Nat Gas Companies Moving In Different Directions In Arkansas

Low natural gas prices are forcing companies in Arkansas’ Fayetteville Shale play to move in different directions to cope.

In the last week, the two biggest natural gas players – Southwestern Energy and Chesapeake Energy – reported first quarter earnings, highlighting different paths to perceived prosperity.

Oklahoma City-based Chesapeake closed on its sale of Arkansas assets to BHP Billiton, an Australian oil and gas conglomerate that acquired Chesapeake for $4.65 billion earlier this year.

Chesapeake reported a companywide loss of $205 million for its first quarter of 2011 on revenue of $1.61 billion. One year ago, Chesapeake reported first quarter profits of $732 million on revenue of $2.8 billion.

It blamed losses in its hedging division for this year’s poor quarter, but the BHP deal will soften the landing. Because of its size, BHP could choose to ratchet down operations in Arkansas until market conditions in the natural gas industry improve their profit margins.

Chesapeake also disclosed a recapitalization of Frac Tech Services, LLC, raising its ownership in the drilling support services firm (with a major presence in Searcy) from 26% to 30%.

Conversely, Houston-based Southwestern Energy posted first quarter net income of $136.6 million on the strength of $676.3 million in revenue. Still, it was slip for Southwestern, which reported profits of $171.8 million on revenue of $668.1 million in last year’s first quarter.

Southwestern, which is the largest leaseholder in the Arkansas unconventional gas play, blamed the lower earnings on dropping natural gas prices. However, despite that scenario, the company boosted its oil and gas production 28% higher compared to year-ago levels.

“Our first quarter financial and operating results have exceeded our expectations despite lower natural gas prices,” said Steve Mueller, President and CEO of Southwestern Energy. “Our production continues to grow, and we increased our guidance for the rest of the year to take into account our first quarter results and the strong results we are continuing to see from both our Fayetteville and Marcellus drilling programs."

Southwestern provided much more detail on its activities in Arkansas’ Fayetteville Shale region. It said it invested $330 million of its $468 million in capital expenditures in Arkansas during the quarter.
 
Other details regarding Arkansas included:

• For the first three months of 2011, Southwestern placed a total of 137 operated wells on production in the Fayetteville Shale play, all of which were horizontal wells.
• At March 31, 2011, the company’s gross production rate from the Fayetteville Shale play was approximately 1,725 MMcf per day, up from approximately 1,330 MMcf per day a year ago.
• The company is currently utilizing 18 drilling rigs in its Fayetteville Shale play, including 11 that are capable of drilling horizontal wells and 7 smaller rigs that are used to drill the vertical portion of the wells.