Shale Play Benefits Not Overstated (Commentary)

Unless you are a fortunate property owner in a 10-county area of Arkansas who has suddenly started receiving checks for no work the past three years, you still may not care much about the Fayetteville Shale Play.

Here’s why you should care: It’s the single most significant and far-reaching economic development for the state in more than 35 years. I would still rank Sam Walton’s decision to take Wal-Mart Stores Inc. public and keep the headquarters in Bentonville as the biggest development, followed closely by Tyson Foods Inc.

State legislation for the Arkansas Economic Development Commission in 2003 defined a “super project” as one that produces $400 million in capital investment and 400 new jobs. Southwestern Energy and Chesapeake Energy have announced capital projects totaling $1.45 billion for this year alone. Total employment related to the Shale Play in 2005 reached 2,160 jobs, and the projection for 2008 is 9,700 jobs. If you calculate this overall phenomenon by capital investment, that’s the equivalent of three “super projects.” Calculate by employment, and that’s 24 of them.

Get the picture?

We’ve been so wrapped up in what has and hasn’t happened with auto factories and steel plants that we haven’t fully recognized what is already impacting our economy today and in a big way.

The magnitude of the issue grew clear for me at the Fayetteville Shale Play Symposium that we presented with the University of Central Arkansas in Conway last week. We expected about 200 people and ended up with a sold-out 400 and had to turn people away.

Kathy Deck, director of the Center for Business & Economic Research at the Sam M. Walton College of Business at the University of Arkansas, says a 2005 study showing a $5.5 billion economic impact by the Fayetteville Shale Play turned out to be conservative. Gas exploration firms have invested more aggressively than expected.

She noted that the 10 counties most impacted were all below the state’s average for per capita income, so it’s an area that needed the boost. Within the Shale Play counties, new business establishments have increased by 6.5 percent compared with the 4.7 percent total statewide. The number is likely skewed somewhat by the booming growth of Conway and Faulkner counties not necessarily related to the exploration activities, but the number still shows a significant positive trend for the region.

The bulk of the well drilling activity is in Conway, Faulkner and White counties, which is proven territory. The biggest disappointment that I heard is that there have been no successful wells in the far eastern part of the play, so the Delta isn’t likely to get the impact many of us hoped for.

I’m more comfortable with water supply and environmental issues after learning that the companies use surface or runoff water from reservoirs that they build. The companies are clearly sensitive to environmental issues, and state agencies didn’t raise any red flags at the symposium.

County courthouses, title companies and real estate firms in the Fayetteville Shale Play region still have challenges related to property tax assessments and management of deeds and mineral rights records. Property owners who never cared about mineral rights versus surface rights have received quite an education and endured some frustrating times.

The only risks that I heard about this ultimate super project relates to the fundamentals of the gas and oil industries. As long as prices and demand are high, the drilling will continue at a strong pace. Should the natural gas market tank for some reason, the drilling companies would back off new exploration.

Finally, we have to remember this is a 20- to 30-year project in terms of drilling activity, generation of royalties and tax revenue. The windfall will be heaviest on the front end. Arkansas has to maximize the impact, and property owners need to be prudent with their newfound wealth to truly benefit future generations.

(Jeff Hankins is the publisher of the Northwest Arkansas Business Journal’s sister publication, Arkansas Business. He can be reached via e-mail at [email protected].)