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The Dallas Morning News: Shell leaves Barnett Shale, selling holdings to Pioneer Natural Resources

Pioneer pays $150 million for natural gas leases and wells

10:17 PM CST on Tuesday, November 6, 2007
By ELIZABETH SOUDER / The Dallas Morning News
[email protected]

Royal Dutch Shell PLC officially exited the Barnett Shale on Tuesday, selling its leases and wells in the most active natural gas field in North America to Pioneer Natural Resources Co. for $150 million.

Shell just couldn’t crack the North Texas field.

The major oil company was never aggressive enough to outbid smaller rivals for leases or acquisitions, so Shell wasn’t able to grow big enough to make the investment worthwhile.

“It distracts from our bigger projects,” John Hofmeister, head of Shell’s U.S. operations, said before giving a speech in Fort Worth to the World Affairs Council. “Our biggest asset is our size.”

Pioneer, which is based in Dallas, said it bought leases and wells on 74,000 acres, largely in Parker County. It estimates the underground shale rock contains about 81 billion cubic feet of natural gas equivalent.

Already the wells are producing about 15 million cubic feet of natural gas a day, Pioneer said.

The land offers 300 potential drilling locations, and many of those locations come with seismic maps of the underground geology.

Pioneer began operating in the field this year. The purchase brings the company’s total holdings to 87,000 acres.

The Barnett Shale, considered unconventional because of the special drilling techniques required, now contributes about 4 percent of the U.S. natural gas supply.

Independent oil companies, such as Pioneer, have made their fortunes on the Barnett Shale. But few major oil companies have amassed big holdings.

“It’s kind of an interesting dilemma for a major,” said David Pursell, an analyst with Tudor Pickering in Houston.

“My guess is, they wanted a bigger position in the Barnett, and they just weren’t able to establish one. If you’re Shell, you really have to have a bigger position to create the critical mass to make it worth your while,” he said.

Shell and other major oil companies are accustomed to bidding for assets based on how much oil or natural gas the seller can prove is in the ground. Smaller, independent oil companies are willing to make higher bids based on how much natural gas might be in the ground, Mr. Pursell said.

Last year, Shell tried to buy Chief Holdings Corp., the third-largest Barnett Shale player, but lost to independent oil company Devon Energy Corp. Mr. Pursell said losing that transaction probably pushed Shell out of the field.

Major oil companies also lost out on drilling at Dallas/Fort Worth International Airport. Both Shell and an Exxon Mobil Corp. joint venture were approved to bid but didn’t.

The only bids came from Chesapeake Energy, which had let it be known around the industry that it would bid aggressively.

Exxon has kept a low profile in the North Texas field, working through a joint venture with Harding Co.

Mr. Pursell said that’s smart.

“As soon as Exxon starts walking in, the price of poker just shot up,” he said. “I think history says you don’t want to bet against Exxon.”

Metroplex Barnett Shale LLC, the Exxon-Harding venture, will drill wells on the land that Harding leases. Harding has said it aims to gather leases in five North Texas counties: Dallas, Denton, Johnson, Ellis and Tarrant.

Exxon officials declined to comment Tuesday on their Barnett Shale operations.

http://www.dallasnews.com/sharedcontent/dws/bus/stories/110707dnbusshell.3301103.html

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