Fayetteville Shale Play Production Waiting On Higher Gas Prices

In a report from subscription-based Natural Gas Intelligence’s  Shale Daily, the Arkansas Geological Survey’s Ed Ratchford said low natural gas prices have slowed production activity, but he predicted drilling will return as those prices rise.

“Who wants to go out and drill a bunch of $3 million wells at $3 gas?  It’s not that the resource isn’t there. The resource is there. It’s not as attractive,” said Ratchford, who is the Survey’s fossil fuels supervisor.

For now producers have turned away from the Fayetteville’s dry gas, moving into wet gas plays where they can supplement returns with the sale of liquids, as Talk Business reported earlier this month.

From NGI Shale Daily:

The year-over-year growth rate of Fayetteville production was more than 62% in January 2010 and nearly 97% in September of that year but has been declining nearly every month since, according to data from the Arkansas Oil & Gas Commission (AOGC) and NGI’s Shale Daily calculations.

Last February the growth rate turned negative for the first time at minus 1.4%, but in March it was up at 0.2% over March 2012.

While the rate of production growth has slowed, it’s still growth, and it’s coming despite a significant drop in the number of rigs plying the play. According to the Baker Hughes rig count, there were 12 rigs running in the Fayetteville Shale Play as of June 14. That’s down 8% from one month ago and 33% from one year ago.

“The continued production growth, in spite of the sharply lower rig count, is explained by the truly remarkable gains in rig productivity and operating efficiencies as the transition towards the full development mode in many areas is beginning to bear fruit,” said an April Arkansas Geological Survey report on the play. “In 2013, Southwestern Energy projects to drill its average well in just 6.5 days, re-entry to re-entry, compared to 11 days in 2010. The comparison is even more impressive given that the average length of the lateral is expected to increase by over 10%.”

Ratchford told the report that the Fayetteville Shale Play is at about one-third of the way to maturity in terms of the number of producing wells it could ultimately support.

“The play will accommodate, I think, 20,000 wells and that’s basically looking at 80-acre spacing,” he said. “There’s no point of continuing to drill, saturate everything with a bunch of drilling at these kind of gas prices.”

Ratchford also said that the major producers in the region – Southwestern Energy Co., BHP Billiton Ltd. and ExxonMobil Corp.’s XTO Energy – aren’t going anywhere anytime soon.

“None of those companies are going anywhere,” Ratchford said. “They’re not going away. They’re not going to have a fire sale on Fayetteville acreage. It’s just that the gas prices are really marginal. Geologists have done too good a job of finding shale gas and we have no national energy policy…to utilize it.”

Ratchford said most of the people he’s talked with about the Fayetteville Shale Play say it will take $5 gas to drive producers back to the play again.

“People don’t talk about it being in decline at all. It’s just low gas prices. People are just backing off,” he said.

“I’d say it’s still looked at as kind of an early to medium kind of play [as far as maturity,” Ratchford said. “There are so many more high-quality areas left to drill.”

Despite the lull in production, higher prices versus previous years have resulted in higher tax collections from natural gas drilling.

For the first four months of 2013, natural gas severance tax revenue is ahead of the same period in 2011 when collections reached a record tally of $58.9 million. The January-April collections total $19.714 million, well ahead of the $15.787 million during the same period of 2012, and 6% higher than the $18.585 million during the record-setting 2011.