As a result of market conditions, BHP Billiton is reversing its plan to increase drilling in the Fayetteville Shale Play and will instead reduce its number of rigs.
Danny Games, external affairs manager for BHP’s Fayetteville Shale operations, told Arkansas Business that the Australian company will probably have five or six natural gas rigs by the end of the year, down from the eight it has now.
"It is primarily a response to the current market conditions," Games said. "We clearly still have a commitment to the Fayetteville Shale. It’s one of our interests and we intend to continue developing it. But in light of the current market conditions, we are having to be more gradual in our plan."
The market conditions Games referred to include low natural gas prices, a modest winter that’s cut energy demand, low industrial power generation demand and an abundance of U.S. on-shore natural gas supply.
In a conference call with analysts, BHP CEO Marius Kloppers said wells "keep on getting better," which improves the resource base but can also cause oversaturation.
"I do think that the overall picture, if I put it together, is this is a revolutionary energy source," Kloppers told analysts. "It’s going to change things in energy around the world, not only in the U.S."
When BHP bought the shale assets from Chesapeake Energy Corp. early in 2011 for $4.75 billion, it claimed it would be spending about $1 billion on further development in the shale.
How the reduced rig count will affect that claim remains unknown. Games said BHP still considers the shale to be important.
"We regard it as a world-class asset," he said. "There was a clear long-term optimism that natural gas is a great domestic energy source. We’d like to continue to be able to invest and build on our current operations. But the reality is that the current market condition is something we have to be flexible about and adjust to."
In December, Southwestern Energy Co. of Houston also declared it would reduce its investment in the Fayetteville Shale, but still would spend more than $1 billion in the area, more than in any of its other shale operations.
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