Chesapeake Energy Cutting Production In Barnett Shale
FORT WORTH (CBSDFW.COM) - With natural gas positioned as the energy source to power Texas homes for 200 years, Larry Langston expected to get at least a few decades of production out of the gas under his land.
His wife signed a lease six years ago, earning a $6,000 bonus. Since then however, the royalty checks have totaled just over $200.
"We thought it was going to be 20-30 years of production, and you know here they're talking about pulling out, cutting back," Langston said. "If we had it all to do over again, we wouldn't have signed the lease."
Leaseholders, including governments, could be the first to see the effects of a reduction in Barnett Shale drilling.
Chesapeake Energy announced Monday it will cut its dry gas drilling rigs nationwide down to 24. It averaged 75 dry rigs in 2011. Locally, just six will be on the job. The move was a response to the lowest gas prices in a decade.
Chesapeake is also cutting production on current wells, and deferring completing of new wells and pipelines. It will move resources to wells that are considered liquid-rich plays, producing oil along with gas. Oil prices currently command more than six times the equivalent amount of natural gas.
Devon Energy, which is using 12 rigs in the Barnett Shale right now said it will also continue to focus on liquid-rich plays.
Mayor Betsy Price said Monday the move will hurt. "People will be taken back a little bit," she said. "But this is a strong economy in Fort Worth, particularly in this part of Texas and we'll be all right."
Price said it was an opportunity for leaders to increase incentives for natural gas fueled fleets and push for gas power plants in order to increase demand for the fuel.
The city's capital improvements on parks and city airports have benefited from $174-million in gas revenues since 2005.
Chesapeake blamed part of the price drop off on an exceptionally mild winter. That's allowed supply to build beyond what was expected.
Experts, including Ken Morgan at TCU's Energy Institute, said it won't be a permanent move out of the region.
"When the price comes back up, they'll be right back in here," Morgan said. "This is one of the richest plays in the nation as well as the other shale plays."
Some of Chesapeake's 1,000 local employees may take advantage of transfers, but no layoffs were announced, and analysts say gas companies likely won't leave the area altogether.
"I don't see them moving just because their activity has moved to other parts of the United States," said Barnett Shale Energy Education Council head Ed Ireland.
The pull-out though, which some analysts said other companies will likely follow because of low prices, is a new concern for activists worried about what is left behind.
"This is just the first warning signal that if they are going to start packing up their tents and moving out of the area, there better be some accountability," said Esther McElfish of the North Central Texas Communities Alliance.
Optimistic experts like Morgan said a sudden spike in oil prices could actually encourage industries to take a second look at gas, and increase production again within the next 18 months.
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