unconventional gas report edition 1 special sample

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North AmEricAN UNcoNvENtioNAl GAs mArkEt rEport 2009

Warlick international 2009 c All Rights Reserved

Edition 1 of 2

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North American Unconventional Gas Market Report 2009

About The Report Series

This is Edition #1 of 2 editions of the North American Unconventional Gas Market Report 2009

.

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__________________________________________________________

Outline -- Contents of the Report

1 - Unconventional Gas in North America 2 - Executive Summary 3 – Major Tight Gas Areas in the U.S.

Overview

3.1 - Anadarko

3.2 - Deep Bossier

3.3 - Piceance

3.4 - Pinedale Anticline

4 - Major Gas Shale Areas in the U.S.

Overview

4.1 - Antrim

4.2 - Appalachian/Ohio

4.3 - Arkoma-Woodford

4.4 - Barnett

4.5 - Fayetteville

4.6 – The Haynesville Shale

4.7 - Lewis Shale of the Greater Green River Basin 4.8 - Marcellus Shale

4.9 - New Albany/Illinois

4.10 - West Texas/Barnett

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5 - Major Coalbed Methane Areas in the U.S.

Overview

5.1 - Appalachian

5.2 - Arkoma

5.3 - Black Warrior

5.4 - Cherokee Platform

5.5 - Powder River

5.6 - San Juan

6 – Western Canadian Sedimentary Basin: Coalbed Methane & Gas Shale 7 - Oilfield Services in Unconventional Gas Development 8 - Technologies Applied 9 - Looking Ahead Appendix -- Glossary

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WARLICK INTERNATIONAL 2009 © ALL RIGHTS RESERVED 4.4: Barnett Gas Shale (Edition 1)

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SECTION 4.4

Barnett Gas Shale

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Executive Summary

Current Status

E&P Companies in the Barnett

Reserves, Production & Drilling

Geology & Reservoir Characteristics

Economics of Drilling & Production

Planning for Development

Infrastructure

Regulatory & Environmental

Technologies Employed

Investment Consideration

Database Summary & Forecast

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Executive Summary After more than five years of steady increases the Barnett will, for the first time fall off in

drilling activity; we think it could decline 19% to 28% in 2009. There are two immediate reasons for the drilling fall-off: Natural gas prices that started

slipping by 4Q2008 and Devon’s decision to cut their drilling program by two-thirds in 2009. They have typically accounted for ~ 30% of drilling in the Barnett, now they’re below 20%.

It’s all a matter of economics – true for all oil & gas development. But in the Barnett $4 gas

translates to 22% ROR and $5 gas translates to 32% ROR -- well off from earlier years. This is the largest onshore gas shale basin in the world. It produced 1.3 TCF in 2008 (or about

3.6 BCFD), continuing a steady climb for years. Several drivers were behind the Barnett success story: Good natural gas prices; the

implementation of incredible technologies like horizontal completions, slickwater fracs, microseismic applications, etc.

It also helped that about six E&P leaders were racing ahead of drilling and development here

- In 2008 Devon, XTO, Chesapeake, EOG, EnCana and Range accounted for ~ 80% of production - Devon, Chesapeake, XTO, EOG, Quicksilver and Range drilled over 80% of all wells in 2008

They provide important basin leadership, asking for technology, best equipment and service

and are exemplary E&P developers. This is a natural area for development with large reserve potential and long production life,

thanks to its huge, multi-county geography and thick producing formations. The play is an organically rich, thick shale with attractive permeability and porosity and per-well production rates that are approximately 2.5 MMCFD.

But the Barnett has a lengthy history of development: First oil exploration came in the Civil

War era, oil & gas was first produced in 1910, gas production from the Barnett Shale initiated in 1981 and Devon acquired Mitchell Energy in 2001 and the rest is history.

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Current Status

Barnett Shale annual production began 2009 at an estimated 4 BCFD And according to the

Texas Railroad Commission there were 10,146 recorded gas wells producing here.

From 3Q2008 to early 2009, the number of rigs drilling in the Barnett play had declined 26%.

Sharply lower natural gas prices and a softer economy caused several companies to cut

drilling plans and capital expenditures. Those reducing rig count include Devon, Chesapeake,

Quicksilver, Denbury, and others. But some of the top operators expected to continue their

Barnett Shale development programs, testifying to the importance of the play.

This is the largest gas field in Texas, and ranks with many world-class gas operations.

According to the Texas RRC there are about 185 operators of record in the Barnett. In its

extreme, this basin could include up to 60 Texas counties.

But the heart of the Barnett consists of 14 counties (shown in the internal segment of the

following map) where the majority of drilling and production is taking place all within the

Fort Worth Basin, pictured on the following page:

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4.4 Exhibit 1: Map of the Barnett Shale

The Barnett Shale of the Fort Worth Basin was held by Mitchell Energy for many years with

some emphasis on extracting gas liquids from gas production over this north Texas producing

area. In fact, at one time, the largest number of the field gas processing plants was being built

for this area. Devon Energy and their acquisition of Mitchell came next with new ideas about

geological aspects of the Shale and some technical notions about fracturing applications. It

was then that the new Barnett was born with a big, new history of technological success and

significant gas production.

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4.4 Exhibit 2: Counties of the Fort Worth Basin and Barnett Shale

After the Devon acquisition the Barnett progressed in a faster sequence. First the Core area

began to lift off, then came development of Tier 1 Counties (Parker, Hood and Johnson

Counties). That began with some vertical completions but then became even more successful

with horizontals and carefully engineered multiple frac treatments. Development of Tier 2

Counties (Jack, Palo Pinto, Eastland, Comanche, Erath, Somervell, Hamilton, Bosque, and

Hill) has been under way for several years with both oil and natural gas potential.

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The actual beginning of the Barnett was the Newark East, with extremely high production

where thick, siliceous Barnett had reached the gas window and is overlain and underlain by

impermeable limestones containing fractures that are induced during completion techniques.

That one field was the historic engine of the Barnett, profiled in the exhibit following:

4.4 Exhibit 3: Barnett Cross Section

The Barnett Shale got its name from the shale outcropping in San Saba County in the vicinity

of the John Barnett family estate which was settled in the 1870s. By 2007, the Barnett had

produced over 2 TCF of gas -- equivalent to almost 9% of U.S. marketed gas production. This

enormous reservoir is being extended by every new well being drilled today and is the largest

gas producing area in Texas --today’s annual production rate is about 4 BCF per year.

To summarize the evolution of the Barnett:

First oil and gas exploration occurred in the Civil War era

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First oil and gas production was in 1910 Barnett shale gas production initiated in 1981 Devon acquired Mitchell Energy in 2001, began infusing new drilling/production

methods

E&P Companies in the Barnett

Among the ~ 185 operators of record in the Barnett there are actually just eight to ten of real

consequence. Smaller and mid-sized operators were accumulated in acquisitions and leasing

deals. There remain active producers in the Barnett Shale, both large and small; there are also

innumerable leasing groups, investors and individuals enmeshed in the Barnett one way or

another.

Since the beginning the end game here was to mass up acreage. It has been accomplished by

about ten players led by Devon, XTO, Chesapeake, EOG, and others. The most active

companies, plus a few others are summarized in the following pages.

With more than 650 potential Barnett horizontal drill sites remaining on 60-acre spacing, they

are now drilling on 500 ft/40-50-acre spacing in the core. Carrizo has a projected additional

Carrizo Oil & Gas

Carrizo began 2009 with 75,000 net lease acres in the Barnett, about 21,000 in the play core

and another 24,000 in Tier 1. It had five rigs drilling in the play, four in the Barnett core. They

expect to keep four rigs running in the play and to exit the year at 125 MMCFD, operating out

of cash flow.

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reserve potential of more than 1 TCF. Their average EUR in the Barnett is 2.1-2.2 BCFE.

During 2009, with 90%+ of capex devoted to the Barnett, they plan to spend an estimated

$150 million on Barnett drilling and another $15 million on acquisitions.

A brief history: Carrizo’s capital expenditures were about $530 million in 2008. At mid-year

they had over 87,000 acres leased with potential for 750 drill sites and plans to drill 68 gross

wells in the Barnett area. Early 2008 operating results were positive with the note of 10 new

operated wells in southeast Tarrant County that went online with initial gross production rates

averaging over 4 MMCFD per well. Carrizo had 4 rigs drilling horizontal wells in eastern

Tarrant County and a 5th Carrizo-operated rig drilling in the Barnett Core in Denton County.

According to Texas RRC, their 1Q2008 production was about 2 BCF, about twice year-earlier

figures. Carrizo's EUR per well was 1.7 BCFE with total net reserves of 982 BCFE. They

tested downspacing, going to 40-50 acre spacing via multiple pilots.

Carrizo's 2007 capital expenditures were $231 million, used primarily to drill 96 wells (68

net). At the end of the year, Carrizo had 198,930 net acres in Texas and Louisiana under lease

or lease option, including 50,312 net acres in the onshore Gulf Coast area, almost all of which

were covered by 3-D seismic data, and 85,429 net acres in the Barnett Shale. They relied

heavily on seismic data and evaluation to plan their development-- seismic tools are a

technology important to most E&P companies operating here.

Chesapeake reports itself to be the second-largest producer, most active driller and largest

leasehold owner in the Core and Tier 1 sweet spots of Tarrant, Johnson and western Dallas

counties. In 2009 they plan to have an average of 25 operated rigs in the Barnett with a $950

million budget. Chesapeake is targeting about 675 BCFE of reserve additions in the play with

a net finding cost of $1.40/MCFE.

Chesapeake Energy

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They started 2009 with 315,000 net lease acres in the Barnett with an estimated 3,000 risked

net undrilled wells. Chesapeake had 560 MMCFED productions and 2.81 TCFE total proved

reserves. Risked unproved reserves were 5.2 TCFE, and they projected unrisked, unproved

reserves at 6.9 TCFE.

A brief history

Chesapeake was keeping five rigs running on a unique 18,000-acre leasehold at Dallas-Fort

Worth International Airport within the Barnett Shale with four of the rigs converted to electric

power from diesel. They reported drilling 82 wells at the Newark East Field site but sales

were limited to 60 MMCFD through a single pipeline connection. Chesapeake also said it has

completed a $4 million, five-stage 3D seismic survey of the airport property.

They expected to drill 3,500 additional wells on acreage to potentially develop an

estimated 8.2 TCFE of proved and risked unproved reserves.

Texas RRC reported that Chesapeake's total 1Q2008 Barnett production was about 23 BCF,

up more than 100% over 1Q2007. Chesapeake anticipated reaching 650 MMCFD by year-

end 2008 with proved reserves that could exceed 2.3 TCFE. Assuming an additional 3,500 net

wells drilled in future years, their estimated risked unproved reserves in the Barnett were 5.9

TCFE (and 7.2 TCFE of unrisked unproved reserves).

The company blocked up acreage to build its #3 (or perhaps #2) overall position in the Barnett

by way of internal expansion plus a sequence of basin-building deals:

: In late 2008 Chesapeake adjusted its drilling and leasing program in the

Barnett Shale, particularly in the Core and Tier 1 sweet spot of Tarrant, Johnson and Dallas

counties. They cut their overall drilling capital expenditure budget (planned at that time) from

the second half of 2008 through 2010 by about $3.2 billion, or 17%.

Late 2004 -- Acquired properties from Hallwood Energy 2006 -- Made three sizable acquisitions

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Late 2006 -- executed a long term acreage lease on 18,000 acres controlled by DFW

International Airport for $181 million and 25% royalty Chesapeake anticipates peak production of 250 MMCFD by late 2011; plans to drill about 300 wells in total

Late 2007:

- Added 2,000 net acres in Tarrant County from Western Production Co. - Entered into a land service agreement with Axia Land Services to work in the

Barnett to acquire more land for Chesapeake

In 2007 Chesapeake controlled in excess of 240,000 net acres, or around 360 square miles in

the Barnett Shale. Along with other growth-focused players like XTO, EOG and companies

with obsessive concentration on prospect accumulation and land control, Chesapeake kept the

pipeline full of drillsite prospects in their business-building strategy for this important play.

ConocoPhillips

Thanks to their earlier Burlington Resources acquisition ConocoPhillips was handed an

attractive shale opportunity in the Barnett. They are focused on their 110,000 net acres in

Denton, Wise, Johnson, Hood, Parker and Palo Pinto counties. They produced about 16

MBOED in 2008.

But after the beginning of the year they set a company-wide 2009 capital budget of $12.5

billion, a decrease of 38% from 2008. Further, in 1Q2009 they announced plans to cut 4% of

their workforce, about 1,300 jobs. So out of total E&P capex in 2009 CP will spend $5.2

billion in North America. They indicate plans to continue development programs in the Fort

Worth Basin as well as the Permian, San Juan and Williston basins and the South Texas Lobo

Trend and expect to make no major upstream asset sales in 2009.

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Denbury Resources

Denbury had plans to sell their Barnett holdings but put those plans on hold as energy prices

fell and the world economic situation worsened going into 2009. In announcing a preliminary

2009 capital budget, they said: “Plans did not include the Barnett Shale (as it was presumed at

that time that these properties would be sold.)” Since then, they have announced plans to drill

only five horizontal wells in the Barnett compared to 47 horizontal producers for 2008.

Their 3Q2008 production was about 74 MMCFD. At that time Denbury said they planned to

drill between 45 and 50 wells during the year compared to 45 wells in 2007, 46 in 2006 and

23 in 2005.

Denbury held approximately 55,649 gross acres and 40,240 net acres of leases in the Barnett

Shale area in North Central Texas, of which approximately 19,984 gross acres and 19,398 net

acres are in more tested northern areas of Parker and Wise counties and the remainder in

Erath County. At EOY2007 they had approximately 368.5 BCFE of proved reserves in the

Barnett.

They indicate their production is at or near peak, but of course it's based upon future levels of

drilling activity. Their wells (like most Barnett wells) are characterized by steep decline rates

in their first year of production (typically 50% to 60%), followed by a gradual leveling-off of

production and a resultant slow decline rate, giving them an overall long production life.

Devon Energy

Devon Energy is the largest operator -- based on drilling, production and reserves -- in the

Barnett Shale, which is now the largest onshore gas shale province in the world, spreading

across at least 14 Texas counties. They hold 716,000 net acres in the play and estimates they

have more than 7,500 risked undrilled locations or ~ 13 years of drilling inventory.

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They had projected a potential Barnett production rate in the near future of 1.6 - 2.0 BCFED.

They drilled 659 Barnett wells during 2008 compared to 539 wells in 2007. Devon’s exit rate

for net production from the Barnett exceeded 1.2 BCFED. But in early 2009 they changed

plans in a huge way: Devon announced a 66% reduction in drilling plans, with 220 – 230 new

wells to be drilled in 2009. This is a big change in strategy, owing to low gas prices and a

North American inventory that is quite sizable.

In reviewing one aspect of how they evaluated Barnett options for 2009 (there were

undoubtedly other strategic issues as well) Devon provided three cases describing what would

be required of their operations in order to attain an after tax ROI of 20%.

1. With NRI/lease cost of 81% and $28,000 per acre then a $5.40/MCF realized gas price

would allow a 20% ROR after tax.

2. 75% NRI and $10,000 per acre calls for a $7.10/MCF realized gas price for 20% ROR.

3. And finally with a 70% NRI at $15,000 per acre the realized gas price needs to be

$8.20/MCF for a 20% ROR.

Note: The above model assumes $3.3 million D&C cost and Wellhead EUR of 2.2 BCF (in

addition to 1,000 ft. offsets with NGL prices constant).

On these bases (plus other strategic considerations) Devon decided to cut back drilling in a

big way for 2009 reducing down from 659 wells in 2008 to a planned 220-230 in 2009.

A brief history: In 2007-2008 they increased their wells drilled, due in part to improved

drilling efficiency, they reduced the number of days required to drill horizontals by half in just

the past three years. This is important because almost all of the Barnett wells drilled during

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2007 were horizontal. Looking at their results, it appears that they increased per-well

recoveries by about 15% in that period.

Devon's first horizontal wells were drilled on 160-acre spacing; then they began drilling wells

on 80-acre spacing. The success of that program eventually led to a 40-acre pilot -- and they

were testing the viability of 20-acre locations. Then, they had about 3,200 wells producing

gas from the Barnett Shale with proved reserves of more than 4.3 TCFE.

In 2002-2007 Devon drilled more than 1,300 wells in the Barnett and produced over 800

BCFE. It's important to note that fracturing technology helped Devon increase its Barnett

production from 200 MMCFD in 2002 to more than 600 MMCFD today, accounting for

almost 40% of Barnett daily production.

In 2007, Devon increased annual Barnett production by a third to more than 300 BCFE and

increased proved reserves by 19%, finding more than three times the volume of gas they

produced that year. Unlike Chesapeake, Devon indicated that 90% of reserves additions came

through the drill bit.

EnCana

At the start of 2009, EnCana held 143,000 net Barnett acres with plans to drill 40 (gross)

wells in the play during the year. They anticipate an IP rate of 2.3 MMCFD, an average

drilling depth of 8,000 ft. and estimated 100-150 BCF/section gas-in-place.

They are applying horizontal drilling and multi-stage reservoir fracturing. Natural gas

production averaged 124 MMCFD in 2007. In for the first quarter of 2008, EnCana produced

about 11 BCF, ranking them as #5 in Barnett gas production.

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EOG Resources

EOG is looking for significant Barnett volume impact in 2009. This company ranks as #4 in

the Barnett for gas production and has concentrated on advanced drilling and completion

technology. They said their production growth in 2009 “is expected to be driven by high

reinvestment rate of return opportunities in the United States, particularly the Fort Worth

Basin Barnett Shale and the North Dakota Bakken.”

They are working on drilling efficiencies that utilize automated rigs and improvements in frac

treatment. Earlier, they estimated savings in these programs are $350,000 per well (which will

apply to about one-third of their wells) with downspacing a part of their present and future

programs.

A brief history: EOG started 2008 with 250,000 net acres in the Barnett, primarily in

Montague and Clay counties. They have identified a 40-mile by 20-mile economically viable

trap confirmed by eight EOG wells and 60 other industry wells and were looking at 400-800

BCF of gas reserves potential. Their 2008 plans were to grow their Barnett output and

complete ~ 400 net wells in what they anticipated to be a very active drilling program but all

the while, with the objective of maintaining strong production growth.

During 2007, they drilled 293 net wells with production that year of ~ 271 MMCFD plus 2.2

MBD of crude, condensate and natural gas liquids. They exited 2007 with net production at

375 MMCFD. They have extensive acreage in Johnson County plus other extensions that add

up to about 610,000 acres. There are around 4,300 potential drilling locations across their

holdings.

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Forest Oil

Forest announced a farm-in arrangement with Infinity Oil and Gas Inc. (see following) on

Barnett Shale acreage in Erath County. Upon completion of a 10 well farm-in arrangement

Forest will own approximately 50% of about 70,000 gross acres in Hill, Hamilton and Erath

Counties. They planned to run up to three rigs in the play.

Infinity Oil and Gas Inc.

The past twelve months have witnessed a transformation in Infinity's operations as reflected

in the sale of their producing oil and gas properties in Colorado and Wyoming and a

subsequent entry into the above-noted farmout deal with Forest Oil in the Barnett. Forest

intended to complete one Barnett Shale well that Infinity drilled earlier, and then proceed with

the rest of their planned drilling program.

Pioneer Natural Resources

As of 1Q2009, Pioneer had curtailed its Barnett drilling program until economic conditions

improve. In 3Q2008 they closed on a $38 million Barnett assets acquisition from Dune

Energy. That deal included 4,000 acres with 30 drilling locations, production of 6 MMCFED

and reserves of 6.1 MMBOE.

Pioneer was involved in drilling six successful exploratory wells on its holdings of

approximately 9,300 gross acres in the Barnett -- they acquired the property in the spring of

2007 and expanded their acreage in December 2007 by acquiring the holdings of Shell E&P

for $144.3 million. The property is estimated to contain ~ 13.5MM BOE and came with 300

potential drilling locations replete with 3-D seismic data. Shell had held this property for

several years but decided to depart the Barnett, a timely decision in favor of Pioneer.

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Related to their 2008 plans, they had begun a 20-well drilling program that included a 6-well

participation deal with Devon in Wise County. They also had plans to expand their Barnett

drilling program and grow gas production from 15 MMCFD today to more than 100 MMCFD

by 2011. Including earlier-owned property, the Shell acquisition and a 74,000 acre purchase

Pioneer's total their holdings are now around 87,000 gross acres with 450 potential drilling

locations and 16 MMBOE proved reserves.

Quicksilver Resources

Quicksilver expects to drill 180 net wells in the Barnett during 2009, with more than half of

its rigs operating in Tarrant and Denton Counties and the remainder in Hood, Somervell and

Hill Counties. They drilled ~ 220 net wells here in 2008. The company earlier estimated it

has a recoverable 5.5 TCFE of gas resources in the basin's Barnett Shale.

Quicksilver announced in October 2008 it planned to cut capital expenditures in 4Q2008 by

about $100 million and to reduce its number of drilling rigs working in the Fort Worth Basin

from 14 to nine during November 2008. For 2009, Quicksilver plans a capital program of

$850 million including $100 million of midstream expenditures, compared to a 2008 budget

of $1.1 billion.

They hold about 263,000 net acres in the Fort Worth Barnett Shale with a 10-year project

inventory as of early 2009. Their reported pro forma reserves are 1.7 TCFE.

Quicksilver’s lease holdings include more than 173,000 net acres in the company-defined

Barnett Core fairway, less than 30% developed. They expect to grow production and reserves

where more than 3.8 TCFE of additional potential resources have been identified.

A brief history: Their 5,000-acre Lake Arlington Project in Tarrant County had 32 wells

producing in 2008 as EURs increased to more than 5 BFC per well. Their Alliance Project in

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Denton and Tarrant counties included 13,000 net acres and over 1 TCF of total resource

potential, with more than 340 future drilling locations.

They planned to drill 200-220 operated wells in 2008 and to double production. In the first

quarter of 2008, they drilled 55 (50 net) wells and connected 56 (54 net) to sales. They had

12 rigs working the basin that included 2 rigs dedicated to the Lake Arlington area and 3 rigs

to their Alliance Project.

Quicksilver has expanded via acquisition -- in early August 2008, they bought 13,000 net

acres in northern Tarrant and southern Denton counties for $1 billion cash plus $307 million

of stock. They estimated 350 BCF of proved reserves and 1 TCF recoverable net resource

potential. Reserves in the Fort Worth Basin included assets from Chief Resources LLC,

Hallwood Oil & Gas LP and Collins & Young LLC. That had an immediate impact by

adding net production of 45 MMCFD of gas.

Quicksilver's EOY 2007 reserves were about 1.2 TCFE which included ~ 661 BCF of gas and

approximately 90 million barrels of natural gas liquids. This was an increase of 70% over

2006 year-end reserves in the Barnett. The Fort Worth Basin accounted for 78% of

Quicksilver's reserves, with the balance in Canada.

In 2007, they drilled 219 net wells and connected 163 net wells to sales, increasing overall

production by 160%. Quicksilver has a sizable and contiguous land position that is 98%

covered by the 3-D seismic and possesses attractive lease terms (about $300/acre and 20%

average royalty).

Range started 2009 with 103,000 net acres of leasehold in the Barnett, with more than 700

locations left to drill. That included 42,000 acres in the Barnett Core and 47,000 net acres in

Range Resources

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southwest Ellis and Hill counties. Net production was over 105 MMCFED and they had 5-6

rigs running in the play. Range estimated its total unbooked Barnett potential at 2 TCF.

A brief history: In January 2008, Range completed their earlier-announced acquisition of

Barnett properties from DTE Energy Co. and a private company. The adjusted purchase price

was $284 million. With closing of that transaction, Range's position in the Barnett Shale play

expanded to 103,000 net acres. They anticipated drilling approximately 100 wells in 2008. As

a result of acquisitions and organic growth, Range is the #7 producer in the Barnett Shale.

Their principal Barnett operations are in Ellis County and southern Tarrant County. They

grew their position significantly in their May 2006 acquisition of Stroud Energy, which added

23 MMCFED and 40,000 net acres. Range is active in other U.S. shales, with increasing

emphasis in Appalachian plays.

Since late 2003, Range has completed five property acquisitions in multiple basins, including

one in West Texas, two in southeastern New Mexico, and two in the Fort Worth Basin Barnett

Shale play. The transactions are helping to construct a multi-year drilling inventory of low-

cost, low-risk reserves.

Williams Exploration & Production

Williams acquired the Barnett Shale interests owned by privately-held Aspect Abundant Shale

LP and other parties for $166 million in cash in September 2008. The package represents an

estimated 175 BCFE of proved, probable and possible reserves on approximately 10,000 net

acres and 41 producing wells with net production of ~ 9 MMCFED. The properties are

located primarily in Tarrant, Johnson and Hood Counties.

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Williams’ holdings in the Barnett prior to this announced agreement included 34,000 net acres

and 277 BCFE of proved, probable and possible reserves; during the first quarter of 2008 they

were producing 38MMCFED net.

XTO Energy

XTO is either the #2 or #3 producer in the Barnett Shale, competing with Chesapeake. Back

in January 2004, XTO entered the Barnett via a small acquisition but has rapidly become one

of the dominant players. As of 1Q2009 they hold a position of about 280,000 net acres, of

which approximately 55% (155,000 acres) lie in the Core Area of the play, and they currently

have over 700 MMCFD in production. XTO said their Barnett per-well reserves range from 2

BCF to 9 BCF.

They plan a Barnett capex of ~ $700 million in 2009. In 2008, XTO was running 18 rigs in

the Barnett with 15 drilling in the core area and three rigs in the non-core areas. They agreed

to acquire 12,900 net acres adjacent to their existing operations in the Barnett Core for

approximately $800 million from an undisclosed third party. XTO estimated proved reserves

to be in excess of 300 BCFE, about 25% proved developed. This acquisition initially added 35

MMCFD to XTO’s production base. They said ultimate recovery from these assets would be

more than 1 TCF of gas over time.

A brief history: XTO not only acquired other producing properties in the Barnett (like Antero

Resources in April 2005, which then vaulted them to #2 in the Barnett), but also kicked off an

aggressive leasing program that has accounted for about half of their acreage position.

In 2007 they managed to increase production by 78%. This resulted largely from drilling

efficiencies (and other factors) that resulted in a 30% reduction in drilling days. Their

approach was to drill horizontals, expand infrastructure and improve ultimate recovery and

well performance with re-fracs and tighter well spacing.

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Their downspacing strategy: Early wells were at 75 -90 acres, then they became successful at

40-acre spacing. Indications were that 20-acre spacing was even better:

An 80-acre well could have ultimate recovery of 3.0 -4.0 BCF/well. At 40 acre spacing it changes to 2.0 - 3.0 BCF/well. A 20-acre well could have ultimate recovery of 1.5 - 2.0 BCF/well.

Their net daily production in the Barnett Shale averaged 425 MMCFD for the 1Q2008 with

midstream infrastructure being installed to accommodate XTO’s growth plans.

Reserves, Production & Drilling

Barnett Shale daily production grew to more than 4 BCFD in early 2009, and 2008 production

reached about 1.38 TCFY in 2008. It had surpassed the 1 TCFY mark in 2008 with daily

production estimated at ~ 3.2 BCFD, more than 5% of total U.S gas production.

Not many years ago, the Barnett began with about 25 wells and 1 BCF of gas produced in a

year, then expanded to 19 BCFY from 300 wells by 1995. This is a development success

story with prolific production and success in making good wells. Increasing gas prices have

supported the steady uptrend in drilling and production, but not to forget also that the

importance of technology in this still-unfolding story.

By 2007 the area's estimated ultimate reserves (or EUR) per well were quite high in

comparison to other leading basins of that time -- in the 2.0 to 2.5 BCFE range. The average

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for gas-producing leaders like Chesapeake, EOG, XTO and others will normally be around

2.1 - 2.2 BCFE. As drilling and development moves out of the core areas, and say, into

western counties of the Barnett (or to its east) then EURs will usually be lower, below 2.0

BCFE say to 1.5 – 1.7 BCFE as drilling moves out of core area and into western counties (or

to the east) as leasing and development extends outward.

In an earlier assessment, the USGS has judged the Barnett to have known recoverable gas

reserves of about 4 TCF and, at the other end of the spectrum, an undiscovered recoverable

volume of 26.2 TCF. A consensus of estimates tightens that range, slightly, to between 33

and 54 TCF to include in-place and undiscovered recoverable reserves.

By early 2008 Barnett production had passed the 3 BCFD mark, annualized, up from the 2.5

BCFD average of 2007. This compares to about 1.3 BCFD by year-end 2005 almost 1 BCFD

at the end of 2004. These are incredible growth figures and should continue as drilling and

production extends beyond present core and tier areas.

A brief summary of reserves, production and drilling follows:

Reserves Dec 2008

Production 2008

Wells Drilled 2008 Status

33 - 54 TCF* 1.3 TCF 1,877 - 2,015

An incredible gas resource, the Barnett is the largest onshore gas shale basin in the World. It exceeded 1 TCFY during 2008 and exited the year at ~ 1.3 TCF (or about 3.6 BCF per day). The ever-increasing production here was supported by 8-10 aggressive E&P companies and natural gas prices that on average, climbed since 2005 (and began slipping in late 2008). But a major driver was implementation and refinement of three technologies in the Barnett: Horizontal completions, slickwater fracs and seismic/microseismic usage. It helped too that drilling has trended somewhat to a "manufacturing" approach.

Barnett Gas Shale

* Gas in-Place and Undiscovered Recoverable Warlick International 2009.E1 4.4 Exhibit 4: Reserves, Production and Drilling in the Barnett

Typical Barnett wells will be completed in steps from 5,800 ft. to almost 9,000 ft., depending

on the location of the well in the basin, with a success ratio debt is near 90% today.

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