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Hanna Still Believes in Arkoma Basin’s Future

6 min read

Hanna Oil & Gas Co. of Fort Smith has been drilling gas wells in the Arkoma Basin for two generations covering more than 50 years.

President Bill Hanna, son of founder Jim Hanna, is confident the basin will be around and still producing for the next generation of Hannas. That has already started as Bill’s oldest son, Griffin, started work in the field for the company after graduating with a finance degree from the University of Denver.

“It has been good to our family,” Bill Hanna said. “Who knows how it will go? It has been a great ride. Every year has been profitable to an extent.”

The Arkoma Basin, a conventional sandstone formation stretching 200 miles from eastern Oklahoma to Russellville, has seen declining gas production in the past decade as fewer new wells are being drilled while older ones peter out. There are several reasons for this, experts said, not the least of which is the appeal of surer investments and higher returns in the Fayetteville Shale, the large unconventional formation further to the east.

Production in the Fayetteville Shale began in the fall of 2004, and in 2005 companies extracted 2.2 million MCF, an abbreviation for thousand cubic feet. During the same year, the Arkoma produced 175 million MCF, and the basin would continue to out-produce the shale through 2007.

In 2008 there was a stark reversal that has become more pronounced with each passing year. Fayetteville out-produced Arkoma by 273 million to 169 million MCF in 2008, and by 2013 the margin had grown to 1 trillion in the shale play to 101 million in the Arkoma Basin.

“The Arkoma has been declining in production the last 10 years,” said Larry Bengal, the director of the Arkansas Oil & Gas Commission. “The Fayetteville Shale certainly eclipsed the Arkoma in production.”

The squeeze on new production in the Arkoma also coincided with a drastic drop in the price of natural gas from more than $12 per million British thermal units in 2008 to its current level of a little less than $4. Because natural gas wasn’t as profitable, companies began scouring fields for gas that was either easy to collect or “wet.”

The Arkoma Basin is a dry gas field, which means the gas is almost entirely natural gas. A wet field also produces gas byproducts — such as propane and butane — that increase the profitability of drilling.

“It’s a very dry gas, which is great when the market prices are high,” said Kelly Robbins, the executive vice president of the Arkansas Independent Producers & Royalty Owners. “We have done such a good job finding and extracting natural gas that the price has tumbled. Producers are looking for wet gas. We don’t have that in Arkansas.”

What Arkansas does have is the ripe plum that is the Fayetteville Shale. Arkoma is for the grinders, which Bill Hanna proudly calls his company.

While major drilling companies have gone after the big score in the Fayetteville Shale — and similar shale plays elsewhere in the country such as the Haynesville Shale in north Louisiana — Hanna is increasing his investment in the Arkoma basin.

Hanna said his company operates about 300 wells and has interests in more than 1,000 more.

“Prices are low and the herd has gone to other basins,” Hanna said. “That’s good for us. We like the low competition. There’s opportunity in natural gas, and we’re still making bets on it.”

Hanna said the shale’s popularity has complicated his business because when he needs a fracking job done or some equipment, he has to reserve it months in advance because most of the service industry is at the major shale plays.

“We capitalize on our knowledge,” Hanna said. “We know this basin. The low-hanging fruit has been found. You’re going to have to be more creative with geology. There are still a lot of traditional reservoirs to be found. The easy ones have been found.”

Still Plenty to Tap

Experts say there is still plenty of gas known to be in the Arkoma Basin. Dave Houseknecht of the U.S. Geological Survey mapped the basin in 2010 and estimated there were still 6.8 trillion cubic feet of natural gas in the sandstone. Meanwhile, he estimated 13.2 trillion cubic feet in the Fayetteville Shale.

Houseknecht said gas in the Arkoma is less efficient to extract, so prices would have to rise to make the basin a major exploration destination again.

“No big surprise, the big resources we estimated were primarily in the shale gas system,” Houseknecht said. “We assessed a reasonable reserve in conventional sandstone accumulations.”

Until prices rise, he said, “shale gas plays will take priority. That’s going to be the main focus of drilling, certainly for the next decade or more. Unless some really dramatic surprise is made, Fayetteville is really going to be the future.”

Arkoma’s slip to little brother in Arkansas’ gas field exploration doesn’t diminish its historical importance. Mike Carter of Stephens Productions Co. of Fort Smith said Arkoma not only provided energy for the state but directly led to the growth of industry in Fort Smith.

“You could drill down 1,500 feet and get all the gas in the world,” said Carter of early wells in fields south of Fort Smith. “Everything is finite. It’s not too economical anymore.”

One advantage the shale has over the basin is the prevalence of horizontal drilling. The basin uses primarily old-school drilling, with a rig boring straight down into a gas field, while the shale allows for drills to go horizontally through fields.

Robbins, with AIPRO, compared it to grandma’s chocolate layer cake. Horizontal drilling lets you get between the layers of cake and devour “all the goodies.”

The sandstone gas fields of Arkoma are not as consistently deep or layered so that kind of goodie-drilling isn’t feasible, experts said. “In Arkoma you have more discrete, channel-type reservoirs,” Bengal said.

Directional drilling in shale usually coincides with using hydraulic fracturing — better known as fracking — which uses water and chemicals to crack open underground rock formations to free up trapped gas.

“In Fayetteville Shale, you have to drill laterally and you have to frack the heck out of them,” Houseknecht said. “In the old-school Arkoma plays, you have to do vertical wells. With Fayetteville, it’s like shooting fish in a barrel. In Arkoma, there are a lot of dry holes.

“The bottom line is the old conventional gas accumulations are small, discrete targets. When you look at wildcat wells there is a high risk of finding gas fields. With the Fayetteville Shale, it’s almost impossible to drill a dry hole.”

‘Not Done Yet’

Hanna isn’t worried because he is concentrating on his company’s opportunities in Arkoma. If laws are passed allowing U.S. companies to export natural gas overseas, the prices should go up and make conventional fields such as Arkoma a much better bet again.

Bengal said there are new rules that allow for adjustments in well placing. That allows new wells to be placed closer to existing but perhaps played-out wells, which increases the efficiency of the new well.

“It allows undrilled areas to be drilled,” Bengal said.

Hanna will continue to grind on and drill on.

“The economics are still good, not as good as 2008-09,” Hanna said. “We target 25 percent return on our projects and you can still get that. Arkoma is not done yet. A lot of public companies go elsewhere. We’re buying assets from companies that are getting out.”

Gas Production in Arkansas

Thousand cubic feet (Mcf) by year

  Arkoma Basin Fayetteville Shale
1970 128,940,833  
1971 121,112,145  
1972 126,003,399  
1973 120,724,382  
1974 92,261,031  
1975 91,767,525  
1976 92,285,907  
1977 86,645,507  
1978 88,217,911  
1979 89,790,315  
1980 89,277,354  
1981 92,943,955  
1982 105,105,857  
1983 105,262,154  
1984 119,353,183  
1985 127,311,070  
1986 108,223,943  
1987 123,556,454  
1988 146,894,144  
1989 156,589,996  
1990 158,017,464  
1991 134,311,682  
1992 167,858,412  
1993 170,901,150  
1994 153,469,843  
1995 164,790,383  
1996 170,468,857  
1997 174,875,950  
1998 160,800,075  
1999 156,141,116  
2000 157,399,638  
2001 152,086,035  
2002 148,965,854  
2003 158,548,316  
2004 177,628,235  
2005 175,442,830 2,204,971
2006 177,809,277 14,805,512
2007 175,196,168 89,173,881
2008 169,218,098 273,364,435
2009 159,110,108 519,547,008
2010 149,182,680 777,769,774
2011 129,264,778 944,056,153
2012 113,559,910 1,030,816,988
2013 101,834,237 1,031,776,890

Source: Arkansas Oil & Gas Commission

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