Saturday, October 4, 2008

Fayetteville Shale Natural Gas Still in Play

LITTLE ROCK, Ark. — A top executive of Southwestern Energy Co. says gas wells in the Fayetteville Shale play in Arkansas remain economically feasible, even though natural gas prices are down.

John Thaeler, senior vice president of the largest player in the Arkansas gas boom, said Friday that the Fayetteville Shale is exceptionally productive. He noted that the company on July 1 reached the milestone of producing 500 million cubic feet per day, a level that it took 20 years to reach in the Barnett Shale formation in Texas.

Houston-based Southwestern reached the production level four years after it sank its first commercially productive well in the Fayetteville Shale formation.

Thaeler, who was in Arkansas for a Fayetteville Shale seminar at the University of Central Arkansas in Conway, would not discuss Southwestern's plan for capital spending in 2009 because the information has not yet been made public. But he noted that two Southwestern competitors aren't pulling back in the Fayetteville Shale, even though he said the price for natural gas has fallen.

Chesapeake Energy Corp. of Oklahoma City and Houston-based Petrohawk Energy Corp. have said they plan to cut back on capital spending, but not in the Arkansas fields.

"It's a matter of economics," Thaeler said. "Some areas that have poor economics are dropped. They are pulling back in other areas, but not in Fayetteville Shale."

Thaeler is quick to talk about the economic boost that the drilling has brought — income for royalty holders, for instance — but critics have said the drilling is straining infrastructure and the benefits are not reaching the whole community.

"I disagree that only part of the community benefits," Thaeler said. The economic impact of new jobs helps small businesses, increases tax revenue and the effects stretch across the community, he said.

In White County, residents have complained that heavy equipment thundering down county roads has caused pavement to deteriorate and created a safety hazard. Thaeler said Southwestern is conscious of its impact and works with local government to try to fix some of the damage.

Likewise, Thaeler said the industry is well regulated environmentally, though critics have complained that shale development has outpaced the ability of government to identify and clamp down on problem areas.

Thaeler said one reason the Fayetteville Shale could be tapped so furiously was that there were existing natural gas pipelines in the state that had excess capacity. But Southwestern alone has more than 600 wells and 22 drilling rigs working daily. The company is to report its third quarter earnings on Oct. 30, when Thaeler said its rig count would be updated.

On Wednesday, a new $1.3 billion pipeline was announced by Fayetteville Express Pipeline LLC, a joint venture between Kinder Morgan Energy Partners LP and Energy Transfer Partners LP. Southwestern and Chesapeake have agreed to 10-year commitments to use the 187-mile line, which will carry 2 billion cubic feet of natural gas daily.

Additionally, the 167-mile Fayetteville Lateral that was begun May 31 by Boardwalk Pipeline Partners LP is to carry up to 1.3 billion cubic feet per day. The pipeline is part of a $4.7 billion expansion project involving six states.

Thaeler said the Boardwalk line will be accessible relatively soon, and he said production can increase as the capacity is available.

The full scope of the Fayetteville Shale is not yet known, he said. Southwestern has leases on 850,000 acres and its competitors have leases on more than 1 million acres.

"We're still in the learning stage," Thaeler said.

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