Top firm in Texas’ birthplace of shale exits for $770 million
The birthplace of the shale industry is losing the last of its top industry players after Devon Energy agreed to sell its remaining position in the Barnett shale for $770 million.
The shale boom started in the Barnett, which is near Dallas, when George P. Mitchell showed that the combination of hydraulic fracturing and horizontal drilling could free natural gas from shale rock. He eventually sold his Mitchell Energy to Oklahoma-based Devon in 2002 for more than $3 billion.
As the shale boom shifted from natural gas to crude oil and from East Texas to West Texas’ Permian Basin, the Barnett has seen its activity plunge from a peak of about 200 rigs in 2008 down to just one remaining active drilling rig today, according to the oil field services firm Baker Hughes.
“The Barnett is where Mitchell
built his position and spent 20 years trying to unlock it. Eventually, he was successful,” said Ed Hirs, a University of Houston energy economist. “He was an overnight billionaire after 40 years of work.”
A Galveston native who also developed the planned community known as The Woodlands, Mitchell died in 2013 at age 94.
But now the shale gas industry is a victim of its own success. The sector is producing vasts
amount of natural gas, which has led to supply gluts and falling prices. Drilling in the Barnett simply isn’t economical anymore, analysts said — at least for now. For many companies seeking more lucrative crude oil, natural gas is an unwanted byproduct that some just burn away.
“The Barnett at this point is just another mature asset. Mitchell was never sentimental about these things,” Hirs said. “You’re not selling a shrine; you’re selling a commodity.”
Hirs said Devon was fortunate to find a buyer. There’s still plenty of natural gas in the Barnett, he said, but higher prices
are needed to make it worthwhile.
After previously selling other parts of its Barnett acreage, Devon will exit the region with the sale to a Denver-based private equity firm called Kalnin Ventures, which is backed by the Thai coal-mining and power giant Banpu. The shale position will be operated by BKV Oil & Gas Capital Partners.
The deal includes more than 320,000 gross acres and 4,200 producing wells, making BKV the biggest producer in the Barnett once the deal closes next year. The holdings produce about 600 million cubic feet of natural gas equivalent per day.
“Devon’s transformation to a U.S. oil growth business is now complete,” said Chief Executive Dave Hager.
Devon will hold positions in the Permian, South Texas’ Eagle Ford shale, Oklahoma and Wyoming’s Powder River Basin.
BKV and Banpu are betting that demand for natural gas will grow as the world turns to cleaner energy. Natural gas is the cleanest-burning fossil fuel and produces less carbon dioxide than coal and oil. BKV also has natural gas assets in Pennsylvania’s Marcellus shale.
“This deal represents our continued belief in the longterm potential of U.S. shale gas,” said BKV CEO Christopher Kalnin, “and is fully in line with Banpu’s vision of developing a greener and smarter energy portfolio.”