Fayetteville Shale Play FAQ

by Arkansas Business Staff  on Monday, Aug. 27, 2007 12:00 am  

What is a play?

The scientific definition of a play is an underground geologic formation in which hydrocarbon accumulations or the prospect of those accumulations occurs. The most common hydrocarbons making up a play are natural gas, oil and coal. A play is also often a general term for a large region or basin of hydrocarbon accumulation used by energy companies to continue exploiting a given trend.

What is the Fayetteville Shale Play?

The Fayetteville Shale is an unconventional gas reservoir located on the Arkansas side of the Arkoma Basin, ranging in thickness from 50 to 325 feet and ranging in depth from 1,500 to 6,500 feet. The Fayetteville Shale is extensive and is present across numerous counties in central and eastern Arkansas, including the counties of Cleburne, Conway, Faulkner, Independence, Johnson, St. Francis, Prairie, Van Buren, White and Woodruff, among others. While shale gas has been explored for and tested as a gas resource since the 1980s, only in recent years has it become an economic source of gas supply. That's because of the advent of better oilfield service and drilling technologies and higher natural gas commodity prices.

What is hydraulic fracturing?

Hydraulic fracturing is a stimulation treatment routinely performed on oil and gas wells in low-permeability reservoirs, such as the Fayetteville Shale Play. Specially engineered fluids are pumped at a high pressure and rate into the reservoir interval to be treated, causing a vertical fracture to open. The wings of the fracture extend away from the wellbore in opposing directions according to the natural stresses within the formation. Proppant, such as grains of sand of a particular size, is mixed with the treatment fluid to keep the fracture open when the treatment is complete.

How are ordinary people making money from energy companies drilling at the Fayetteville Shale Play?

When companies aim to develop mineral resources in an area, like natural gas at the Fayetteville Shale Play, the companies secure mineral lease agreements from mineral owners. The companies typically pay the mineral rights owners upfront for the use of the property, as well as a percentage of the royalties drilled there.

What is a mineral lease?

A mineral lease is a legal binding contract between the mineral owner (lessor) and an individual or company (lessee) that allows for the exploration and extraction of the minerals covered under the lease. Not all leases are exactly the same, and terms and conditions are subject to negotiation by the lessee and lessor, such as cash bonuses and prices paid per acre.

I own land in the Fayetteville Shale Play. Will I be contacted to sign a mineral rights contract?

At this point, much of the land grab is complete, though there are still some leases being signed. What most people don't understand is that mineral rights and surface rights do not go hand-in-hand. It is possible - and quite common - to own land but not own the mineral rights.

How do I find out if I own the mineral rights to my property?

In Arkansas, mineral rights are considered part of the sale with surface rights unless they have been specifically reserved. A review of the property abstract should indicate if the mineral rights were reserved by a former property owner. A review of the warranty deeds at the circuit clerk's office also will indicate mineral ownership. In addition, an attorney, abstract company or a land professional may be contacted for assistance.

If I don't own the mineral rights to my property and a company wants to drill on my land, what are my rights?

It is not uncommon for part or all of the mineral ownership to have been severed from the surface ownership at the time of the land sale. In Arkansas, mineral rights are dominant over the surface rights, and state law requires surface owners to allow a reasonable portion of their land to be used for drilling and production. Most drillers will negotiate payment for surface damages, though Arkansas law does not require damage payments. If the gas company's activities are excessive or the company is negligent in restoring the surface area, the surface owner can seek legal advice and relief through the court system.

When can I expect my royalty check?

At the end of a well's initial month of production, a grace period of six months and 20 days is allowed before the royalty payments are to be made to the mineral owners. Royalty payments may be postponed until the royalty revenue reaches a minimum of $100 or until the end of the calendar year when royalties total less than that.

What should I do if I've signed a mineral lease and am not receiving a royalty check?

The first step is to confirm that you own the minerals by researching your property deed. If you own the mineral rights, contact the operator and inquire as to why royalties are not being paid. The operator will research the issue and make the necessary corrections. The Arkansas Oil & Gas Commission can provide contact information if necessary; simply contact one of the commission offices with the legal description of the property.

The company that operates the well I'm receiving royalties from has sold the well to another company. Will this affect my royalty checks?

It's not uncommon for a well to have changed hands several times during the course of its life. Those receiving checks might notice a different looking revenue statement, payment schedule or some other visual change. However, the responsibility for royalty payments is still intact and is passed on to the new operator. You will still receive royalty payments; they will just be from the new company.

What kind of economic impact will the Fayetteville Shale Play have in Arkansas?

According to the only formal study done to date, a project completed by the Center for Business & Economic Research at the Sam M. Walton College of Business at the University of Arkansas, it is estimated that operators will make direct expenditures of about $3.8 billion in leasing land and mineral rights, drilling and other activities. They will be responsible for total economic activity of about $5.5 billion in the state of Arkansas. Associated with the $5.5 billion of economic output will be the creation of about 9,683 jobs in the aggregate by 2008 and about $357.7 million in state and local tax revenue. More recent research, however, indicates an even greater economic impact.

(Sources: Schlumberger Oilfield Glossary, Arkansas Oil & Gas Commission, Arkansas Geological Commission, University of Arkansas)



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