Shell, Pickens enter Barnett play

RIO VISTA - Thanks to Mike Patman, the multinational Shell Exploration and Production Co. and Boone Pickens are now in the Barnett Shale natural-gas play.

Patman hooked up with the two heavyweights by offering something increasingly rare these days in the Barnett Shale, 75,000 acres of leases rarin' to go for somebody with the capital to get the rigs in place.

Shell is the answer to a riddle that has vexed North Texas energy operators for most of this year: the identity of the mysterious multinational that was coming into the 6-year-old natural-gas play that extends around Fort Worth.

Shell signed an agreement last month to partner with Patman's Sundance Resources to drill in Parker and Erath counties.

Shell also bought 25,000 acres of leases in Parker County that it intends to exploit on its own. It thus becomes the first integrated multinational energy company to join a play that heretofore has been dominated by Texas- and Oklahoma-based independent producers.

"We view the Barnett Shale as a significant resource and see the potential in the expansion of the field," says Shell spokeswoman Kelly op de Weegh.

Pickens, who built Mesa Inc. into one of the nation's largest natural-gas producers from its base in the Panhandle and who now operates the BP Capital energy investment firm in Dallas, wasn't available to comment last week on his venture into the Barnett Shale. But a spokesman, Jay Rosser, confirmed the Pickens partnership with Sundance, saying "Mr. Pickens is pleased to have some skin in the Barnett Shale game."

So how did Patman, a genial Texas Aggie who for 25 years has drilled his way around East, West and South Texas and eastern New Mexico, get hooked up with big feet like Pickens and Shell?

"I had 75,000 acres of leases, and I went to an oil convention in Houston in February and set up a booth," Patman says. "Mr. Pickens came around, and we made a deal before the convention actually started."

Shell, too, was interested in Patman's fistful of ready-to-drill leases. With landsmen tramping all over the Barnett Shale, good leases are increasingly hard to come by.

Most of them have been taken up by a new generation of independent operators, including XTO Energy and Quicksilver Resources of Fort Worth.

Although Patman had the leases, Shell and Pickens (whose deals with Patman are not connected) had something Patman needs: heavy dough. Sundance needs the money to pay for the 12 drilling rigs it is building and will begin operating by early next year.

Independents traditionally haven't owned their own drilling rigs, preferring to avoid the heavy capital expense and simply lease the equipment when needed. That strategy has worked fine in the past but lately a serious shortage of equipment has hampered that approach. For the lucky souls who can get rigs, day rates are expected to reach $15,000 by the end of this year, triple the rate of five years ago.

The squeeze on equipment is causing an increasing number of Barnett Shale leases to mature after three years without a bit turning in the ground because operators couldn't get equipment. Patman, who with his own rigs won't be beholden to equipment-leasing companies, hopes to take advantage of that situation.

"We'll be able to deliver on a promise to drill, and a lot of others won't," he said.

At $7 million a pop, drilling rigs aren't cheap. Patman already has four: three working in Johnson County and one in Parker County. The remaining seven are under construction in Houston and are expected to be ready by early next year.

Because one rig can drill a new well every 25 to 30 days at the fastest, Patman would have the capacity to drill 130 to 160 wells next year -- if everything falls into place. The work force at Sundance's office in the old Cow Pasture Bank building on Texas 174 in Rio Vista, which now has slightly more than 100 employees, will expand next year by a dozen or so employees per rig.

Sundance Resources is a family operation that Patman and his brother, Pat, have operated since 1980.

Patman's interest in the Barnett Shale was piqued two years ago on the news that Johnson County was being tapped for gas. Patman and his brother had grown up in Johnson County, seven miles south of Rio Vista.

"For years everybody said drilling in Johnson County was a no-go because the geology was supposed to be too impossible," Patman said. "But that hasn't proved to be true."

After learning the essentials of Barnett Shale drilling as a nonoperating partner in four wells in Denton County, Sundance shifted the focus of its operations back to Rio Vista. Patman and his leasing agents, led by Vice President Andy Cunningham, beat the bushes for leases. In particular, they headed into Hill County for what is expected to be the next great opening for the Barnett Shale.

"At $13 [per thousand cubic feet of] gas, a lot of things are possible," Patman said.