Oklahoma City driller closes on $1.9 billion deal to purchase Fayetteville Shale assets

Oklahoma City-based Flywheel Energy LLC closed on an earlier announced deal to acquire the top leasehold position in the Fayetteville Shale play from Southwestern Energy Co. at a purchase price of $1.865 billion, company officials said Tuesday (Dec. 4).

The acquired assets in the Arkoma basin shale play include 716 million cubic feet of net production per day (mmcf/d) from 4,033 producing wells across 900,000 net acres in the north-central section of the state. The deal also includes an integrated midstream gathering system with over 2,000 miles of gathering pipelines and more than 50 compressor stations.

“Flywheel Energy is pleased to announce the closing of our second acquisition since the company’s inception in 2017. I am proud of our team’s accomplishments and we are excited to join the remarkably talented team in the Fayetteville Shale,” said Flywheel CEO Justin Cope. “We believe this is a great step forward as we work to deliver reliable, affordable and plentiful energy while generating attractive risk-adjusted returns for our investors.”

When the historic deal was first announced on Sept. 5, Southwestern officials said in a separate news release that they were selling the company’s leadership position in the Arkansas natural gas development to further develop preferable liquids-rich shale assets in the Appalachian region.

Until this year, Southwestern had been the top natural gas production company in the Fayetteville Shale for nearly two decades, pouring billions of dollars of capital investments into dozens of rural communities and counties across north-central Arkansas. At one point in early 2008, a study by the Sam M. Walton College of Business at the University of Arkansas said the shale play had created more than 11,000 jobs and had an overall economic impact nearing $20 billion.

But over the last five years, low natural gas prices made it difficult for Southwestern and other natural gas developers to make a profit. In January 2016, Southwestern Energy laid off 600 employees across the company’s footprint in the natural gas development. At its peak, the Houston-based independent driller had more than 1,500 employees in Arkansas before the company mothballed its operations in late 2015.

Similarly, Australian mining giant BHP Billiton announced in late July that a limited liability partnership owned by Dallas-based Merit Energy Company had acquired the company’s Fayetteville Shale assets for an asking price of $300 million.

BHP had originally purchased its 268,000 leasehold position for $4.75 billion in cash, before halting drilling and laying off workers in 2012 and writing off nearly $2.84 billion in charges after natural gas futures fell well below $3 per million British thermal units (BTUs).

Under its financial arrangement to begin operations in Arkansas, Flywheel will assume $438 million of future contractual liabilities from Southwestern after considering certain obligations retained by the company. In September, Flywheel said it closed an equity backing of $700 million from the Los Angeles-based Kayne (Anderson) Private Energy Income Funds platform and members of Flywheel’s management team.

The privately-held Oklahoma oil and gas driller first got its start as Valorem Energy in early 2017 with backing from the same Kayne Anderson fund that manages over $29 billion in assets globally. Only months after its beginning as a novice oil and gas developer, Valorem acquired interests in the Williston Basin in North Dakota for $285 million. Then in August 2018, Kayne Anderson committed another $700 million of equity to the management team of the newly-formed Flywheel Energy.

To date, in response to Talk Business & Politics inquiries, Flywheel officials have remained quiet about the company’s operational plans, capital investment strategy or employment outlook for the Arkansas shale play.

“We know that having a high-quality team which upholds the highest safety and environmental standards is critical to our company’s future success, and we are proud to join this team,” Cope said in a statement. “We look forward to being long-term, active members of the Arkansas community.”