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Fort Worth Star-Telegram: Shell to sell area gas holdings

By JIM FUQUAY
Star-Telegram Staff Writer
Posted on Thu, Jun. 28, 2007

Shell Exploration and Production Co., which less than two years ago became the first multinational energy firm to drill in the Barnett Shale, confirmed Wednesday that it plans to sell its area holdings, which are expected to attract active bidding.

Shell spokeswoman Kelly op de Weegh said the Houston-based company has drilled about 30 horizontal wells “and has seen success, but we have not acquired a critical mass of acreage to meet our own performance requirements.” She said Shell has approximately 50,000 net acres, including 28,000 acres where it owns the leases and operates wells in Parker County.

Depending on other operators’ evaluation of the acreage and Shell’s share of the production, the properties could sell for upward of $200 million, industry observers estimated. They said Shell’s decision is based on corporate priorities and does not reflect negatively on the Barnett Shale field’s productivity.

Shell entered the Barnett Shale natural gas play in September 2005, when it teamed with Sundance Resources of Rio Vista, south of Cleburne. Sundance, which also had a separate deal with Dallas oilman and investor Boone Pickens, contributed about 75,000 acres under lease in Erath and Parker counties, while Shell and Pickens were expected to supply the capital to develop the leases.

Shell reported nearly 800 million cubic feet of natural gas production in the Barnett Shale last year, according to Texas Railroad Commission records. It also reported 54 well permits.

By the time the company sells the properties, it expects them to be producing between 10 million and 15 million cubic feet of natural gas daily, op de Weegh said. Shell has an undetermined, partial interest in that production. The company estimates that the properties also have approximately 200 additional drilling sites, she said.

The company has recently begun showing the properties to other interested parties but does not yet have a buyer, op de Weegh said.

Zane Meekins, senior vice president with Fort Worth-based Cawley Gillespie & Associates, said a company Shell’s size often prefers hundreds of thousands of acres under lease in order to get the most out its considerable resources.

“It’s no secret they made a big run at Chief Oil & Gas” in 2006, a deal that would have added more than 300 wells and 169,000 acres to Shell’s Barnett Shale holdings, Meekins said. “If they’d made the Chief acquisition, they’d probably have stuck around. But now Devon and XTO and Chesapeake control the play.”

Jim Holcomb, president of Colt Exploration in Fort Worth, agreed that Shell needed to have more acreage. Still, he said, “I’m really surprised” that the company would pull out after such a relatively short stay in an active field.

Jimmy Thomas, a consulting geologist in Weatherford who has drilled about 40 wells in Parker County, said Shell also found itself outside the core of the Barnett Shale and was likely disappointed in some of its wells in the western part of the county. Shell also cut its deal when natural gas was selling for about $13 per thousand cubic feet, near its all-time peak and nearly double the approximately $7 it sells for today, and might have overpaid, Thomas suggested.

Still, Meekins said he expects Shell’s properties to be in demand.

“It’s a commercial deal, just not big enough to warrant them staying,” he said. “Given that it’s fairly small, by big company standards, that should open it up to a lot of people. Anybody in the field could be interested.”

But not everybody.

Chesapeake Energy President Aubrey McClendon, through a representative, said his company is not interested in Shell’s acreage. A Devon spokesman declined to comment on the properties, and XTO officials were not available.

http://www.star-telegram.com/business/v-print/story/151653.html

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