Natural Gas Industry Continues Consolidation

More than a trillion cubic feet of natural gas - that's 1 billion MCF, the abbreviation for thousand cubic feet - was extracted from Arkansas in 2011, and more than 60 percent of it was sucked out by one company: Southwestern Energy Co. of Houston.

Southwestern, through its Fayetteville-based subsidiary Seeco Inc., sold 662.4 million MCF pulled from gas wells in Arkansas last year, almost exactly four times as much as its nearest competitor, BHP Billiton. BHP Billiton, the Australian energy giant, entered the state in 2011 by buying all of the Fayetteville Shale wells owned by Chesapeake Operating Inc. of Oklahoma City.

(Click here for a PDF list of the state's largest gas production companies. A spreadsheet version of the list is also available.)

But Chesapeake continued to own and operate more than 100 conventional gas wells in the Arkoma basin of west Arkansas, and those produced enough gas - 2.24 million MCF - to keep Chesapeake in the top 10 gas production companies in the state.

This week's annual list ranks companies by MCF sold in 2011, as reported by the Arkansas Oil & Gas Commission. The AOGC's annual report says 1.073 billion MCF were sold from 8,379 wells in 17 counties last year: Cleburne, Conway, Crawford, Faulkner, Franklin, Independence, Jackson, Johnson, Logan, Madison, Pope, Scott, Sebastian, Van Buren, Washington, White and Yell.

Total gas production for the state in the last calendar year, as taxed by the Arkansas Department of Finance & Administration, was a smidgen higher: 1.092 billion MCF. Production was up about 16 percent year over year.

The natural gas industry that exploded in the Fayetteville Shale of north-central Arkansas has rapidly consolidated under three companies: the dominating Seeco, BHP Billiton and Exxon Mobil subsidiary XTO Energy. The three combined accounted for almost 93 percent of the gas extracted from the state last year and virtually all of the shale gas. In fact, of the 25 most productive companies operating in the state, only one other - No. 13, David H. Arrington Oil & Gas Inc. of Midland, Texas - operates in the shale play.

The rest, led by No. 4 Stephens Production Co. of Fort Smith, operate exclusively in the Arkoma gas field of western Arkansas.

The rush to exploit shale plays across the country has created a glut of natural gas, and low commodity pricing has started to look like a new normal. (Bloomberg News reported last week that cheap American gas is playing havoc with the market in Mexico, which has historically produced virtually all of its own natural gas but can no longer do so at the price commanded for gas available for export from the U.S.)

The Oil & Gas Commission recorded 8,379 wells in the 17-county area at the end of the year, a net increase of 381 from 2010. But Seeco alone had almost 600 more wells in 2011 than in 2010, while many companies actually had fewer producing wells last year than the year before, particularly conventional Arkoma wells.

BHP Billiton isn't the only new name on this year's list. After some holding company horse-trading, Sedna Energy Inc. of Fort Smith (No. 8 by sales in 2010) has been replaced by Foundation Energy Management LLC of Dallas (No. 7)