Landowners Cashing In on Fayetteville Shale Play

“You’d think we were California and that this is the Gold Rush,” said Debra Lang, White County assessor.

The rush is on in the hills of north-central Arkansas, but you won’t see landowners in the mostly rural communities in that area mining or panning for the precious metal. Instead, landowners and gas companies in as many as 15 Arkansas counties are running for their county assessor’s office to find out who has the mineral rights to the treasure that’s trapped about 1,500 feet below the surface.

Until recently, extractors hadn’t found a profitable way to pump natural gas from enormous rock formations hidden below the earth’s surface such as the one known as the Fayetteville Shale Play. But as the technique was perfected after 10 years of exploring a similar formation near Fort Worth, Texas, north-central Arkansas suddenly holds financial promise for both landowners and oil and gas exploration companies.

“It’s been a much welcomed shock to the whole countryside,” said Jerry Kelly, a Carlisle lawyer who leased out 4,000 acres just last month. “It’s been a tremendous boost considering how terrible farming has been in these areas.”

Kelly is one of hundreds of mineral rights holders in the area signing big-money deals with at least 10 oil and gas exploration companies that hope to extract the natural resource trapped in the rocks well below the surface.

Bekki White, director of the Arkansas Geological Survey, says there have not yet been any attempts to effectively monitor how much of the land has been leased, but other evidence shows that the deal making is steadily gaining steam.

“We keep thinking that it’ll slow down, but it doesn’t,” she said. “There’s leasing in several counties in the middle of the state, probably about 15 counties. There’s over 100 wells that are being drilled and there’s more that are being permitted every week. They’re proving to have the ability to produce, which is another positive sign.”

The Barnett Shale near Fort Worth is the largest unconventional reserve of natural gas in the country. It produces close to 2 percent of the country’s daily output of gas.

“From what we know, the Fayetteville Shale Play is very similar to Barnett,” White said. “That gets a lot of people excited right there.”

In a conventional well, gas flows at its own pace through a well bore, White said. In a shale setting like Fayetteville, the gas is trapped inside large rocks that have to be penetrated to extract the gas.

“That’s why it’s so important they’ve found a way to take advantage of shale and the gas it traps,” White said.

Although more than 99 percent of the shale ranges in depth of 1,500 to 6,500 feet, curiosity can be satisfied by driving on Highway 123 near Mountain View, the only place the Fayetteville Shale pokes above ground.

Price Is Right

White said Lonoke and White counties are quickly becoming hot spots, and the assessors in both counties concur.

“It’s creating a lot of activity, that’s for sure,” said Lonoke County Assessor Jerry Adams. “We’re getting them in from all over the county.”

Traffic picked up so quickly at the White County assessor’s office that Lang said she had to enforce new rules for the research tools used in the usually sleepy office.

“I’ve already had to replace a copy machine and put time limits on the computers. I mean, it was a mess,” she said. “It got to a point where we really had to get heavy-handed on them as far as access. It’s leveling off a little bit. I think the ones here from the gas companies got all their homework done and are now out hitting people up for a lease.”

And those with mineral rights in the shale areas are happy to oblige.

White says oil and gas companies are offering as little as $50 per acre and as much as $400 per acre to lease. And if that isn’t incentive enough, the companies have been signing away royalties of 12.5 percent to 15 percent of the market value of anything they’re able to extract.

“We’re hearing leases are between five to 10 years, with a lot of your five-year leases having an option to lease for five more years, in which case the lease bonus would be paid again,” White said. “It’s very exciting for people who have accrued land there and had no idea it would one day have this added bonus.”

It’s a Gas

With such promising potential the shale has locked up underground, gas companies are not wasting any time getting in on the action.

Just last week another company, Touchstone Resources USAZ Inc. of Houston, entered into an agreement to both acquire and lease land at the Fayetteville Shale Play.

According to a release from the company, Touchstone will own a 45 percent working interest in the joint operation with Bamco Gas LLC and Maverick Oil & Gas Inc. of Fort Lauderdale, Fla.

“They’re coming in here like there’s money to be made, and there is,” said Kelly, who still has 800 acres in an area that’s not yet been tapped. “It’s been good for the local economy, and it’s spawning other services as well.”

Many farmers and mineral rights owners don’t know where to turn once they discover they might be able to cash in on the bonanza. Kelly, a lawyer, says he by no means is an expert in the field but has helped out some people in the community in cutting deals with the gas companies.

“There are a handful of lawyers who are taking on these new clients to help make sure everything is in order,” he said. “For a lot of people, we’re talking about more money than they thought they’d ever see.”

Griffith Land Services of Houston is a broker for at least one of the growing number of gas exploration companies in the area. President Marty Griffith told Arkansas Business in August that he’d imported five employees from Texas and hired and trained 11 more locally to help run his Conway office.

The biggest investor so far in the Fayetteville Shale Play is Southwestern Energy Corp. of Houston, which used to be headquartered in Fayetteville. The company acquired at least 645,000 acres and invested more than $20 million during its first quarter.

Informed

The big money at stake has caused a mad dash for information on the Fayetteville Shale Play by affected communities and mineral rights holders.

The Arkansas Geological Commission, a nonregulatory state agency, has been teaming with the Arkansas Oil & Gas Commission in holding public forums to help keep communities in the know.

“Last (week) we did a town meeting at the fairgrounds in Searcy and had more than 850 citizens there,” said White, who took over as director of the AGC in January. “These people are all hungry for information, and we want to make sure they’re determining rumor from fact and that sort of thing.”

One of the first things to understand, Lang said, is that just because someone owns land, it doesn’t mean they own the mineral rights to what lies below it.

“When you buy land you either retain the minerals or you don’t, or you might be buying land where somebody else already retained the minerals like 100 years ago,” she said. “That’s probably the first thing people don’t always understand.”

There have also been a handful of mineral rights holders who may have jumped on the train a little too soon.

“When they first started coming in here early last year buying leases, they were going for as little as $25 to $50 per acre for a lease,” Lang added. “People are upset now that they’re seeing what they could’ve gotten now that the pressure is on and more and more competition is around.”

Kelly wouldn’t elaborate on the details of his recent 4,000-acre lease, but if he was able to secure a middle-of-the-road rate, say $275, then he’s had a windfall of at least $1.1 million. That doesn’t include the added bonus of continuing royalties.

“It just happened, man, just like the Lord blessed us,” he said. “It’s nothing short of a miracle.”