SHALE TO THE CHIEF: Founder and CEO Trevor Rees-Jones has put his Chief Oil & Gas up for sale. The rumored price tag is $2 billion. photography by Dan Sellers

The Barnett Shale Millionaires

Much of North Texas sits atop a gold mine of natural gas. A new breed of wildcatters like Trevor Rees-Jones and independents like him stand to make millions, if not billions. Here’s how.

Since then, Four Sevens has become a major player in extracting gas from the densely packed shale below crowded neighborhoods from Fort Worth to North Richland Hills. “We lease a lot of homes, neighborhoods, small tracts, then put them together until we have enough to drill,” Brogdon says. The Barnett Shale play is a boon in particular for residents in Tarrant County, where some 90 percent of homeowners also own the mineral rights to their lots. Plus, leases for land beneath schools and parks stuff city coffers with cash that can be invested right back into the community.
“The economic impact on the area is staggering,” Brogdon says. “Fort Worth was booming to begin with, and now this is having an incredible effect on the tax base, with companies moving in and staffing up. I don’t think we could be busier. All the lawyers and accountants in town have more business than they can handle.”

Brogdon says jokingly that Four Sevens won’t drill a well in a site the execs can’t see from their tenth-floor offices in downtown Fort Worth. But he’s almost serious.

“I’ve been all over this country and the Middle East,” Brogdon says. “I never dreamed something like this was right under our feet. I can check two or three of our wells on my way home every day.”

Four Sevens Oil is a small, independent player in the energy scene. Sinclair Oil, an energy giant in Utah that has established a relationship with Four Sevens, is not.  Like Mitchell Energy before it, local independent companies such as Four Sevens are getting snapped up by major companies at an impressive rate. “The little companies are getting eaten by the big companies who are getting eaten by the whales,” Brogdon says.

Mitchell sees that as a good thing. “Gas is still going to be big in the nation, especially in three to five years as new power plants come on line,” he says. “And it’s very profitable for the independents and majors.”

Dallas-based Chief Oil & Gas is one such profitable independent. The company is one of the top three companies in terms of production in the Barnett Shale field, with Devon at no. 1 and XTO dancing neck and neck with Chief. As of press time, Chief head Trevor Rees-Jones was looking for a buyer of his company. The rumored sales price was $2 billion.

XTO Energy of Fort Worth, whose CEO Bob Simpson was recently named one of the world’s most respected CEOs by Barron’s for the second year in a row, has also seen remarkable success. XTO announced the highest gain in profits of all North Texas energy companies, a $600 million profit growth from 2004 to 2005 and a boost in total revenues of $1.6 billion, a result executives attributed to Barnett Shale.

David Martineau, Exploration Manager for Pitts Oil Company in Dallas, has watched wildcatters flock to Barnett Shale since Pitts started drilling there—first in conjunction with Mitchell Energy in the early 1980s and independently in 1997. As Martineau points out, the general public lives under the impression that climbing energy prices mean extreme profits for oil and gas companies. The reality is that while gross income grows, so do expenses. “The operators who actually drill the wells are usually behind the curve when it comes to the price,” Martineau says. “When gas prices go down after a surge, the cost of drilling a well is still higher than it was before the surge for a while.”

Industry players have been watching the price of gas closely, much like Permian basin residents were fixated on the dipping and surging price of oil during the boom years. The price of gas, around $6.50 per million BTUs in March 2005, rose steadily through the summer last year, then spiked after Katrina to more than $15. At that price, the gold rush intensified in Barnett Shale, although the vagaries of the market have driven down the price to just about $6.50 again as of press time.

The lag time between gas price and operating expense has made the play less profitable for recent entrants—less profitable, but no less enticing for many companies rushing for a piece of the Barnett Shale action. “There’s lots of hype, and so many people who have gotten into it thought the prices would stay higher,” Martineau says. “I can’t keep up. Every time I look there’s a bunch of new companies in the field.”

According to Drilling Info-Energy Strategy Partners, an Austin-based network of oil and gas companies, the number of operators in the Barnett Shale is up to 131—a number that is constantly rising. Of these, 32 percent are “mega-independents,” like Devon, which acquired Mitchell. “Large independents,” like XTO make up 23 percent, with the rest being relatively small independents. The major energy companies—ExxonMobil and Shell—are relatively late coming to the dance. Independents dominated Barnett because it has been a low-risk, steady-return play.

J. Robert Ransone knows this well. Ransone, a partner at Dallas-based Duer Wagner III said that for his company, Barnett Shale has meant a current cash flow of around $400,000 a month. “We got in the play five years ago when energy prices were much lower and vertical wells were still in vogue,” he says. “The Barnett is a reasonably significant contributor to our cash flow, although it is just a piece.”

Duer Wagner III, Inc., owned by the man of the same name, doesn’t operate wells in the play but invests in them, buying a stake in promising wells with proven and repeatable results. “Good things—and bad things—can happen from taking early positions with significant potential upside,” Ransone says. “We have learned to measure the risk involved.”

So does Dallas have the potential upside Tarrant County has so far enjoyed? No.

MAILBOX MONEY: “It’s like we’ve been touched by an angel,” says Tarrant County resident Lynda Field. photography by Allison V. Smith
photography by Allison V. Smith
Unfortunately for the city of Dallas, the shale is all trapped to its west, although it does extend to northwest Dallas County, where some wells have been drilled in Coppell. And, not insignificantly, the biggest piece of Barnett Shale action is still in play—DFW Airport. As the largest available single tract of land in the region, energy companies are practically drooling at the thought of drilling DFW. But it will be a high stakes game for those wishing to play.

“The airport has such a long list of requirements for potential drillers that only the biggest players can possibly fulfill them,” Bowker says.

For all the successes that Barnett Shale has engendered, there are still challenges ahead. The water-fracturing technique used to extract gas guzzles thousands of gallons of fresh water, a commodity that is arguably as precious as gas in Texas. Fort Worth estimates that between 0.75 and 1 percent of its water resources goes toward gas drilling, a seemingly small number, but not inconsequential when hundreds of sites are waiting to be drilled. But drillers are responding by recycling water where possible, and new developments mean as much as 40 percent can now be reused—a significant improvement.

At the same time, homeowners who don’t have mineral rights to their properties are not necessarily amenable to the gas companies coming to town and loudly setting up shop down the street, especially when gas wells and pipelines put a major combustible just hundreds of feet from homes and schools.

Still, the imposition is only temporary, with wells taking just a few weeks to drill, set up, and frac. All that remains afterwards is a pad of rocks, an above-ground valve system, and several storage tanks, all of which can fit in a 1.5 acre site—a far less intrusive and more environmentally friendly proposition than an oil rig. Horizontal drilling also means a central location can be used to drill various places, reducing the environmental footprint. More technological breakthroughs may improve extraction techniques still further.

To George Mitchell, the man basically behind it all, the Barnett Shale gas play is not just the future of North Texas, but also the world. “I want the legacy of Barnett Shale to be that independents can make things like this happen,” he says. “There are chances everywhere. You just have to keep your eyes open.”

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