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South Arkansas Formation Proves Disappointing So Far

3 min read

After the booming success of the Fayetteville Shale Play, it was easy to get excited about the prospect of exploiting another geological formation deep under Arkansas soil.

But the Lower Smackover Brown Dense formation has, so far, been a disappointment for exploration companies, mineral rights owners and state regulators hoping for a 21st century oil boom in south Arkansas and north Louisiana.

While investors haven’t given up, the excitement has definitely waned. In Southwestern Energy Co.’s first-quarter earnings conference call, CEO Steve Mueller compared the Brown Dense to a playground bully.

“Sometimes they tell you that when the bully comes up, the thing to do is go fight him,” he said. “But you don’t want to do that too many times. You get beat up too many times if he keeps beating you up. And right now Brown Dense is beating us up.”

The Lower Smackover Brown Dense formation is an unconventional oil reservoir that straddles the Arkansas-Louisiana line. Oil and gas extraction companies have been investing in untapped land for a number of years in hopes that modern drilling techniques could make the oil beneath the thick limestone economically viable.

Southwestern Energy, which moved its headquarters from Fayetteville to Houston in 2001, is the primary exploration and production company in the Brown Dense, just as it was on the cutting edge of Fayetteville Shale development. Evidence of slipping enthusiasm was included in Southwestern’s second-quarter earnings report released at the end of July: Planned investment in the Brown Dense for 2014 had dropped by almost 40 percent, from $178 million to $110 million, of which $69 million was invested in the first six months of the year.

As of September, Southwestern was holding the rights to 396,000 net acres in the Brown Dense, down from almost 460,000 at the end of 2013.

Larry Bengal, director of the Arkansas Oil & Gas Commission, said although several wells have been drilled, none has been successful to date on the Arkansas side of the formation. Several wells are in production on the Louisiana side of the formation, he said.

In its September investor presentation, Southwestern Energy shows a map of 14 wells; 12 of them were testing or producing, one was waiting on completion and one had been “shut in,” or closed off.

Bill Way, Southwestern’s executive vice president and COO, told investors in July that Brown Dense efforts were being redirected from drilling to a 3-D seismic project that will enable engineers to “get a better picture” of the company’s wells, both successful and unsuccessful.

The 3-D seismic project will cover a 75-square-mile area in Union Parrish, Louisiana.

The Upper Smackover fields have produced oil and gas through conventional wells since the 1920s. Extraction companies had hoped that the Lower Smackover, a dense, limestone formation with vertical depths ranging from 8,000 to 11,000 feet, can be reached with horizontal drilling.

And, in a departure from their typically secretive culture, the producers have been sharing well data to see if anyone can “make a go of it,” Kelly Robbins, executive vice president of Arkansas Independent Producers & Royalty Owners, said.

“At this point it is very much in the exploratory stage,” he said.

It’s not just the oil and gas companies that want to see this succeed, Robbins said, but also people who own mineral rights and those who own surrounding businesses.

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