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BKV-Exxon Deal Shows Barnett Shale Has 'Still Got Some Life in It'

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This year's dramatic run-up in natural gas prices has spurred interest not only in the faster-growing US basins but also in the long-declining Barnett Shale of North Texas, where an uptick in new drilling appears imminent.

“It’s still got some life in it,” Enverus analyst Tyson Gervais told Energy Intelligence. “You’re not going to see the kind of activity you're seeing in the Haynesville or the Marcellus Shale. But if commodity prices stay this high, almost everything is economical and everything is worth drilling, to an extent.”

The Barnett moved to the forefront this month when Exxon Mobil announced it would sell its assets there to private BKV Corp. for $750 million and exit the storied play for good. But what might seem just another indicator of the Barnett’s demise is more a sign of Exxon’s hard pivot away from gas .

BKV, a subsidiary of Thailand-based Banpu, has been a major Barnett player since it acquired Devon Energy’s position in 2020. That made BKV the play’s second-largest producer just behind TotalEnergies. The addition of Exxon’s 200 million cubic feet per day of production will bring BKV’s total output to 750 MMcf/d, making it the play's undisputed top producer.

Just what BKV intends for the assets is hard to say — company officials could not be reached for comment. But if the Devon acquisition is an indication, it will be doing more with the properties than Exxon has since cutting off further Barnett development in 2018.

Since acquiring 4,200 wells from Devon, BKV quickly became the Barnett’s most active operator. Enverus data show that the company accounted for 221 of the play’s 294 recompletions in 2021. It has also been running one rig in the Barnett this past year.

However, BKV may not be as aggressive with the Exxon assets, at least for now, Gervais added.

“It's likely that BKV will extend reworking wells to Exxon's assets, but I have a feeling that with the way oil-field service pricing is right now — the cost of crews, materials and everything along the supply chain — it might slow the pace of that work," he explained.

Old Shale, New Life

The Barnett is the granddaddy of all US shales. Discovered in 1981, the tight gas play was one of the largest gas reservoirs discovered in the US at the time. But it was not commercial until Mitchell Energy — after decades of effort — finally unlocked the secret to producing shale gas with horizontal drilling and ever-improving well completion techniques. By the time George Mitchell sold his company to Devon in 2002, Barnett gas production was on the rise and would peak in 2012 just shy of 5.2 billion cubic feet per day, Energy Information Administration data show.

Since then, production has steadily fallen to just under 1.7 Bcf/d as capital was increasingly allocated to more profitable drilling opportunities. “It’s reflective of the play beginning to age,” Gervais said. “The majority of the wells that are currently producing were drilled in 2012 to 2015.”

Nonetheless, the Barnett is stirring. Producers have four horizontal rigs operating in the play, including BKV’s.

“BKV has a good idea of what the rock quality is and what would make a good well,” Gervais said. “You know you're not getting huge boomer wells like you are in the northeast Marcellus, but you're going to get a well that is economic.”

More New Entrants?

Gervais suspects that some of the larger independents still in the Barnett may also be looking to exit what is deemed a second- or third-tier play. Total could be an exception, he said, as “many of its wells have the lowest break-evens in the play and they operate them pretty well.“

But if Total or other producers did put their assets on the block, they would likely find willing buyers for mature assets being sold for their proven, developed producing value without the markup that might come for acreage in the red-hot Haynesville or Marcellus.

"If there's a buyer for an asset in a play that nobody wants, that no major producer outside of Total will allocate capital to, I think it's kind of a win-win in both directions," Gervais said.

Enverus M&A specialist Andrew Dittmar told Energy Intelligence that the $750 million BKV paid for Exxon’s properties “seems fair for the asset.”

“I assume BKV is paying only for production and midstream assets and … results in a price of $3,750 [per thousand cubic feet equivalent per day] before contingent payments,” Dittmar said. “That is a higher headline price on a million cubic foot equivalent per day basis than we have seen in other deals, but justified by the low cost of the assets with supporting midstream infrastructure and the exceptional low decline rates.”

Green Pledge Sustainable?

When additional Barnett assets go on the block, it could get competitive. Diversified Energy, which entered the Barnett in 2021, also has a business model that targets long-lived low-volume wells that have very low gathering and processing fees.  

But that’s where the two business models diverge. Whereas BKV undertakes efforts to enhance production from its assets, Diversified generally seems content to allow mature late-stage wells in a long decline to pump themselves dry.

They also differ in touting environmental stewardship, with BKV putting sustainability and environmental, social and governance commitments front and center on its website.

“BKV does have the lowest emission intensity of reporting operators in the Barnett," Gervais said. "However, the average emission intensity for the Barnett is roughly four times higher than both the Haynesville and Appalachia averages, and BKV would screen as one of the highest emitters (from an emission intensity standpoint) when compared to peers in either of those plays.”

Topics:
M&A, Independent E&Ps, Shale, Gas Supply
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