Barnett at DFW provides lessons
on shale gas projects at US airports
Alboran Energy Strategy
US airfield owners are lured by attractive signing bonuses to
lease their shale acreage. But shale operators cannot always
fulfill their promises to drill, and the Dallas-Fort Worth
Barnett shale field development project shows some winners
and losers. The author has analyzed the technical challenges
and financial fundamentals.
The Pittsburgh airport authority is clearly inspired by a major shale gas field development project at the Dallas Fort Worth Airport (DWFA) that
has earned the Texas airport over $300 million net
profit in just half a decade.
Pittsburgh International and Allegheny County
Airports want to reap a similar financial windfall
from their shale resources and signed a deal with
Consol Energy in February 2013. Key components
of the agreement are a signing bonus of $50 million
and royalties on future gas sales at 18% of gross gas
sale revenues. The airport hopes to make $450 million on
future royalty payments.
What can Pittsburgh learn from the DFWA project?
The DFWA shale project provides an excellent case study
with very instructive technical and financial lessons to be
learned for shale field development projects at other major
airports and elsewhere. Several US airports possess appealing shale acreage. There are additional safety regulations to
observe (FAA, EPA, fire prevention standards), 1 2
but the projects can usually move ahead once the
commercial agreement is in place and signed.
The bidders need to negotiate with only a single
party, normally the airport authority, mainly to settle on an agreeable signing bonus and the royalty
percentage on future hydrocarbon sales.
First we draw the major lessons learned from
the DFWA shale project, and next we highlight the
need for better field development strategy options
for the future.
DFW AIRPORT SHALE FIELD DEVELOPMENT TIMELINE
2006 2007 2008 2009 2010 2011 2012
70 wells drilled
with 5 rigs
1 well drilled
DFWA sues CHK over royalties
No wells drilled No wells drilled
at two disposal
9 minor quakes
well 2 Oct. 31
DFW Airport case study
For DFWA, the leasehold agreed with Chesapeake Energy
(CHK) in October 2006 indeed has been a sweet spot deal: it
has earned the airport well over $300
million as of September 2012.
The majority of the sum was paid
up front as a signing bonus in two
installments of $92.6 million each in
2007 and 2008, followed by 25% royalty on gross revenues from gas sales.
The airport netted a further $108 million in royalties over the past 5 years of
production and $13.6 million for the
gas operator’s use of airport structures.
Meanwhile further field development at the DFWA has stalled.
More than half of the leased acreage
remains undeveloped after field operator CHK incurred substantial losses on
the DFWA shale project. CHK originally planned to drill 330 wells but
has drilled only 110. The company is
$5 million award
to DF WA