil will
Crude oil has been recovered from other geologic formations in parts increase.
of the Fort Worth Basin for many years, but EOG’s venture will be the first “With several exploratory wells we have proven that this can be done,
large scale attempt to try to coax oil from the Barnett Shale, a formation and we are doing everything we need to do for our ramp-up early in
that has been a producer of huge volumes of natural gas. 2009,” says Papa.
“We have proven that you can pull crude oil from the Barnett in our EOG is not to be taken lightly. In September 2007 the low-key compa-
fairway counties of Archer, Clay and Montague in North Texas,” said Mark ny brought into production the biggest Barnett Shale horizontal well to
Papa, EOG Resources chairman and CEO, during a recent investor confer- that time with its Fowler Unit No. 4H in Johnson County.
ence. “It will be more difficult to capture the oil from the Barnett forma- EOG had revenues of $4.2 billion in 2007 and had total estimated net

10 ✦ Energy Report Fort Worth Business Press


proved reserves of 7,745 billion cubic feet equivalent, of which 6,669 billion
cubic feet were natural gas reserves and 179 million barrels, or 1,076 Bcfe,
were crude oil, condensate and natural gas liquids reserves, as of the end of
2007. About 67 percent of EOG's reserves are located in the United States.
One of the first things EOG is doing in its quest for developing crude oil
resources from the Barnett Shale, Papa says, is constructing a gas plant to
process natural gas in the oil-bearing shale.
“In these northern counties, there is no infrastructure, so we are having
to build our own. There are no gas or oil pipelines and no processing facili-
ties in the area of our leases,” he says.
EOG, as of the first of this year, had 250,000 net acres under lease, pri-
marily in Clay and Montague counties. The economically viable trap is about
40 miles east to west and 20 miles north to south, according to the compa-
ny. EOG estimates its potential net reserve range in these counties is from
227 million to 463 million barrels of oil equivalent in the Barnett Shale. The
shale is estimated to be from 250 feet to 700 feet thick in the area, accord-
ing to the company.

A ‘sweet’ prospect
Papa pointed out the crude oil in this area of the Barnett is comparable in
quality to the West Texas sweet crude.
“What we have seen is normal, high quality crude, or sweet crude in the
40 to 42 degree range. If West Texas sweet is bringing $130 a barrel, for
example, then the oil we are recovering should be valued at about the
same,” he says.
Papa added EOG will have no measurable production from its oil wells in
2008 while it continues exploratory drilling and putting together an infra-
structure to process and move products. The company as of May had com-
pleted eight horizontal wells and about a dozen vertical wells. EOG plans to
drill 60 to 80 wells in 2008, about 160 in 2009, and as many as 240 in

PHOTO COURTESY OF EOG RESOURCES


2010, according to Papa.
Papa says the expected after tax rate of return on the oil production
could be in the range of 50 percent.
“If you have the first mover advantage in an area like ours in the north-
ern extension of the Barnett, and establish your position well, your rate of Mark Papa, chairman
return on investment can be more significant. The advantages flow through and CEO of EOG
your profit and loss statement and establish a leading position with your
Resources
peer group,” he says.
EOG estimates the finding cost per barrel of oil in the play at $18 and the
lifting cost at $5. fractured. Access to oil is better in these areas, although once the easy oil is
Even though the oil is more difficult to get out of the shale, EOG says, pulled from the fractured areas, the production drops off precipitously. To
the experience gained from the initial exploration and production likely will get further recovery may require new types of fracturing techniques to
have application to other wells as the recovery techniques improve. enhance recovery.”
Little wonder that EOG and others are interested in the possibilities of
Barnett Shale oil as the price of crude oil has increased significantly in recent By the book
months, hitting $130 per barrel in late May of this year. Dan Steward, who now works for Republic Energy Corp. of Dallas, but
was with Mitchell Energy in the early years of Barnett Shale development,
Difficult issues says he too was impressed with EOG and the company’s application of tech-
New technological advantages and techniques are coming that may make nology both in Barnett Shale gas recovery efforts and in its success in the
oil in the Barnett Shale a reality, says Robert Gaudin, founder, chairman and Bakken Shale oil recovery efforts.
CEO of Grande Energy Co. of Fort Worth, but there remain some difficult “Their work in the northern tier of the Barnett Shale is encouraging,” he
issues to overcome. says. “I think what we are beginning to see is more of a fractured shale play
“I respect EOG’s technological capabilities,” he says. “The company has a rather than an oil resource play at this time. That may change to a resource
lot of very smart, very capable people developing their technical expertise. If play over time and with improvements in techniques”
anyone can be successful in working through the problems in the oil win- Steward, author of The Barnett Shale Play, Phoenix of the Fort Worth
dow in the Barnett, it probably will be EOG. Basin: A History, added “It is the understanding of people familiar with oil
“There is still a long way to go, but with development of new technolo- in this particular part of the basin that EOG is trying some stimulation tech-
gies, like new stimulation approaches for enhancing fracturing, and the price niques not previously used in the Barnett Shale. It is going to take some time
of oil, it is promising. And, EOG doesn’t quit in the face of adversity.” to get all the elements of recovering oil from the formation working for suc-
Gaudin added that for a long time there has been talk about the oil win- cess.
dow in the Barnett Shale but there have been so many uncertainties as to “As with a lot of the successes in the Barnett Shale gas recovery, the
how get the oil out of the formation. improved technologies are the major benefit of the time, money and hard
“There are several possibilities for achieving some success in getting oil work in exploration and production. These technologies will have far-reach-
out of the Barnett,” he says. “One is with the Marble Falls formation sitting ing beneficial effects in the future.”
on top of the Barnett. If porosity is good enough, oil might be recovered in EOG is predicting production of about 83 million cubic feet of natural gas
those good spots. Another promising oil recovery might be through the per day by next year in the oil-producing area, and 191 million cubic feet a
Forestburg Lime separating the upper and lower Barnett Shale. In some areas day in 2010. In 2007 EOG averaged 254 million cubic feet of gas a day in the
the separation might be good enough to provide accumulations of oil. The core area of the Barnett, according to the Railroad Commission of Texas. ER
third major possibility is in areas where the Barnett Shale is naturally heavily

June 19, 2008 Energy Report ✦ 11


Modern use for an early 20th century la

XTO resurrects By DEL CAIN


Special to the Business Press
land were provided; one on the north side of
Exchange Street and one on the south. A flip of a
coin awarded the southern site to Swift and con-
the Swift & Co
S
he’s 106 years old but she doesn’t look a struction started on both plants in 1902.
day over… well, over a day if you ignore the Completed the next year, the office building
question of style. “She” was the office and anchored a plant that eventually included about
Building for administrative building for Swift and Co. at their
meat packing facility in the Fort Worth
50 buildings and employed, at its height of opera-
tion in the late ’50s, around 1,700 people.
Stockyards. The two companies were, in fact, responsible
Barnett Shale The French Colonial-style building was meticu- for a significant portion of the population growth
lously restored by XTO Energy Inc. The building in the area during the early part of the 20th cen-

duties was acquired by the company in May 2006, work


began in July of that year and the interior was
tury as people were drawn to the prospect of
steady work at the two plants.
ready for use by the company’s Barnett Shale Two new towns were established, North Forth
operation late in 2007 and the exterior work was Worth and Niles City (named for one of the origi-
completed in March 2008. nal investors in the Stockyards, Louville Niles of
Photos by Jon P. Uzzel
In the late 1890s, both Swift and Armour and Boston, Mass., but both were soon absorbed into
company were courted by some of Fort Worth’s the city of Fort Worth. The Stockyards investors
leading citizens to locate meat processing plants built about 70 rental houses on Stockyards-owned
at the then-bustling stockyards and cattle market. property in Niles City, located just east of the
Both companies were won over and two plots of Stockyards as the township was incorporated

12 ✦ Energy Report Fort Worth Business Press


y landmark

The Swift Building was refurbished by XTO Energy Inc.

almost entirely on land they owned. The shape of From drill site to restoration The Swift building came to XTO’s attention ini-
Fort Worth was also changed as the businesses Asked about the impetus to restore older tially when employees from the company’s
grew and employees needed more places to live buildings such as this and the W. T. Waggoner Barnett Shale operation were seeking out drill
convenient to work. Developments, such as Rosen Building and others, Joy Webster, vice-president sites near the Stockyards. Excited about their find,
Heights located just west of the plants, were of facilities for XTO says, “Oh, it absolutely starts they told company officials of their discovery. In
planned to provided that housing. with Mr. Simpson, [Bob R. Simpson, CEO].” short order, Webster was called by the building’s
The 28,000-square-foot building remained She continues to explain it is his view that owner who wanted to show it to her as potential
offices for Swift until 1971. Then, after two there is value in “older things.” As an antique col- headquarters building for XTO. Although the
decades of declining business – due primarily to lector himself, he sees what you buy of value that building was obviously too small, she was eager
the development of feed lots, cattle sales and you can keep or restore will not only be of value to see it simply because of its history. That tour
meat-packing operations in smaller towns – the to the community but will increase in value for persuaded her the building was not only deserv-
company shuttered its Fort Worth operation. That the owner, Webster says. ing of restoration, but it would make an ideal
decline also was fed by the increasing use of In addition to the Waggoner and Swift build- location for the company’s Barnett Shale division.
trucking to replace what had been a commodity ings, XTO also refurbished and restored the Baker One result of this has been recognition from
shipped primarily by rail ever since the invention Building, built in 1910, in downtown Fort Worth. the National Trust, which presented Mr. Simpson
in 1878 of the first practical refrigerated rail car The building is now known as the Bob R. Simpson with its Hero Award. While the Swift Building is
by engineer Andrew Chase. Chase, in fact, had Building and is also used for corporate offices. part of the Stockyards National Historic District,
been hired to do just that by Gustavus Swift, then The oil and gas firm continues to grow along with there is also an effort currently to have the
president of Swift. The plant and offices were the energy industry. In 2007, XTO had $5.5 billion building given an individual designation because it
shuttered and so, too, was a vast economic in revenue and currently has more than 2,000 has now been rescued from the list of “endan-
engine for the city of Fort Worth. employees worldwide.

June 19, 2008 Energy Report ✦ 13


gered treasures,” where it rested for some time. in Webster’s XTO office waiting for their proper the building that likely was the center of their
“Our preservation awards recognize excellence place. There are even touches to recall the build- lives so long ago.
in the restoration, rehabilitation or adaptive use of ing’s 20 years as an Old Spaghetti Warehouse Sarah Biles, administrator of the Stockyards
historic buildings or sites,” says Mary Saltarelli, of restaurant. A marble-topped table from that time Museum and member of the North Fort Worth
Historic Fort Worth Inc. “The Swift and Co. sits in the corner of a hall and the restaurant’s Historical Society says, “It’s a gorgeous building,
Building was on our ‘Most Endangered Places List’ stained glass windows now filter the light into the one of the three – along with the Coliseum and
for two years. XTO saved it and adapted it for conference room. the Stock Exchange buildings – of the most
their use — their work is an example of historic Behind the main building is a brick structure important and beautiful here in the Stockyards.
preservation as economic development.” that once served as the “time card building.” It is XTO did a wonderful job.”
A tour is enlightening as it reveals the lengths the space that all employees, whether they There is a sense of “museum” about the place
to which the company went to preserve the her- worked in the office or in the plant had to pass and yet, it is clearly a place of work. No surprise
itage of the building. From the recreated fence through to clock in and out for their shifts. That as XTO has more than 250,000 net acres in play
outside to the carefully restored mosaic of the has been restored as a place to maintain more in the prolific Barnett Shale. The Fort Worth firm’s
Swift and Co. logo in the entryway to door facing memories of Swift. Enlarged photographs of the current gross production in the Barnett Shale
caps modeled from a surviving original, the plant and the work that went on there are reached 620 million cubic feet estimate (MMcfe)
restoration is impressive. Even the floors are lum- mounted as windows between panes of glass so per day in the first quarter of 2008 – the No. 2
ber reused from the three layers of hardwood that natural light floods them and makes them producer in the shale.
flooring found when the interior was stripped out even more impressive. The high point of this little So, while there is a “museum” quality to the
for restoration. There was enough of that for addition is an 8 feet by 10 feet reproduction of a site, there are also busy people doing their jobs
most of the first two floors as well as the third, photograph that is mounted on the end wall. It wherever you go in this space, but they seem to
which was originally a rough finished storage area was taken, probably sometime in the ’30s or ’40s, take pride in what their employer has accom-
and has now become the office conference room and shows a group of eight to 10 men all outfit- plished here.
dominated by 40 feet of a U-shaped conference ted in suits and hats. They are the company’s buy- “What this, (the packing plants and the Fort
table built from old shelving found stored there. ers and are poised to ride the Swift-provided bicy- Worth Stockyards) was in its day, the Barnett
cles down the hill to the Stockyards for their day Shale is for this area today,” says Webster. “So it’s
History abounds of buying livestock. fitting to locate our local operation in this beauti-
Everywhere one looks there are reminders of One of the conference room walls displays ful building and maintain its presence in our com-
the building’s origin. There is a lighted display laths from the original attic, which are covered munity.”
case holding Swift and Co. memorabilia, some with graffiti from 1902 on – names and dates Not a bad compliment for a 106-year-old –
donated and some found during the reconstruc- that people inscribed in pencil in that storage even if she is a building. ER
tion. Letters and pictures from the building’s first space. As they perhaps hoped, their names will
incarnation abound and even more are still resting carry on and still be associated with the history of Contact Cain at bizpress@bizpress.net

14 ✦ Energy Report Fort Worth Business Press


New shale plays
join Barnett Shale
as gas producers
By Robert Francis
Fort Worth Business Press

W
ith the price of oil and gas on the rise and
energy a top concern among U.S. con-
sumers and economic analysts, it should be
little surprise that energy companies are seeking new
sources of energy – particularly natural gas.
As anyone in Texas, particularly North Texas, can
attest, the Barnett Shale has created an economic
boom unprecedented in recent times, while at the
same time creating more than a few difficult political
and social issues.
While the Barnett Shale has been responsible for
more than 3 trillion cubic feet of natural gas, the
technology used to “crack” the shale in the Fort
Worth Basin is now being put to use in other shales
around the country. Some of those shales may some-
day prove to be larger than the Barnett.
Here are some of the larger shale plays around the
country.

Haynesville Shale
Perhaps the closest shale play to the Barnett Shale,
the Haynesville Shale is located East Texas and
Northwest Louisiana. At its recent annual meeting on
June 6, Chesapeake Energy Corp. officials said the
company owns or is committed to more than
500,000 acres of leashold and has completed six
wells in the area. Officials of the Oklahoma City-
based company said at least 12 drilling rigs are antici-
pated in the area by the end of the year and at least
30 by the end of 2009.
Chesapeake CEO Aubrey K. McClendon said the
firm’s initial success in the area has prompted it to
accelerate drilling activity to “generate substantial
production growth and capture outstanding financial
returns,” according to a release from the company.
“Our technical analysis of the play over the past
two years combined with the impressive drilling
results on our first six horizontal wells and wells
recently drilled by others in the industry continue to
support our assessment that the Haynesville Shale
play could potentially have a larger impact on the
company than any other play in which we have par-
ticipated to date,” said McClendon.
To date, McClendon and company, along with XTO
Energy, are the only Barnett Shale operators vying for
leaseholds in the area, about 280 miles east of Fort
Worth; however, several smaller companies have
claimed a stake in the shale.
Houston-based Petrohawk Energy Corp. officials
said in April that the company entered into
agreements with several private parties to acquire

Energy Report ✦ 15
additional leasehold interests in the Haynesville Shale area
and now has more than 70,000 net acres.
“This expansion in the emerging Haynesville Shale play
is part of our ongoing efforts to add substantially to our
lower-risk, higher-margin inventory of drilling opportunities
in core areas where we bring experience and economies
of scale to the table,” said Floyd C. Wilson, chairman,
president and CEO, in a release.

Marcellus Shale
The Marcellus Shale covers an area of 54,000 square
miles, from upstate New York, across Pennsylvania into
eastern Ohio and across most of West Virginia. In total
area it is larger than the entire state of Pennsylvania.
According to a recent study by Penn State University
and the State University of New York at Fredonia, the play
could contain as much as 50 trillion cubic feet of recover-
able natural gas.
One of the big players in the Marcellus Shale is Range
Resources Corp., which has more than 1.1 million net
acres in the play. Range’s Fort Worth neighbor XTO Energy
Inc. made a big push in the play in April when it pur-
chased 152,000 net acres from Linn Energy Chesapeake,
EOG Resources, Cabot Oil and Gas, and Anadarko
Petroleum also have major stakes in the area.

Fayetteville Shale
According to a recent study from the Univeristy of
Arkansas, natural gas drilling in the eight-county
Fayetteville Shale play will produce a $17.9 billion eco-
nomic benefit to the state through 2012. Like several other Barnett Shale
players, Range Resources is making big
Houston-based Southwestern Energy Co., Chesapeake
moves into other shales plays, such as the
and XTO Energy have made major investments in the Marcellus Shale, part of the Devonian
state. In April, XTO Energy purchased 55,631 net acres in Shale, in Pennslyvania and West Virginia.
the Fayetteville Shale from Southwestern Energy fro $520 The company is also pursuing a coal bed
million. methane play in Virginia.
“XTO’s shale play strategy is focused on growing our
Map courtesy of Range Resources.
acreage positions in the right geographic and geological
locations across the premier shale basins. This acquisition
expands our visible growth potential in the Fayetteville acres, but Devon Energy and Chesapeake also have some projects in
Shale,” said Keith A. Hutton, XTO president, in a release the area. Devon, for example, plans to drill 107 wells in the
at the time. “Given our engineering assessment, we Woodford Shale in 2008.
expect the acreage, which is contiguous to our core devel-
opment footprint, to hold resource potential in excess of 1 Bakken Shale
Tcfe (trillion cubic feet estimate). With the pipeline infra- Shale plays are not just limited to natural gas.
structure already in place, our immediate plans include In a recent report, the U.S. Geological Survey published a new
using four drilling rigs in 2008 and at least six rigs in assessment of the Bakken Shale play of North Dakota and Montana.
2009. We expect proved reserves attributable to this The report says that 3 billion to 4.3 billion barrels of undiscovered oil
acquisition to grow to 160 Bcfe this year and at least 325 are technically recoverable with current technology and industry prac-
Bcfe by year-end 2009. Overall, our operational teams are tices. This estimate by the USGS made the Bakken Shale the largest
dedicated to making XTO a top producer and value cre- continuous oil accumulation in the lower 48 states. In addition, the
ator in the Fayetteville Shale.” USGS has estimated total oil-in-place at 200 to 400 billion barrels.
In May, XTO Energy officials said the company was purchasing
Woodford Shale 352,000 net acres in the Bakken Shale, located in Montana and
Located in the Arkoma Basin in southeastern Oklahoma, North Dakota. EOG Resources Inc. of Houston also has interests in
the Woodford Shale has not yet shown the same amount the Bakken Shale play. ER
of activity as some of the other shale plays, but companies
continue to eye the area. Newfield Exploration Co. is a Contact Francis at rfrancis@bizpress.net
major player in the Woodford Shale with 165,000 net

16 ✦ Energy Report Fort Worth Business Press


Enjoy a little appetizer
812 Main Street • Fort Worth, Texas
817.877.3999
Barnett Shale veteran compiles personal,
comprehensive account of play’s early days
By JOHN-LAURENT TRONCHE this. My wife had suggested I write it, and
Fort Worth Business Press I said, ‘No.’ When Mr. Mitchell asked me
to write, there were only two people who

D
an B. Steward is a consultant of could’ve written it. That was Mr. Mitchell
geology at Republic Energy Inc., and an old boss of mine at Mitchell
and the author of The Barnett Shale Energy. This book is not about me. It’s
Play: Phoenix to the Fort Worth Basin, A about Mitchell Energy, George Mitchell
History. Steward, formerly of Barnett Shale and what the Barnett Shale team did. I am
trailblazer Mitchell Energy, wrote the book the historian that documented it. I don’t
at the request of Mitchell’s George P. want people to think I wrote this for my
Mitchell, seen by many as the father of the own ego, or my own edification, I wrote
shale play. Steward’s book is for sale this because George Mitchell asked me to.
through the Fort Worth Geological Survey,
one of the publishers, and can be pur- How did you gather the information,
chased online at www.fwgs.org for $40. and to whom did you speak while
writing your book?
How did you get involved in When Mr. Mitchell asked me to do this,
developing and writing this Barnett he told me ‘Dan you were there, you saw
Shale chronicle? all of this, you write it from your perspec-
I had been involved with the Barnett tive.’ I sat down and started pulling from
almost since its inception. The first well my remembrances, and I keep personal
was drilled in spring 1981. I came to work journals and I started going through to
in October of ’81 right at the time they pick out what I remember and there was a
put a slightly larger stimulation on the Web site I used to reconstruct the chronol-
Barnett, wasn’t much but we got some ogy of it. I had to reconstruct the history
gas out of it. Over the years, from 1981 till and do a lot of estimated recovery analysis
In conclusion, I hope that the we merged and Devon took us over I was from this Web site.
involved in all aspects of the Barnett, and I I tend to write chapter to chapter, and
reader will get a sense of the tended to act as a liaison of sorts to geolo- as I wrote them I’d give them to my
gy. I then took a job with Republic Energy. friends at Mitchell and see if they remem-
complexity of the play and a In July of 2005, I assisted about four or bered it differently. In one or two cases I
better understanding why it is five other people and we gave George had a number or two wrong, but I don’t
Mitchell an update on the Barnett Shale. remember any significant points changed. I
often referred to as the 17 A day after, Mr. Mitchell asked if I would say that I asked probably 30 to 40
would write a history of the Barnett Shale. people review it. I wrote things and then I
year overnight success. There He felt like I knew a lot of its history, a lot asked people to review it. I don’t believe
of the important wells and the different that I went to people before I started writ-
were many times during its technologies we used. And he wanted me ing. I tried to write something the way I
early life that the Barnett play to write it according to the way I remem- remembered it, and then I went to people
bered it. He asked me in July 2005, and I afterward. And most of those people were
was on the verge of failing, had a manuscript written by August of people who were in the trenches, as
2006. I turned the manuscript over to opposed to senior management. … A
and had it not been for the George Mitchell, he turned it over to the number of people, when they read it, they
Fort Worth Geological Society and the said, ‘Damn, I forgot all about that.’ ER
conviction, commitment and North Texas Geological Society. And they
Contact Tronche at jtonche@bizpress.net
determination of George P. published it, and the proceeds go to schol-
arships for college funds, and its own
Mitchell and Mitchell Energy, it operations.

would not be what it is today. How was the writing process?


I spent my career trying not to write. I
– Author’s Note from The Barnett Shale Play: Phoenix don’t like writing. I didn’t want to write
to the Fort Worth Basin, A History by Dan B. Steward

18 ✦ Energy Report Fort Worth Business Press


w
Veteran oilmen
receive ‘Legends’
honor

Ben Fortson, left, and Marvin Gearhart receive the Fort Worth Legends Award from the Texas Alliance of Energy Producers. Photos by Jon P. Uzzel

Fortson career built on acquisition Gearhart continues innovations


By Tonie Auer By Tonie Auer
Special to the Business Press Special to the Business Press

Getting to know Ben Fortson Jr. isn’t easy. If you ask him to name Throughout his almost 60 years in the petroleum field, Marvin
his business philosophy, he tells you simply: to acquire oil and gas Gearhart evolved by applying technology to solve problems. That is
leases. his secret to success; never static, but moving forward and staying on
That’s it. top of where the industry is going.
A man of few words, but great accomplishments. “I grew up in the business,” Gearhart recalls. “My dad was a driller
At the helm of Fortson Oil Co. in Fort Worth as an independent oil and a pumper. So, from a very young age I listened to my dad and
producer, Fortson grew up in the oil industry and made it his life. another cousin and his father talk. Sunday dinners, that was all we’d
He was born in Oklahoma City and moved to Fort Worth at the talk about, the oil business. Growing up in the business, it is in your
age of 4 when his father established Fortson & Polk Oil. blood.”
He graduated from Fort Worth’s Paschal High School and attended Innovations developed by Gearhart and his partner, Harold Owen,
the University of Texas for two years before serving in the military and paved the way for key technological advances such as horizontal
returning to graduate from Texas Christian University in 1957. Soon drilling, which has helped make the Barnett Shale possible.
after, he made two of the most important decisions of his life — he Today, Gearhart is the chairman of the board for Gearhart Co. He
married Kay Kimbell Carter, and he accepted a job with Champlin Oil, recently was honored by the Texas Alliance of Energy Producers with
which was his first foray in the oil business. their Fort Worth Legends award (See sidebar, pg. 23).
On the job for Champlin — a Fortune 500 company — Fortson It was 1949 when Gearhart graduated from Kansas State
compiled files in the lease records department. Six months after tak- University and went to work as a wireline logging engineer with
ing the job, he was offered a scout position in the land depart- Welex Jet Services in Fort Worth. In 1955 he and Owen

June 19, 2008 Energy Report ✦ 21


Fortson
After a year in the fields of Oklahoma, he returned to Fort Worth and
set up his one-man operation that would eventually turn into Fortson Oil
Co., which is known for acquisition and divestiture, exploration and pro-
duction services in the Permian Basin and South Central regions.

Short-lived setback
The energy downdraft in 1998 had a ripple effect throughout the
industry, and like many of his counterparts throughout the sector, he
began to downsize Fortson Oil. Dismantling the company that took him
nearly 40 years to build was painful, but the setback was short-lived.
Two years later, with his characteristic determination and optimism, he
set the company on a course to begin accumulating mineral leases in
the East Texas Bossier Sand Play. The company resumed drilling and, in
partnership with three major independents, has drilled more than 350
wells during a seven-year period.
That simple business philosophy of acquiring oil and gas leases is
because “they are the least expensive component of a prospect, start to
finish.”
“Ben is a personal friend and I like him very much,” says Marvin
Gearhart, chairman of the board for Gearhart Co., another oil industry
firm in Fort Worth, and a co-winner of the Fort Worth Legends Award
from the Texas Alliance of Energy Producers.
“He has always been in the production side of the business and I have
always been on the service side plus building and selling equipment to
the service industry,” says Gearhart. “In my opinion, the industry views
Ben very positively and as someone the local industry respects and can guess you could say that anyone who pumps money into our industry
count on him to do what is good for our community and our industry. I makes him a good industry leader because without the financial
resources to drill wells, we don’t have an industry.”

Community service
Texas Alliance of Energy Fortson’s business successes are matched only by the community
achievements he and his wife have made.
Producers Fort Worth Since 1964, he has served on the board of directors of the Kimbell Art
Foundation, helping to realize Kay Kimbell’s vision of building a world-
Legends Award class art museum. The Kimbell Art Foundation, established in 1935 by
Kay Kimbell, operates the Kimbell Art Museum in Fort Worth. The public
art museum, which opened in 1972, was started with a gift from
The Texas Alliance of Energy Producers implemented Kimbell of several hundred works of art. Today the museum houses
its Legends Merit Award program to honor members pieces dating from antiquity into the 20th century. When Kimbell died in
that had made a long-time contribution to the 1964, he left his fortune to the Kimbell Art Foundation to establish and
betterment of the industry, community and country. support the Kimbell Art Museum.
Fortson’s wife, Kay, has served as president and chair of the board of
directors of the Kimbell Art Foundation since 1975 and as a director
2002 Amon G. Carter and family 2003 S.B. (Burk) Burnett
since 1956. She is also an active trustee of Texas Christian University,
Kay Kimbell and family Dixon (Dick) Thomas
where Fortson is a trustee emeritus.
E.A. and W. A. Landreth Harbison
In just one of the examples of the Fortsons’ generosity, in 2005, the
and family Charles Anthony Fischer
couple contributed $1 million to the Brown Foundation Institute of
W.A. “Monty” Moncrief
Molecular Medicine for the Prevention of Human Diseases at the
and family
Sid Richardson and family University of Texas Health Science Center at Houston to help unravel the
molecular mysteries behind human diseases.
2004 H. E. (Eddie) Chiles 2005 B. J. Kellenberger That gift was designed to establish a distinguished chair, named for
Frank Darden Jr. Arch Rowan the Fortsons, in the new Research Center for the Neurosciences. The
Edgar Sperry Hill Charles Rowan endowed faculty position would help the insitute recruit a top scientist
James Houston Hill, to conduct research into the fundamental causes behind neurodegener-
George Pat Hill ative diseases like Alzheimer’s, Parkinson’s and amyotrophic lateral
sclerosis.
2006 William L. Adams 2007 Bob R. Simpson Additionally, the Fortsons received the 65th annual Golden Deeds
Charles W. Seely Award from the city’s Exchange Club, in recognition of their extraordi-
nary contributions and citizenship in the mid 1990s.
2008 Ben Fortson In 2007, Fortson and his wife celebrated their 50th wedding anniver-
Marvin Gearhart sary. They have four children and 11 grandchildren. ER

22 ✦ Energy Report Fort Worth Business Press


Gearhart
formed Gearhart-Owen Industries Inc. a wireline service provider and
manufacturer of logging trucks and wireline tools, which eventually
had more than 14,000 employees in 27 countries worldwide.
“When I graduated from school, I had three opportunities to
work. Welex (Jet Services) was an independent just getting started, so
I got into wireline logging because it was interesting to me,” he says.
“I stayed with it until a sales manager changed to a drilling bit com-
pany and I went with him. Then Harold Owen and I started our own
business, so I got back into wireline business and stayed in it for 35
years. When I sold it, I got back in drill bit business.”

Innovations
In the 1970s, Gearhart began developing an innovative series of
open-hole tools and computerized analysis systems, completing the
task in 1975. The result – a Direst Digital Logging system, outper-
formed existing analog systems used by competition and began gen-
erating significant income for Gearhart-Owen.
The company also developed Measure While Drilling technology.
MWD not only saved drilling companies time and money because it
eliminated the wireline, it helped make directional drilling easier
because down hole tools were able to send directional data back to
the surface without disturbing drilling operations.
By the end of that decade, the company was one of the fastest
growing companies on the New York Stock Exchange.
After the acquisition of Gearhart Industries in 1988 by Halliburton,
Gearhart formed Rock Bit International. This company manufactured
drill bits and MWD systems. He sold the business in 2005 and started
his current effort, which focuses on drilling tools and systems for the
Barnett Shale and horizontal drilling.
Gearhart has released a new line of digital surveying and surface
monitoring tools since the company’s inception. The company’s goal
t is to lower costs to customers and set a new precedent for what the
industry has come to expect from Gearhart: quality digital tools.
“Technology is the biggest aspect (of how the industry has
c
changed over the years),” Gearhart says. “That is the whole thing
that makes the Barnett Shale possible — the new technology. I try to
apply new technology to solve problems. We were already here right
n
in the middle of the Barnett Shale, so it came in all around us.”
with more than 90 years of combined oilfield problem solving experi-
Today’s industry ence. The years of solving problems have resulted in numerous
Observing the energy industry today, Gearhart says he never antici- unique processes, papers and U.S. patents. The Gearhart Co. under-
pated “anything like the prices and the levels they are reaching now takes a number of new tool development projects both for its own
— it just seems surreal. My main focus has always been new technol- interests and in collaboration with third parties who have specific
ogy and how to drill and produce wells more efficiently and how to downhole tool developments that the Gearhart name has always
get them to produce more. It is only because of horizontal drilling been famous for.
and new fracturing techniques that makes the present boom eco- Gearhart doesn’t plan to retire any time soon, either, despite his
nomic and, of course, as prices go up, it drives the activity up,” he long illustrious career.
says. “It’s not my style of living,” he says. “That is for different folks. My
His current focus, The Gearhart Cos., provides innovative downhole work is my hobby and my enjoyment. It is not like going to work for
survey tools, drilling instrumentation, geological services, gas detec- me; it is like going to have fun. If you’d rather be doing that than
tion services and high quality custom built wireline trucks with a spe- anything else, you might as well keep doing it.”
cialty in the area of oil well surveying, surface data acquisition and Gearhart lives in Fort Worth with his wife, Jan. Together they have
control, MWD tools and services and wireline trucks. four children and 14 grandchildren. He is a Legion of Honor Member
Gearhart continues to focus on developing state-of-the-art technol- in the Society of Petroleum Engineers and active in numerous other
ogy and has assembled a team of geoscientists and petrophysicists organizations. ER

June 19, 2008 Energy Report ✦ 23


Museum of
Science & History:
Journey to the center
of the Barnett Shale
By MICHAEL H. PRICE
Fort Worth Business Press

museum tells the story of its surroundings, whether nestled

A among upon the prehistoric remains of the La Brea Tar Pits in


Los Angeles or the tribal strongholds and Cavalry enclaves of
the Palo Duro Canyon near Amarillo. A combination of education
with participatory entertainment is implicit, as far as the savvier
museums are concerned.
Texas’ oil-and-gas industry has inspired such memorable outcrop-
pings as the East Texas Oil Museum at Kilgore and an imposing
Derrick Room at the Panhandle-Plains Historical Museum at Canyon
— seemingly a working oil-patch outpost of the last century, await-
ing the return of its drilling crew.
A striking addition to the lore of energy promises to bring
the Fort Worth Museum of Science & History to the world-
wide forefront of its field. The $20 million Energy Adventure
development — part of an overall $75 million reconstruction
of the Museum of Science & History — derives in part from
the practical experience of local leaders in the industry itself,
headed by family-tradition oilman Charlie Moncrief, and in
part from the ability of the exhibit developers to find appeal-
ing spectacle in scientific fact.
“The starting-point,” explains Moncrief, “is the starting
point — the very creation of the universe itself. The big
bang, I mean.”
In a cosmic process of connect the dots, the Energy
Adventure will trace the big bang theory along a route lead-
ing directly to North Texas’ Barnett Shale formation, the pres-
ent-day source of what Moncrief characterizes as “the great-
est gas play in the world.” The exhibit promises to equip its
visitors with an understanding of fuel, from prehistoric ori-
gins to practical applications and futuristic possibilities.
The breakthrough attraction will represent a basic compo-
nent of the museum. The energy displays will account for more than will contain many, many appealing attractions — from the familiar
10,000 square feet of the overall 140,000-square-foot property elements of the original museum, to such entirely new components
along Gendy and Montgomery streets. The museum is due for com- as the energy exhibition and our developing relationship with the
pletion during the fall of 2009. [Texas & Southwestern] Cattle Raisers Museum.”
Moncrief, as head of the energy-show fund campaign, is nearing Already, the museum’s Omni Theatre, a superscreen-movie venue
completion of a $20 million underwriting objective. His three-year left standing in a general razing of the original property, has begun
campaign for the Energy Adventure exhibit has attracted such princi- to show exterior modifications that will match the new construction.
pal corporate donors as XTO Energy Inc. of Fort Worth and Chief architect Ricardo Legorreta has designed the museum with a
Oklahoma City-based Devon Energy Corp., both with immense combination of earthen tones and vivid splashes of color.
stakes in North Texas’ Barnett Shale gas play. The benevolent-foun- Moncrief, when first approached with the idea of developing an
dation interests of Fort Worth’s influential Darden family represent energy exhibit, sensed the Barnett Shale must become a focus of
key early support, Moncrief says. such a project.
“We’ve got a brand-new building going up, out here,” says Van Science had long known that tremendous reserves of fuel lay
A. Romans, president of the Museum of Science & History. “And it within the dense rock of the Barnett Shale, formed hundreds of mil-

24 ✦ Energy Report Fort Worth Business Press


Key donors and advisers
Among contributors to the $75 million capital campaign for the The museum also has recognized these key advisers:
Fort Worth Museum of Science & History are these companies, institu- Bonnie F. Jacobs, director of Environmental Science Program at
tions and individuals — all of which and whom have demonstrated a Southern Methodist University; Eric C. Potter, associate director of
particular interest in the Energy Adventure exhibit: Bureau of Economic Geology, Jackson School of Geosciences at the
XTO Energy Inc. will be recognized as lead donor for the energy University of Texas at Austin; Ken M. Morgan, associate dean of the
gallery, and Devon Energy Corp. will be recognized as lead donor for College of Science & Engineering at Texas Christian University; Andrée
a 4-D theater inside the gallery. The museum also cites significant Griffin, manager of geology, Fort Worth Basin, at XTO Energy; and Bill
contributions from Burnett Oil Co. Inc.; The Discovery Fund; Lowe Voss, curator emeritus at the Fort Worth Museum of Science and
Foundation; T.J. Brown & C.A. Lupton Foundation; Chesapeake Energy History.
Corp.; Chief Oil & Gas; EnCana Oil & Gas (USA) Inc.; Exxon Mobil Representing the museum staff in connection with the project are
Corp.; Wm. A. and Elizabeth B. Moncrief Foundation; Jane Rector; Aaron Pan, curator of science; Cathy Barthelemy, director of school
Charlotte and Jim Finley; Range Resources Corp.; Encore Acquisition services; Leishawn Spotted Bear, assistant curator of science; Miki
Co.; Marshall R. Young Oil Co.; Collins and Young LLC; Rex and Renda Gabbard, assistant director of education; and Charlie Walter, chief
Tillerson; EOG Resources Inc.; and Charlie and Kit Moncrief. operating officer.

June 19, 2008 Energy Report ✦ 25


lions of years ago from organic deposits. But recovery posed a chal- a set of environments that will equip their visitors with a real under-
lenge. Technological leaps of recent years have enabled the cracking standing, not only of where our energy sources come from and how
of the shale to release its gas. they are reached, but also of what challenges are emerging for the
“The backbone of the exhibit is the Barnett Shale,” says Moncrief. future.
“But we’re going to take people back in time to the big bang of 330 “During the next 25 years,” Russell adds, “We’ll need 45 percent
million years ago — to the formation of the universe itself, through more energy. This requirement means continued exploration, of
the formation of our own planet, homing in upon our North Texas course, but it also means conservation and the development of such
region, the Fort Worth Basin, as things took shape through the ages alternative sources as nuclear energy, coal, wind, solar and hydroelec-
of continental drift, through the inland seas, through the primitive tric power. All sources will be portrayed.
life-forms whose remains formed the fossil fuels on which we all “The objective is to cause people to think about energy in a new
depend. way.”
“The aim,” adds Moncrief, “is to send the youngsters away with The energy project has involved contingents of academic and
an awareness of science and mathematics — and of what they can industrial consultants in addition to the phalanx of donors, said
do to help this great Earth of ours.” museum executives Charlie Walter, chief operating officer, and Carl
The museum enlisted Chick Russell, creative director of Pasadena- G. Hamm, senior vice president for fund development and marketing.
The new museum fund-raising campaign has completed 80 per-
based Chick Russell Communications, to transform Moncrief’s con-
cent of its $75 million objective, Romans said. Fort Worth philanthro-
cept of a prehistory-to-now travelogue into virtual-environment set-
pists Stacie and David McDavid are in charge of the general capital
tings. The displays will place visitors amid a persuasive replica of the
campaign, with such participants as attorney Dee J. Kelly Jr. and real
Mississippian Seas that once covered the now-arid Southwest; con-
estate broker Martha Williams in addition to Moncrief. The campaign
front them with walk-through, three- and four-dimensional depic-
includes a $5 million cash reserve to sustain operating costs during
tions of a steadily exploding universe; and place them in lifelike
the transition and the first few years in the new facility.
drilling-site situations, with hands-on interaction. A centerpiece will
The Museum of Science & History, which has grown from World
be a massive seismic acquisition truck, contributed by Midland’s
War II-era beginnings to attract hundreds of thousands of school-
Dawson Geophysical Inc.,
children a year, has settled for the duration of construction into tem-
to demonstrate the seismic-reading processes essential to energy porary outbuildings and guest-exhibitor space in the neighboring
exploration. National Cowgirl Museum & Hall of Fame. ER
“I’m just the writer, here,” Russell says. “Charlie Moncrief is the
storyteller. “The stories Charlie has told us [have] enabled us to create Contact Price at mprice@bizpress.net

26 ✦ Energy Report Fort Worth Business Press


PHOTO BY JON P. UZZEL
C.W. “Dub” Stocker III started Fort Worth Energy Co. in 2006.

Local firm competes, cooperates with larger players


By Tonie Auer cessful, he knew he couldn’t continue practicing law and trying to run his
Special to the Business Press new business.
As a former oil company attorney, and owner of his own oil and gas com-

B
arnett Shale. Drilling rights. Leases. All terms becoming more com- pany in the early 1980s, Stocker saw the opportunity to take advantage of
mon in Tarrant County and surrounding areas as the energy industry the local Barnett Shale interest for natural gas drilling and decided to jump
continues to find ways to access the pockets of natural gas. right into it. Stocker worked for the locally based Snyder Oil Co. as an in-
Working to capitalize on the natural gas drilling interest, in 2006 Fort house lawyer in the early 1980s before starting his own company with
Worth attorney C.W. “Dub” Stocker III started Fort Worth Energy Co. LLC, Snyder’s head landman (and his law school buddy) Kyle Miller, who remains
which is primarily engaged in the acquisition of oil and gas properties in in the energy business today in Denver. When oil prices plunged, he sold his
Tarrant County and the surrounding areas. assets and paid his bankers.
“I was looking out our law firm conference room window up the railroad Owning 11 acres at the site of an old cottonseed mill on Biddison and
track and decided that the only way I could compete with the very large com- Hemphill streets on the city’s near southside, Stocker was looking for some
panies was to go into a highly congested urban area and buy the well sites; way to make some money there. Originally, he planned to make it into a flea
deal fairly with the neighborhoods and build my reputation that way,” he market. Stocker had been one the original investors in Stroud, another local
explained. “I fleshed the vision (of the firm) out with a friend in the oil busi- energy company that eventually sold to Fort Worth-based Range Resources
ness; a well respected petroleum engineer named Ray Walker, who had start- Corp. Seeing Stroud and others huge successes in the Barnett Shale, “I want-
ed Stroud. Ray and I had talked about doing other deals outside the Barnett, ed to get back into the oil business,” he says.
but they always were sold before we could present them to investors. From The first Fort Worth Energy lease was signed in September 2006. It was
this experience, I knew starting my own company was the right thing to do.” the historic Texas Steel property, the state’s first steel mill, on Hemphill Street.
The company is currently focused on securing drilling leases in urban Fort Worth Energy is more than just Stocker, he says. Helping put up the
areas, principally from Lancaster in downtown Fort Worth going south along seed capital for the venture was longtime friend and fellow Southwest
Interstate 35W toward Interstate 20 to Felix to its western boundary at Christian School board member Bob Benda with Westwood Contractors.
University Drive. “He believed in my vision,” Stocker says, “and Bob gave me seed money
on my vision until I could raise some more. We have had great legal work pro-
Origins of the company vided for us by my old law firm Whitaker Chalk Swindle & Sawyer and from
A Fort Worth native, Stocker was both practicing law and running Fort the Reardon firm and excellent land work from Penn & Associates.”
Worth Energy until Oct. 19, 2007, when he decided it best to focus on one
career before it took a toll on his health. While his law career was highly suc-

June 19, 2008 Energy Report ✦ 27


Competing with the big boys well sites. It’s the ‘if you can’t beat ‘em, join ‘em’ phi- do to proactively address those concerns made a big
“I wondered, ‘How can I compete with XTO, losophy.” impact on the residents.
Chesapeake and other large companies?’” says “They reached out to the group rather than try to
Stocker. “They all had track records and significant Working with the residents go door to door, which was the tactic of other leas-
histories; they were already out there taking the low- “We initially identified well sites and targeted all ing agents … so the neighborhood was not bom-
hanging fruit; and could outbid me anytime they the neighborhoods our drill bit could reach. barded by landmen was a major plus,” he added.
wanted. So, I went out into the highly congested Eventually homeowners associations began bargain- At one point, nine different companies were
urban area just south of Fort Worth.” ing for neighborhood leases and it became apparent approaching residents, leading to confusion about
The trick has been doing the necessary legwork. that for many, quality of life was more important who was offering what, Conley says.
Fort Worth Energy entered into an agreement in than the bonus checks,” Stocker says. “Potential “Fort Worth Energy was clear to their goals and
August 2007 to sell its well sites and leases in a well sites were near a hospital and Mistletoe Heights, how they would work with us and our committee
defined area of mutual interest to XTO Energy Inc. so we worked hard with them to find another well and that was the most important distinction that we
for an undisclosed price, Stocker says. site and we did find one on 15th Street behind the found,” he says. “As we started to craft leasing doc-
It hasn’t all been smooth sailing. After selling Hangman’s House of Horrors. They wanted us north uments, many concerns were anticipated and
leases to XTO, Fort Worth Energy was sued of the freeway and we accommodated them.” addressed in a draft document … there are always
by another suitor, Chesapeake Energy Corp., that Stocker also worked to develop relationships sticking points, but we had made it clear as a neigh-
claimed it had an agreement to purchase the assets with the various neighborhood associations. borhood association that safety and security and
from Fort Worth Energy. The litigation is still “We went to the neighborhood associations and environmental issues were important. The very
ongoing. made friends with them,” Stocker says. “We made things we talked, they were very accommodating on
Stocker remains pleased with the results and financial gifts to projects like the Worth Heights and it was clearly a very collaborative effort with
plans to continue the work in other areas. Each Elementary School PTA for playground equipment.” XTO.”
home site has to get an individual lease for the prop- That effort paid off. Working with XTO Energy, Stocker says he antic-
erty; some of these neighborhoods have hundreds “We liked the fact that they were presenting ipates the first well from the land on which Fort
of homes in their areas. what they were trying to do before they started Worth Energy has secured leases will be started
“Imagine the plots of land that had to be approaching people, on the front end,” says Bill within a year.
researched. It is a logistical nightmare to put it Conley, Ryan Place Improvement Association’s “When you see and understand the monumen-
together,” Stocker says. “We are compiling thou- appointed chairman of the gas and oil task force tal task to get all the leases secured and wells per-
sands of leases that we have to file and do the leg- committee. “They were upfront about their inten- mitted, it is unbelievable,” Stocker says, “but we
work on. We were willing to do it because we could tions and their understanding of our concerns about love what we are doing.” ER
do it and knew we could compete. While selling its the noise and traffic.”
well sites to XTO, Fort Worth Energy has reserved Conley says the response of the Fort Worth Contact Auer at bizpress@bizpress.net
what it hopes to be valuable interest in all leases and Energy executives regarding what they planned to

28 ✦ Energy Report Fort Worth Business Press


SEC moving to change reserve disclosure rules
Patrick Reardon SEC asks questions
Special to the Business Press Because the SEC intends the concept release as a starting
point to possible changes to these rules, the release asks inter-
In December 2007, the Securities and Exchange Commission ested members of the public to comment on questions on a
took the first regulatory steps toward updating its rules on dis- number of topics. Among the questions posed were:
closure of oil and gas reserves by public energy companies. The • Should the SEC permit disclosure of categories of reserves
SEC released a “concept release” that invited public comment in addition to proved reserves?
on a number of questions relating to these disclosures. • Should reserves from unconventional formations (oil shale,
Traditionally, the SEC has used these comments to propose tar sands and coal) also be disclosed?
changes to the existing rules. • What would be the standards for stating that production
The annual reports sent to investors by public energy com- from reserves is reasonably certain and that the production will
panies must include estimates of the companies’ proved oil be economically viable?
and gas reserves and the estimated present value in dollars of • Should the SEC adopt all or part of the SPE’s Petroleum
those reserves. These estimates are also included or incorporat- Resources Management System as a replacement for the SEC’s
ed in prospectuses for energy company offerings. separate rules?
Given the prominence of oil and gas reserve disclosure in the • Can reserve-estimating rules be adopted that are flexible
valuation of energy stocks, changes to the SEC disclosure rules enough to accommodate future technology improvements?
may affect the valuations given these stocks, as well as possibly • Should reserve estimates be reviewed by independent,
affecting ratings given to energy companies’ traded debt outside petroleum engineers? (The current rules allow public
Oil and gas securities. companies to make their own reserves estimates.)
In asking its questions, the SEC does not distinguish U.S.
reserves Deficiencies in current system onshore reserves from offshore reserves or reserves located
Definition: Oil and gas In its concept release, the SEC acknowledges that there have abroad.
reserves are the estimat- been significant changes in the energy industry as well as
ed quantities of crude marked advances in recovery technology since the SEC adopt- Ideas for broader disclosure
oil and natural gas that ed the current reserve disclosure rules in 1978 and 1982. Waller calls for the disclosure of more information to help
are reasonably believed Echoing recent calls for change from the industry, the SEC investors.
to be recoverable under notes that its rules may be “not fully aligned with current “The calculation of reserves incorporates a significant num-
current economic and industry practice.” In fact, the SEC’s current rules do not ber of professional assumptions,” he says. “None of these spe-
operating conditions. reflect the many changes in recovery technology that have cific assumptions is disclosed to help the investor to compare
developed since 1978. companies. The disclosure of estimated ultimate recoveries, the
In addition, the SEC observes that the Society of Petroleum aggregate average production curves and relative production
Engineers, after two years of collaboration with a number of and drilling costs used in determining reserves for significant
other professional organizations, issued the most recent fields would be a major step toward improving the mix of
updates to the profession’s standards for computing oil and information available to investors.”
gas energy reserves in February 2007. Known as the Adding specific disclosures regarding less than proved
“Petroleum Resources Management System,” the SPE reserve reserves and unconventional formations could paint a more
standards are widely used in the United States when the use of complete picture of energy companies, says Connors. The lack
the SEC rules is not mandated, as well as internationally. The of information about these other reserves invites investor spec-
SEC bars public energy companies from disclosing reserve esti- ulation as to their value. More complete estimates and infor-
mates in SEC filings using methodology other than its own. mation, he predicts, will reduce uncertainty.
Unlike the SPE rules, SEC rules permit disclosure of only
“proved” reserves, using its relatively narrow definition of this SEC appoints petroleum engineer professor
category. Information about “probable” or “possible” revenues In anticipation of possible changes in the reserve disclosure
cannot now be given. Also, SEC rules do not permit disclosure rules, the SEC announced in October 2007 that it had appoint-
of reserves in unconventional formations, such as oil shale, tar ed Texas A&M University petroleum engineering professor W.
sands and coal. John Lee as an Academic Engineering Fellow through August
Rodney Waller, senior vice president/chief compliance officer 2008. Lee will provide the needed engineering expertise for
of Fort Worth-based Range Resources Corp. agrees the present the SEC’s rule making in this area.
information is not optimum.
“The SEC has historically imposed regulations governing Timing
reserve disclosures that stressed comparability across compa- During the comment period, the SEC received more than 80
nies,” he says. “In reality, even though a company's oil and gas letters offering opinions in response to the concept release. A
reserves are its most important assets, we have little real [infor- senior SEC staffer recently offered a personal opinion that new
mation] as to the quality of those reserves.” rules may be first published by the end of 2008. ER
Noting the limited scope of the current reserve disclosures,
investment banker Adam Connors, associate director of corpo- A version of this article first appeared in Oil & Gas Investor magazine.
rate finance at C. K. Cooper & Co., comments that public
Patrick Reardon practices securities, M&A and corporate law with
energy companies “can be difficult to pick apart and then The Reardon Firm in Fort Worth.
piece together for a full, complete picture.”

June 19, 2008 Energy Report ✦ 29


Energy programs on tap at community colleges
By Will Brackett as an intern with EnCana or XTO serving in one of
Special to the Business Press three positions: lease operator, environmental safety
and health technician, and gas plant operator.
To fill a growing education gap between the need
As a large portion for workers in the oil and gas field and the programs
“They [EnCana and XTO] need a pipeline for [new]
employees,” Capone says.
of our workforce being offered, several energy companies are now Another benefit of the partnership with EnCana
partnering with area community colleges. and XTO is that Navarro has established a live data
nears retirement, Two North Texas community colleges are already or link to EnCana and XTO wells, Capone says. Students
soon will be offering oil and gas programs through will analyze daily production reports over the final
it is incumbent partnerships with some of the largest Barnett Shale two semesters of the program and will provide
players. Capone with weekly reports, noting any problems or
upon industry, Navarro College in Corsicana started its program in what they see as abnormalities. So far, Capone says
January, while North Central Texas College will be he has a data link to 441 wells in what he calls his
schools and com- launching its program this fall at its campus in Bowie. “adopt a well program,” which also has the goal of
The programs came about after both schools were teaching students strong computer skills, something
munities to collab- approached by energy companies, led by Denver- he says both companies say they desperately need
based EnCana Oil & Gas (USA) Inc. new hires to possess.
orate and work Fort Worth-based XTO Energy Inc. joined EnCana “The program is industry driven,” Capone says.
to co-sponsor Navarro’s program, while NCTC’s pro-
together to create gram is also being sponsored by Houston-based EOG NCTC’s program
Resources Inc., along with several service companies Meanwhile, in Bowie NCTC plans to begin its pro-
ways to bolster including Bowie-based Energy Service Co., Allied gram in the fall semester. The school has broken
Production Solutions and Complete Production ground on a new 6,560-square-foot expansion to the
our workforce and Services. present building, which will house the oil and gas
Emily Klement, dean of NCTC’s Bowie Campus,
provide a career says EnCana approached the school with a plan,
program.
“This program is a response to the tremendous
path to young which was quickly embraced by the college. increase in job opportunities created by the explo-
“They [EnCana] came to the Bowie Campus with ration and increasing significance of the Barnett Shale
adults in a boom- the vision...the rest is history,” she says. natural gas reserve — now believed to be the largest
Deb West, community relations adviser with onshore natural gas field in the entire United States,”
ing industry. EnCana, says the company considers such programs says Emily Klement, dean of NCTC’s Bowie campus.
important to maintaining well-trained employees. NCTC received approval from the Texas Higher
“As a large portion of our workforce nears retire- Education Coordinating Board in January to offer the
ment, it is incumbent upon industry, schools and oil and gas program. Billy Giles, who came to NCTC
– Deb West, communities to collaborate and work together to cre- from another community college where he was
EnCana Oil & Gas ate ways to bolster our workforce and provide a involved in technology programs for many years, will
career path to young adults in a booming industry,” serve as the program’s coordinator. The school plans
she says. “Our hat goes off to both schools for what to have 24 to 30 students in the associate program
For more information: they have accomplished so far and the life-changing and hopes to offer 15 to 18 scholarships. The pro-
opportunities they are providing to the students gram will include a one-year certificate, which covers
Navarro College enrolled in the oil and gas programs.” 30 hours while the two-year (four semesters) oil and
www.pe.tamunavarrocollege.edu The two colleges have established a partnership gas technology program will confer an associate
and will work together to develop the programs. degree with a minimum of 63 hours. The goal is for
North Central Texas College Navarro’s program covers three semesters and con- graduates of the program to be prepared for entry-
www.NCTC.edu fers an oil and gas production technology certificate. level careers in the oil and gas industry.
Navarro is also working toward the program confer- Just as with Navarro, NCTC’s sponsors are taking an
ring an Associate of Applied Science degree, which active role in developing the program. Allied
will require an additional semester, by sometime in Production Solutions is designing, building and donat-
2009 ing training equipment just for NCTC’s program,
The inaugural class started in January and is led by while Energy Service Company of Bowie has designed
Don Capone II, who serves as the program’s coordina- its training center with NCTC’s program in mind, pro-
tor and as an instructor. XTO has provided two viding state-of-the-art training opportunities for the
instructors to teach classes along with Capone. In program’s students. ER
addition, XTO and EnCana have provided employees,
as well as those from the service companies with Will Brackett is the managing editor of the Powell
which they do business, to serve as guest lecturers. Barnett Shale Newsletter.
The students spend their third semester in the field

30 ✦ Energy Report Fort Worth Business Press


Leases not always what they seem on the surface
By James Frederick Korth Getty refused, claiming the pumps were reasonably
Special to the Business Press necessary to produce oil and gas. When the two liti-
gated the matter, the court applied the
The Barnett Shale has made almost everyone living Accommodation Doctrine and ordered Getty to sink
in Fort Worth bona fide Texas oilmen. Most landown- the pump jack below the surface of the ground to
ers in Tarrant and surrounding “shale” counties have avoid interference with Jones’ irrigation system.
signed or are in the process of signing oil and gas The doctrine is not limitless in its application, but it
leases. Problem is, most people don’t realize the does balance the rights of the surface owner and the
implications of what they are signing. mineral owner in the use of the surface. The doctrine
In Texas, when you as the property owner, the les- holds that if the proposed use of the surface by the
sor, execute an oil and gas lease you are creating two lessee will substantially impair existing surface uses
separate estates: the surface estate and the mineral
In Texas, when estate. Under Texas law, the mineral estate is the
and the lessee has a reasonable alternative available,
the mineral owner must accommodate the surface
you as the dominant estate. This basically means the surface owner.
estate is burdened with a servitude. Put another way, While the concept may sound simple in its applica-
property owner, it grants the company leasing the property, the les- tion, the surface owner has a large burden to carry in
see, the right to use of your property, in this case the order to prevail. If the surface owner desires to
the Lessor, execute surface. invoke the doctrine, he must show that the lessee
The lessee’s rights include the right to come and has other means of access and production that
an oil and gas go as necessary and to use as much of the surface as would not interfere with the surface owner’s existing
is reasonably necessary to produce the minerals, use, the other means of access and production are
lease you are including seismic testing, geophysical exploration, reasonable (both in cost and feasibility), and any
drilling, building roads and electric power lines, alternative use of the surface is impracticable and
creating two installing gathering pipelines, removing trees, unreasonable under all the circumstances. This is not
installing machinery and storage tanks, and using an insignificant burden of proof.
separate estates: any water that is necessary to develop the minerals. That burden is why invoking the Accommodation
Because the lessee’s mineral estate is dominant, Doctrine is not really the best option for surface
the surface estate the lessee is not required to pay for use of or dam- owners. It should generally be used as a last resort.
age to the surface. The lessee also is not compelled While some municipal drilling ordinance will provide
and the mineral to maintain or restore the surface in the absence of a good deal of protection for landowners living with-
lease provisions requiring its restoration. As a general in the municipalities’ jurisdiction, they may not ade-
estate. matter, if activities are reasonable, the surface owner quately cover the landowner’s special concerns. A
will not be entitled to compensation for use and landowner can and should therefore negotiate sur-
occupancy of the property. The lessee may only be face use restrictions and surface damages with the
required to compensate the surface owner when the lessee before signing a lease. Properly incorporated
use of the surface is in excess of an amount reason- damage clauses can protect the surface owner for
ably necessary or if the lessee operates in a negligent what could be decades to come. However, negotiat-
manner. ing damages isn’t always an option.
What is reasonably necessary to develop the min- Damages clauses can’t be negotiated by the sur-
erals? Over time, the “rule of reasonable use” has face owner if the property was purchased subject to
evolved. The doctrine requires the lessee use only so an existing oil and gas lease. Damages also can’t be
much of the surface and in such a manner as is “rea- negotiated when only the surface is purchased. In
sonably necessary” to effectuate the purpose of the either of these cases, absent a clause in a lease, the
lease. Further, a lessee must also have “due regard” lessee is not obligated to pay for damages so long as
for the rights of surface owners. the use is reasonable. Although some local compa-
This concept of “due regard,” known as the nies will pay surface owners damages out of good
“Accommodation Doctrine,” was first articulated by will, they are by no means required to. You should
the Texas Supreme Court in Getty Oil v. Jones. In avoid the risk altogether and put yourself in a posi-
Getty Oil, the lessee installed a pump jack to produce tion where you will not have to invoke the
oil from a well drilled on Jones’ surface. The pump Accommodation Doctrine. When signing a lease,
jack extended to a height of approximately 17 feet make sure that the lease you sign has adequately
on the upstroke. The height of the pump prevented addressed surface damage and usage; if you are buy-
the full rotation of the center pivot irrigation system, ing property subject to an existing lease, make sure
which Jones had used for many years to irrigate his that the lease adequately protects your surface. ER
land.
Jones asked the oil company to install shorter James Frederick Korth is an attorney with the Cantey
pumps or dig pits to lower the height of the pumps. Hanger law firm in Fort Worth. He can be reached at
817-877-2897 or by e-mail at jkorth@canteyhanger.com

June 19, 2008 Energy Report ✦ 31


The oil and gas gamble is fraught with peril
Alex Mills Changes
Special to the Business Press Conditions were changing, too, after the bust of 1998
and 1999. Prices of crude oil and natural gas increased,
Many large independent oil and gas producers ventured equipment and leases were plentiful and cheap, and tech-
outside the shores of the U.S. in the 1990s in search of nological improvements made unconventional properties
larger and more lucrative production. However, many have profitable. Pioneer reallocated funds for expanded projects
given up on their international adventures and are return- in Texas’ Permian Basin and the Fort Worth Basin Barnett
ing to the U.S., according to an article in the May issue of Shale, and is the first independent to venture into the high-
Oil and Gas Investor magazine. stakes play at Alaska’s North Slope.
“International exploration beckoned independent North “Meanwhile, Pioneer determined not to develop Olowi
American E&P’s a decade or so ago,” wrote author Steve Field offshore Gabon and sold it to Canadian National
Even though Loon. “Margins at home were slim as commodity prices Resources in 2005,” Loon wrote. “Interests in Nigeria and
dipped as low as $10 per barrel in 1999, and many produc- the Ivory Coast were allowed to expire.”
95 percent of ers viewed U.S. assets as mature and depleting. The next Even though 95 percent of Pioneer’s focus is within the
big discovery awaited afar.” U.S., Pioneer is not opposed to the right venture.
Pioneer’s focus is The strategy also included the possibility of finding an The report outlined problems many companies encoun-
elephant (an industry term for large reserves), or an acquisi- tered in foreign countries, such as Russia, New Zealand,
within the U.S., tion strategy to purchase proven properties at bargain Venezuela, Ecuador and Azerbaijan.
prices. Ironically, U.S. politicians ripped U.S. major oil company
Pioneer is not However, political risks in many countries became a huge executives in hearings in the U.S. House and Senate recent-
negative. For example, Pioneer Natural Resource Co. in ly over high gasoline prices. ER
opposed to the Dallas ventured into projects in Australia, Argentina,
Canada, and offshore in South and West Africa. Argentina Alex Mills is president of the Texas Alliance of Energy
right venture. devalued the peso and implemented a 20 percent tax on oil Producers. The opinions expressed are of the author and do
exports. That was enough for CEO Scott Sheffield and he not necessarily represent the opinions and/or policies of the
ordered the sale of Pioneer’s assets. Texas Alliance of Energy Producers.

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32 ✦ Energy Report Fort Worth Business Press
Research continues on water use
By ED IRELAND area, and is using distillation technology to recy-
Special to the Business Press cle water produced at several drilling sites in its
Barnett operations. Each of its four recycling sites
While the positive economic impact of the treats 200,000 gallons of water per day. The typi-
Barnett Shale on North Texas is becoming clear – cal gas well operated by any company can
thousands of new jobs and billions of dollars require between 3 million to 4 million gallons of
injected into the economy, insulating North Texas water for fracturing operations, so recycling tech-
from the national economic downturn – there nology currently makes a modest dent in the
are also many questions. One is the use of water overall amount of freshwater being used.
for drilling in the Barnett Shale. According to Burnett, in the near future it will
Know this: Best practices in the energy indus- be possible for companies to recycle about a
try promote the economical use of fresh water – third of the water used in natural gas operations.
not only because it is a precious natural resource, In another two or three years, he believes, about
but also because it is costly. There is no question 50 percent of the wastewater will be recyclable
that gas drilling requires what appears to be sig- due to advances in the technology. But even
nificant amounts of water. However, the Tarrant then, he says, we will be left with the challenge
Regional Water District has reported that use of of getting rid of roughly half of the hyper-saline
water by the natural gas drilling industry has wastewater.
For information about water use in the Barnett been running less than 2 percent of total water
Shale and recycling visit: used in the region. Injection wells
The Barnett Shale formation is so dense and In the meantime, the typical method for get-
Texas A&M’s Global Petroleum Institute impermeable that hydraulic fracturing (or fracing) ting rid of wastewater is to pump it back into the
www.pe.tamu.edu is the only economic means of developing the earth from which it came by using high-pressure
reserves. Hydraulic fracing means pumping large injection wells. Currently, the city of Fort Worth is
Argon National Laboratories amounts of fresh water into a well with enough studying whether to lift its moratorium on such
www.anl.gov pressure to create artificial fractures in the dense injection wells, but in rural areas within the
rock, thereby liberating the natural gas trapped Barnett Shale, saltwater injection wells are the
Railroad Commission of Texas inside. most common method for disposing of produc-
www.rrc.state.tx.us You may wonder: why use fresh water for this tion water.
purpose? Why not re-use water, or use the saline According to Burnett, the environmental risks
Barnett Shale Energy Education Council water that is so abundant deep underground? of such saltwater injection wells are “more per-
www.bseec.org The reason is because saltwater corrodes wells ceived, than real.” The Railroad Commission of
and drilling equipment and it isn’t compatible Texas and energy companies are designing such
with the additives that are used in the drilling disposal wells to be dug so deep that they are far
and fracturing operations. It is also less environ- beneath the fresh groundwater supplies used by
mentally friendly when storing and handling on the public for drinking and other uses.
the surface. “Disposal well operations are inherently safe”
when they are monitored and operated accord-
Recycling research ing to permit, Burnett says. A small risk exists
The energy industry and Texas A&M University where there may be an old, improperly aban-
researchers are studying techniques for recycling doned well deep underground and no public
wastewater for use in frac operations as well as record to reveal its location. In these rare
other applications. There are two stages to recy- instances it is possible for wastewater to leak
cling wastewater: the first and easiest stage is to into the fresh groundwater supply until the situa-
filter out shale cuttings and other suspended tion is quickly discovered and corrected.
materials. The second, more difficult stage, “Industry is aware of the adverse impact and is
where research and development are under way, working to cut down on it, but it’s going to take
involves getting rid of dissolved materials in the a while,” he says.
water, such as salt and leftover chemicals, The best solution is for localities to centralize
through a distillation or membrane treatment. their injection well disposal operations in industri-
According to David Burnett, a professor at al areas so that the operations can run 24 hours
Texas A&M’s Global Petroleum Research Institute, a day with minimum disruption to nearby com-
industry has an incentive to recycle more water munities. ER
used because of the expense and impact of haul-
ing it to off-site disposal locations. Ed Ireland is executive director of the Barnett Shale
Devon Energy Corp. is a forerunner in this Energy Education Council. On the Web:
www.bseec.org.

June 19, 2008 Energy Report ✦ 33


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Don Woodard’s ‘Black Diamonds! Black Gold!’
Rediscovering a classic examination of Texas’ volatile energy history
By MICHAEL H. PRICE tories content themselves with a narrative brass, but also of the hardscrabble miners
Fort Worth Business Press laundry-list of happenings – founded in such- and oilfield workers – and of the tense and
and-such year, promoted so-and-so to the often combative symbiosis between factions.

P
erhaps the most steadfast reciprocal presidency, dealt with X-millions of dollars in Woodard’s observational and descriptive pow-
voice in the Fort Worth Business Press’ profit and loss – Woodard provides a big-pic- ers are at a peak in his discussion of the
20-year relationship with the communi- ture perspective. A context of global history chronic labor disputes. These began during
ty has been that of Don Woodard – frequent anchors the TPC&O story against events of the early coal-company days when the influ-
correspondent and occasional columnist,
accomplished full-time business-
man and perceptive historian and
social-political critic.
Woodard’s book bears rediscov-
ering in its own right as a vivid
account of a crucial period in
Texas’ development as an energy-
producing state – essential read-
ing, for anyone with a stake in
the business and a desire to
understand its historical under-
pinnings.
The book is Black Diamonds!
Black Gold!: The Saga of Texas
Pacific Coal & Oil Company (Texas
Tech University Press, 1998;
$29.95). Woodard employs those
exclamation points for more than
facile dramatic effect – they serve
to suggest an epic telling that the
author comes fully prepared to
provide. More than a corporate
Photo of Thurber, Texas, courtesy of Texas State Archives

history, Black Diamonds! Black


Gold! lives up to its Homeric title
with an enthrallingly lifelike
account of the volatile economic
climate in which Texas Pacific
Coal & Oil evolved from a mod-
estly positioned mining outfit
with a brick-making sideline into
a predominant corporate pres-
ence.
Woodard draws upon company real-world recognizability, such as Charles A. ential Knights of Labor, flush with organiza-
archives, newspaper coverage and old-timers’ Lindbergh’s ocean-crossing flight of 1927 and tional successes elsewhere during the 1880s,
first-hand testimony to trace the beginnings the bombing in 1941 of Pearl Harbor, without landed in right-to-work Texas without much
from the late 19th century. He offers sharp missing a beat of the closer-to-home pace. heed of the established corporate policies. A
insights into the struggles between manage- Nor is Woodard hesitant to offer some tan- Laborite strike might pose a challenge with
ment and the dawning of organized labor, talizing suggestions. Might a ceremonial visit an idled mine, but Texas Pacific had legions of
and into the tremendous influence that Big to Fort Worth from ace aviator Lindbergh, strike-breakers ready and willing to step in –
Industry, and its captains, exerted upon Texas’ later in 1927, have inspired TPC&O honcho and legions of Texas Rangers poised to put
political scene. The examination of economic Edgar J. Marston to take a plunge into the down any uprisings.
growth at a time of upheaval – the state’s gasoline market? Certainly, the once-preva- TP persisted as an anti-union outpost until
transformation from an agricultural economy lent TP Aero petrol franchise began spreading the arrival in 1903 of the United Mine
to an industrial power – is most revealing. soon thereafter through North-by-Northwest Workers, which infiltrated the workingmen’s
The style is conversational, generously sprin- Texas and into Oklahoma. ranks, staged a massed shut-down, and then
kled with anecdotes and digressions. Where One derives from Black Gold!, too, a sense
many authors of institutional or corporate his- of understanding of not only the executive

June 19, 2008 Energy Report ✦ 35


deployed the membership to discourage scab is just as engrossing. A prototype, in a sense, Thurber, which Texas Pacific equipped with
labor from accepting the company’s invitation for the later but similarly extinct Panhandle- housing, schools, churches, a library and a con-
to take up the slack. The UMW’s actions area burg of Phillips, Texas (as in Phillips cert hall – and comprehensive electrical wiring,
proved sufficiently persuasive to convert TP to a Petroleum Co.). Thurber was a pure-bred com- at a time when many “real” municipalities
union shop. Woodard tells the story with not pany town of some 10,000 souls, heavy on the were not yet thoroughly electrified.
only a passionate interest in these freewheeling immigrant population. TP also made it inconvenient, if not necessari-
and hard-bitten times, but also a dedication to A famous line from the Southern songwriter ly forbidden, for the denizens of Thurber to
a fair balance between the clashing interests. Merle Travis, “… I owe my soul to the compa- transact household business outside the com-
Woodard’s account of the rise and fall of ny store…” (from the ballad “Sixteen Tons”), pany stores – a policy that the locals resisted, in
Thurber, Texas, a Texas Pacific company town, owes its own soul to such townsites as part, through the mail-order catalogues of
Sears & Roebuck and Montgomery Ward.
The mysterious lapse of Thurber to ghost-
town status is amply well explained by a simple
fact of economic reality: The company’s aban-
donment of its coal-mining operations left no
further need for a townsite strictly for mining
families.
Oil represented the larger future, heralded by
a gusher in 1917 at TPC&O’s Ranger Field –
which helped to transform Fort Worth to an
oil-boom outpost, linked by the Texas & Pacific
Railroad (a customer in whose honor the coal
company had christened itself) to the TP oil-
fields. The assertion of the automobile industry
as an economic force in its own right, though
dependent upon oil, cinched the company’s
profitability, assuring survival through the Great
Depression of the 1930s.
Threats of consolidation were staved off
apace during the post-World War II years, but
by the 1960s Texas Pacific had become a sta-
tionary target for an eventual mega-corporate
absorption. The defiant old-line company
found itself gobbled up in 1963 by Frankfort
Oil, a branch of the liquor-distilling firm of
Joseph E. Seagram & Sons. Woodard devotes a
revealing coda of Black Diamonds! Black Gold!
to a concise biography of TP’s Last Man
Standing, H.B. Fuqua, and his political manipu-
lations during the period following that
takeover of Big Oil by Big Booze.
Woodard excels at placing the vital econom-
ic-social-political role of TPC&O in a historical
perspective. He illustrates in particular the com-
pany’s influence upon Texas-wide multicultural-
ism – immigrant labor is a big factor – even in
full view of the company’s preference that the
multicultural masses be kept decisively “in their
place.”
Woodard also demonstrates TPC&O’s
immense capitalization of both industry and
general commerce, as a class, and the
statewide tax base. As a bustling component
of a larger engine that generated vast social
and economic progress, TPC&O also helped
to dictate a statewide political course – leaning
naturally toward economic and social conser-
vatism. Woodard’s book, in this sense,
proves as provocative and ironic in tone as
it is informative. ER

Contact Price at mprice@bizpress.net

36 ✦ Energy Report Fort Worth Business Press


June 19, 2008 Energy Report ✦ 37
Analysis of 20 Barnett Shale
Counties by Tier

Charts courtesy of Powell Barnett Shale Newsletter. www.barnettshalenews.com

38 ✦ Energy Report Fort Worth Business Press