New U.S. shale plays spark debate about Barnett

By Anna Driver

HOUSTON, Aug 14 (Reuters) - The frenzy over new shale plays sweeping the U.S. energy industry has prompted investors to ponder when the granddaddy of shale assets will start to produce less natural gas.

That field, the Barnett Shale of north Texas, has been a boon to major producers like Devon Energy Corp (DVN.N) and Chesapeake Energy Corp (CHK.N), and helped set off the rush to develop new shale plays that were once deemed too difficult and too expensive to develop.

Analysts repeatedly quizzed chief executives during second-quarter earnings calls for their take on when natural gas production in the Barnett Shale, where the first well was drilled in 1981, will plateau.

Some estimate the Barnett will hit peak production next year, while others peg the date as far out as 2013.

"With the rapid growth we've seen, some people may now be starting to wonder how long it can last," Hill Vaden, Gulf Coast analyst with consultant Wood Mackenzie.

Daily production in the Barnett has more than doubled since late 2006 to about 4 billion cubic feet per day (Bcfd), aided by improved well results. Wood Mackenzie expects the field to reach peak production of 6.7 Bcfd in 2013.

In a shale formation holding natural gas, the gas is locked tight in rock. So technology like hydraulic fracturing and horizontal drilling is needed to break up the shale and release the gas.

While newer shale reserves like the Haynesville in northern Louisiana grab headlines and investor attention, Devon, Chesapeake, XTO Energy Inc (XTO.N) and others depend on the Barnett's steady output to grow production and profits.

PRODUCTION DOUBLING

Devon President John Richels told Reuters the company does not expect the Barnett to peak in the next several years.

In fact, Devon sees its daily production in the Barnett about doubling to 2 Bcfd from about 1.1 billion cubic feet Bcfd.

"I don't think it would be in 2 years, but it's also not going to be in 10 years," Richels said.

Devon, the largest operator in the Barnett, accounts for about one-third of its production.

Chesapeake, which is aggressively drilling in and around Fort Worth in the Barnett, said on its second-quarter earnings conference call that it expects the shale play will plateau at around 6 billion to 6.5 Bcfd by 2012.

In the second quarter, natural gas from the Barnett accounted for 20 percent of Chesapeake's production, up from 11 percent a year earlier.

But some producers see the massive natural gas field peaking earlier.

Mark Papa, the chief executive officer of EOG Resources Inc (EOG.N), said he sees natural gas production in the Barnett Shale peaking at about 5 Bcfe per day in 2009.

Even as companies debate when the Barnett Shale will start its decline, analysts say the the vast formation in Texas is expected to produce huge amounts of natural gas for decades.

"It is an older field and you do have a very high first-year production," Mike Breard, senior energy analyst with Hodges Capital Management, said. "If you are a smaller company, you might have drilled up your acreage."

Still, larger companies operating in the Barnett will be drilling for many years to come, Breard said. (Editing by Brian Moss)