What a 40-year-old shale well can tell us about the future of the Lower 48
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Forty years ago, on 6 March 1981, Mitchell Energy filed a permit for the C.W. Slay 1 well, kick-starting a Barnett Shale programme that would forever change the face of US upstream operations. Using our proprietary Lens data, we’ve delved into the well’s backstory, production profile and more, to draw lessons that every shale stakeholder can take from this pioneering project in North Texas.
Visit the store to read the report in full, including insight from our conversation with one of the project’s instrumental geologists, as well as reflections on our visit to the oldest shale gas field. Or read on for an overview of three lessons the well that commercialised shale can provide for the sector's future.
1. Endurance matters in shale
The Slay wildcat was the first modern commercial shale gas well. Its design was nothing like the monster horizontal shale wells we see today, as it was originally drilled as an exploration test to extend the life of Mitchell’s North Texas operations. The well would take decades to show its full potential.
The real breakthrough came in 2001 when Mitchell trialled a water-based frac in the wake of success industry peers had with such completions in East Texas. The slickwater frac pumped into the Slay well was a much more aggressive completion than the two original CO2 and foam tests, and most importantly, the different chemistry was cheaper.
This result was truly the first of its kind in an overpressured shale. Production from the well (that was already two decades old) spiked to 1.3 mmcfd in September 2000 and marked the birth of shale as we know it. Over the next four years, C.W. Slay 1 – a vertical well – produced nearly 1 billion cubic feet (bcf). It also produced peak cash flow when production was down 60% from its peak. Cumulatively, the well has eclipsed 2 bcf and is still producing today.
2. New operators find new opportunities
When the Slay well showed its true potential in 2001, and Mitchell’s its wider Barnett project reached critical scale, Mitchell Energy sold to Devon for US$3.1 billion. Devon developed the Barnett acreage in earnest. But when the asset – including the Slay well – had little remaining upside, it was sold to Banpu Kalnin Ventures (BKV), financially backed by Thailand-based Banpu PCL, as part of Devon’s second Barnett Shale divestiture package in 2019.
The Barnett Shale's current makeup has many moving parts and reminds us that the companies responsible for growing shale assets in the boom years rarely take them into the sunset. The outlook for US gas prices, the terminal decline rate of Barnett PDP and early players’ need to de-lever all impacted how shale gas portfolios were rationalised.
Not a single fast-moving early Barnett developer has a stronghold in the Fort Worth Basin today. Mergers and acquisitions have reshaped the entire play, as we can see in the charts below.
3. Don’t focus exclusively on rapid payback
On an undiscounted basis, the well has paid for itself twice over, but this took more than 40 years. But on a discounted basis, the metrics are poor. The well took 23 years to reach payout. The initial investment only turned profitable in 2001 when the water frac validated earlier R&D efforts.
And calculating full-cycle value since the breakthrough frac, the well is value neutral. But this is actually a remarkable feat for the first shale well in the first shale play, in what was essentially a technology project.
It took periods of extremely elevated gas prices and decades of online production to achieve its rate of return. With lots of focus today on quick payback, the Slay well is a reminder that managing declines and reinvesting in production operations and technology can be key to capturing the full value from shale acreage. Today, with so much focus on near-term breakevens, the Slay reinforces the importance of duration.