Exxon sells Fayetteville Shale assets; Arkansas severance tax revenue rising

Irving, Texas-based ExxonMobil Corp. recently sold its natural gas properties in the Fayetteville Shale play in north-central Arkansas to Oklahoma City-based Flywheel Energy LLC, according to Reuters. Financial terms of the deal were not disclosed.

Late Friday (Aug. 26), Reuters reported the transaction included about 5,000 natural gas wells and pipeline and processing properties, comprising about 381,000 acres. Among the wells, 850 operated. Exxon subsidiary XTO Energy signed the agreement with Flywheel Energy, which is backed by Kayne Anderson Private Energy Income Funds.

According to Reuters, the sale of Exxon’s assets in the Fayetteville Shale “brings the largest U.S. producer closer to a goal of selling $15 billion in non-core properties to focus on more lucrative prospects.” The deal is expected to close by the end of October. XTO Energy had acquired the Fayetteville Shale assets for $650 million amid a shale boom in 2010.

According to Flywheel Energy’s website, it operates “the largest position” in the Fayetteville Shale. In 2018, Flywheel Energy entered the Arkansas market when it acquired the Fayetteville Shale assets of Houston-based Southwestern Energy Co. in a cash-and-debt deal worth nearly $2.4 billion. That deal was expected to help Southwestern Energy capture greater returns in its higher-margin Appalachia assets. The company was the top leaseholder in the Fayetteville Shale with more than 4,000 producing wells on over 915,000 acres.

NATURAL GAS PRICES, TAX REVENUE
Flywheel’s move comes as natural gas prices have significantly recovered from several years of low prices that stymied production and pushed industry consolidation. Wednesday’s (Aug. 31) price hovered around $9.18 per MMBtu, well above the $3.73 to begin the year. The price hit a recent low around $1.50 per MMBtu in June 2020.

Arkansas severance tax revenue is showing gains along with the higher market prices, according to figures from the Arkansas Department of Finance and Administration (DFA). The tax revenue peaked at $78.634 million in fiscal year (July-June) 2015, but declined to a low of $14.067 million in fiscal year 2020. The revenue partially rebounded to $61.556 million in fiscal year 2022, which ended in June.

The July 2022 revenue, the most recent month reported by the DFA, was $8.784 million, which was ahead of the $8.444 million in the July of record-setting fiscal 2015.

FAYETTEVILLE SHALE BACKGROUND
In 2003, Southwestern Energy completed an $11 million leasehold purchase, marking the beginning of the Fayetteville Share era.

According to the U.S. Energy Information Administration (EIA), large-scale natural gas production from shale began in 2000, when shale gas production became a commercial reality in the Barnett Shale play in north-central Texas. A new hydraulic fracturing technique allowed oil and gas companies to produce commercial volumes of shale gas, and by 2005, the Barnett Shale was producing almost half a trillion cubic feet of natural gas annually.

“As natural gas producers gained confidence in their abilities to profitably produce natural gas in the Barnett Shale and saw confirmed results in the Fayetteville Shale in northern Arkansas, producers started developing other shale formations,” according to the EIA. “These new formations included the Haynesville in eastern Texas and north Louisiana, the Woodford in Oklahoma, the Eagle Ford in southern Texas, and the Marcellus and Utica shales in northern Appalachia.”

According to the EIA, monthly dry shale gas production in the Fayetteville Shale reached a peak of 2.89 billion cubic feet per day in November 2012. As of November 2021, production had fallen to 1.02 billion cubic per day. The production was 0.84 billion cubic feet per day in May 2022, recent EIA data shows.

In the United States, the Marcellus Shale play, spanning Pennsylvania, West Virginia, Ohio and New York, is the top producer of dry shale natural gas, with production of 25.64 billion cubic feet per day in May.

Through 2050, the majority of U.S. dry natural gas production is expected to come from shale and tight gas resources.