Fayetteville Shale activity to slow through 2012

A new industry 10-year forecast released today (Feb. 2) says low natural gas prices will constrain production in the Fayetteville Shale in the short-term, but production and wellhead prices are expected to gradually increase after 2012 and beyond.

“Post 2012, with natural gas prices expected to touch around $6 per Million British Thermal Units (MMBTU), the production from Fayetteville Shale play would show an upward trend,” said the report by Dublin, Ireland-based Research and Markets. “The production in the play is expected to gradually increase, reaching 872,387.8 MMcfe by 2020.”

The exhaustive report by Research and Markets not only details the operational activities in the Fayetteville Shale, but also analyzes drilling activities, cost trends, initial production rates and well decline curves.

The international research group also provides information on production trends in the Fayetteville Shale play, with forecasts to 2020, as well as reviewing the competitive landscape of the Fayetteville Shale, detailing operations of the top five companies.

In recent months, Southwestern Energy, Chesapeake Energy, XTO Energy (ExxonMobil) and other drillers in the Arkansas play have already announced short-term pullbacks due to low natural gas prices. For example, Fayetteville Shale leader Southwestern announced in December it was cutting its capital budget $1.9 billion, down from nearly $2.1 billion in 2010.

“While we continue to believe that the long-term fundamentals for natural gas are very good, we are entering the New Year with gas prices at lower levels than what we saw at the beginning of 2010," Southwestern’s CEO Steve Mueller announced Dec. 16. "Our 2011 capital program is flexible, and we have the ability to adjust as market conditions change throughout the year."

As part of that plan, Southwestern said it will start 2011 with 13 operated horizontal rigs in the Fayetteville Shale and exit the year drilling with 11 rigs. Still, Southwestern’s overall 2011 production is expected to be in a range of 465 to 475 Bcfe, which is an increase of nearly 18% compared to 2010.

Additionally, the Irish research firm’s overall forecast for natural gas prices nearly mirrors recent short-term projections by the federal Energy Information Administration, the research arm of the U.S. Energy Department.

The EIA recently projected Henry Hub natural gas spot price averages at $4.02 per million Btu (MMBtu) for 2011, 37 cents per MMBtu lower than the 2010 average. EIA expects the natural gas market to begin to tighten in 2012, with the Henry Hub spot price increasing to an average $4.50 per MMBtu.

On Wednesday, natural gas prices covering supplies from Midwest jumped 33.52 cents, or 7.5%, to $4.7951 per million Btu, mainly due to winter storms pushing up demand. Benchmark natural gas for delivery at the Henry Hub closed at $4.4221 per million Btu on the New York Mercantile Exchange.

Below are other highlights of the Research and Markets report.
• The Fayetteville Shale, in a span of six years, has evolved as a significant onshore natural gas producing field in the U.S. The production from the Fayetteville Shale increased from 331.9 million cubic feet equivalent (MMcfe) in 2004 to 519,547.2 MMcfe in 2009, at an average annual growth rate (AAGR) of 123.3%.

• The number of wells drilled in the Fayetteville Shale increased from 14 in 2004 to 860 in 2009, indicating increased interest of the companies in the shale play.

• Between 2008-2009 and 2009-2010, the growth in number of wells drilled declined to below 25% over the previous years, owing to low natural gas prices. The number of wells drilled in the shale play during January to October 2010 stood at 731.