Dominant Firms Keep Eyes on Fayetteville Shale Play

by Gwen Moritz  on Monday, Aug. 30, 2010 12:00 am  

Dozens of companies are working in the Fayetteville Shale Play, but four companies accounted for more than 85 percent of its gas production in 2009: Seeco Inc., a subsidiary of Southwestern Energy Co. of Houston; Chesapeake Operating Inc., a subsidiary of Chesapeake Energy Corp. of Oklahoma City; XTO Energy Inc., which was acquired two months ago by Exxon Mobil Corp.; and Petrohawk Corp. of Tulsa, which includes subsidiaries KCS Resources Inc., One Tec Operating LLC and Petrohawk Operating Co.

The publicly traded companies have telegraphed their intentions with regard to the Fayetteville Shale Play in recent filings with the Securities & Exchange Commission.

Southwestern Energy, which used to be headquartered in Fayetteville, released this month an investor presentation that made clear that the Fayetteville Shale Play is still the center of its capital investment universe: $1.6 billion this year, which is 62 percent of the total with the remainder split a half-dozen ways.

Southwestern's Seeco produced more than half of the natural gas extracted from Arkansas last year through 1,860 wells at the end of 2009. According to the investor presentation, another 249 wells were completed in the first six months of this year.

"We anticipate participating in 650-680 wells in 2010, 475-500 of which we plan to operate," according to the presentation.

Petrohawk, the No. 4 player in Arkansas, started 2010 with a plan to spend $100 million in the Fayetteville Shale this year. But in March, that figure was scaled back to $85 million.

In its second-quarter report, Petrohawk said demand for drilling equipment in the Eagle Ford Shale of south Texas and the Haynesville Shale of northwest Louisiana had pushed up the cost of well completion. Now the company is looking to sell off some of its Fayetteville Shale assets, assuming the price is right.

In its second-quarter earnings report, Chesapeake Energy said that it had reduced the number of drilling rigs it was operating in the Fayetteville Shale from an average of 18 in 2009 to 10 this year and expected to reduce the average to eight in 2011.

"The Fayetteville provides an excellent example of how the company is able to reduce its drilling activity once a play is substantially HBP," Chesapeake reported, using the industry acronym for "held by production." Once production has started on a section of land, the terms of a mineral rights lease are no longer subject to periodic renegotiation, giving the company more flexibility in adding wells.

Chesapeake is dramatically increasing its drilling activity in places where similar fracturing technology can be used to drill for oil trapped in shale. Arkansas has none of that.

"In 2010, we expect that approximately 32 percent of our drilling and completion capital expenditures will be allocated to liquids-rich plays, compared to 10 percent in 2009, and we are projecting that these expenditures will reach 55 percent in 2012," Chesapeake reported.

First in line for Chesapeake's new oil exploration venture: the Eagle Ford Shale and the Granite Wash plays of western Oklahoma and the Texas panhandle.

But that pullback doesn't mean Chesapeake is abandoning the Natural State.

Danny Games, senior director of corporate development for Chesapeake in Arkansas, issued this statement last week.

"You may verify this, but there are approximately 30 rigs still active in the Fayetteville Shale and thousands of people working in the industry and even more benefiting from the economic activity, royalties, tax revenues and incomes. While we're not immune from the effects of the broader economy, the natural gas industry continues to make a great contribution to our state and is keeping a lot of people employed in north central Arkansas."



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