Throughout its lifespan, the Barnett shale has been a story of renewal. Without the shale's unconventional drilling discovery, much of the economic growth in shale-play regions elsewhere would remain unrealized, and the economic downturn that has plagued the U.S. economy would be, perhaps, a more somber story.

In fact, a recent study commissioned by the Fort Worth Chamber of Commerce and conducted by the Perryman Group estimates that the cumulative economic benefits during the 2001 to 2011 period include $65.4 billion in output (gross product) and 596,648 person-years of employment in the Barnett shale region. For the state of Texas as a whole, the total benefits during the 2001 to 2011 period were found to include $80.7 billion in output (gross product) and 710,319 person-years of employment.

In a largely financial area like the Dallas-Fort Worth metroplex, the Barnett's injection of capital could not have come at a more prescient time, considering the financial hurdles of 2008 and 2009.

Now, with gas prices at such low levels, producers in the shale are focusing on liquids-rich areas of the Barnett, and are producing just enough to satisfy acreage agreements in other areas. This is reflected in data from the Railroad Commission of Texas, which estimates that well permit numbers have dropped from 2008 levels and are maintaining steady at around 2,000 new permits for 2010 and 2011. While producers maintain this gas-price juggle, midstream operators are also slowing their project construction agendas until it becomes economically advisable to build more capacity.

Granddaddy of shales

Despite lackluster gas prices, producers and midstream operators like Energy Transfer Partners LP, Crestwood Midstream Partners LP and Devon Energy Corp. remain confident about the granddaddy of all shales. These companies will not abandon their roots.

“With gas prices around $2 to $2.50, producers are hard-pressed to go in and drill, unless it’s in a liquids-rich area. So I think volumes will stay flat in the near-term, unless natural gas prices increase dramatically.” –Mackie McCrea, president, Energy Transfer Partners LP

Houston, Texas-based Crestwood Midstream Partners LP has invested in the Barnett with several major systems. The company currently operates the Cowtown system in the rich-gas window of the Barnett shale play, which consists of about 362 miles of pipelines that gather and transport natural gas to the Cowtown and Corvette natural gas processing plants. The Cowtown Plant has the capacity to process 200 million cubic feet (MMcf) per day, and the Corvette Plant has a capacity to process 125 MMcf per day.

In addition, the Lake Arlington system in the Tier 1 area of the Barnett consists of 10 miles of pipelines that gather natural gas to a central station where it is compressed, dehydrated and delivered into Energy Transfer Partner's systems. The low-pressure gathering system can gather, compress and dehydrate up to 230 MMcf per day.

Also, the Alliance system, which is Crestwood's newest system in the Barnett, is currently under expansion. It consists of 46 miles of pipelines that gather natural gas to the Alliance Station, where it is compressed, treated for the removal of carbon dioxide and dehydrated.

According to Joel Moxley, senior vice president and chief operating officer of Crestwood Midstream, "We will complete our current Alliance expansion project by the end of March. After that, we have one more lateral to install, but the timing on that is unsure at this point."

Moxley notes that, while activity level may have dropped in the Barnett, he hasn't seen a visible decline in volumes. "Drilling in the dry-gas areas has dropped due to lower gas prices, but producers are drilling better wells with longer laterals at lower costs, so we expect the volumes from the Barnett dry-gas areas will be at least flat this year."

Meanwhile, liquids-rich production is demanding attention from producers. "There are certainly areas where liquids-rich production is bolstering the Barnett. We are in some of those rich-gas areas south of Fort Worth, and there is also a lot of activity north of Fort Worth in the oil-prone areas of the Barnett," he says.

Yet, although the play is more mature than others, it is only 50% drilled out after 10 years of development, notes Moxley. "If natural gas prices increase, you will see activity ramp up fairly quickly, because at this point, it's easy to do from an infrastructure standpoint."

Devon Energy

Producer Devon Energy Corp. agrees that there is much potential left in the play. After acquiring a large acreage position in 2002 with its acquisition of Mitchell Energy, Devon established itself as one of the top producers of the Barnett shale. The company was the first to apply horizontal drilling techniques in the Barnett, essentially transforming the Fort Worth Basin into one of the top producing gas fields in North America.

Since that time, Devon has acquired the largest acreage position in the play. In fact, since 2002, the company has drilled more than 4,500 wells into the Barnett shale. Devon is the most prolific producer in the Barnett, accounting for about 1.3 billion cubic feet (Bcf) of natural gas equivalent per day, which represents roughly one-quarter of the field's total production.

According to Cindy Allen, Devon spokesperson, "Devon has a net acreage 623,000 with an undrilled liquids-rich inventory of about 2,500 locations. The shale natural gas revolution originated in the Barnett and Devon was the first to apply horizontal drilling in shale in the early days of the Barnett. It continues to be one of the nation's largest natural gas plays," she says.

Allen notes that one of the biggest issues with the play has been the low gas price environment. However, Allen says, "Devon has been able to overcome the uncertainties of those prices by having a large position in the Barnett that is rich in natural gas liquids."

The ability to diversify activities in the Barnett to coincide with commodities market demands has granted Devon some flexibility with the production process. According to the Railroad Commission of Texas, rig permit counts are holding steady around the 2,000 mark for 2010 and 2011.

Says Allen, "We are holding steady at about a dozen rigs, and our ability to maximize efficiencies will help us continue to grow production. Our fourth-quarter net production held steady at a record 1.32 Bcf of gas equivalent per day, including 47,000 barrels (bbl.) of liquids per day. Our subsequent outlook for the Barnett is positive for the next three years, depending on market conditions, of course."

“Drilling in the dry-gas areas has dropped due to lower gas prices, but producers are drilling better wells with longer laterals at lower costs, so we expect the volumes from the Barnett dry-gas areas will be at least flat this year.” —Joel Moxley, senior vice president and chief operating officer of Crestwood Midstream Partners LP

Energy Transfer Partners

Also, Energy Transfer Partners (ETP), based in Dallas, agrees that the play has plenty of running room left. ETP is the largest transporter of natural gas in the Barnett area, as its North Texas pipeline network includes more than 1,000 miles of pipelines ranging in diameter size from 4 inches to 42 inches. The integrated system, which covers more than 10 counties in North Texas, gathers, compresses, treats, processes and transports natural gas from the Barnett.

As part of its assets in the Barnett, the partnership operates the Godley processing facility, including multiple cryogenic processing plants and a conditioning facility with an aggregate capacity of more than 500 MMcf per day. ETP has also announced the installation of an additional 200 MMcf per day cryogenic plant at the Godley site that will be in service in 2013.

According to Mackie McCrea, president of Energy Transfer, the Barnett is still a very prolific shale play in the U.S. "The Barnett has been a really great play for us and we see a long future there," he says. While Energy Transfer has grown its operations in the Barnett through several acquisitions, the partnership will complete a new pipeline in third-quarter 2012 to help increase inlet volumes to the Godley Plant.

"We have worked with producers in the Barnett Shale to gather, process, treat and transport natural gas and natural gas liquids to multiple markets throughout Texas," says McCrea.

He agrees with other producers who say that, although the drilling has slowed dramatically in the basin, the problem is not reserves, but rather gas prices. Since about half of the production is lean gas, the impact of gas prices falling to $2 per thousand cubic feet has really slowed the lean gas drilling operations in the basin.

"The areas of the Barnett shale with rich-gas production have maintained fairly well. We continue to see our volumes maintain steady rates, which means that as wells decline, there is enough new production coming on to keep volumes level on our system," he says.

In addition to gas prices, the urbanized area around the shale has created challenges that do not exist in other shales.

"Our partnership has had to work very closely with city officials around the basin in order to construct the necessary pipelines to deliver the gas from the congested areas to consumers. Dealing with all of the issues in such a populated area requires more time and resources for pipeline companies and for producers. Therefore, producers are drilling just enough wells to hold production and will return when gas prices rebound."

Despite these hurdles, McCrea is confident that the Barnett has many years left of productivity and that the additional efforts required to construct facilities will pay off in the long run.

"We like the Barnett because we have a great footprint there. With a lot of assets already in the ground, we are well positioned to provide the pipeline and processing services producers will need when the drilling does pick back up," he says.

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