Processing Magazine

In dark economic times, Arkansas drilling brings light

December 29, 2008

Arkansas'' natural gas reserves helped keep the state economy afloat in 2008 while huge job losses and budget deficits were recorded elsewhere in the country and the federal government shelled out billions of dollars to prop up banks and car manufacturers, as reported by the Associated Press. Houston-based Southwestern Energy Co. began exploration in the underground Fayetteville Shale in north-central Arkansas in 2002 and determined the company could retrieve the gas and make a go of it commercially. Since then, drilling companies, service businesses, state and local government officials, and landowners in the Fayetteville Shale have been seeing dollar signs. The passage in April of a historic severance tax hike on natural gas fueled the excitement and furthered optimism that millions more dollars would roll into Arkansas from its newly developing resource. The following month, Chesapeake Energy Corp., the largest leaseholder in the Fayetteville Shale play, announced it would more than double its number of rigs from 12 to 25 and would drill about 300 wells a year in the state. Chief Executive Aubrey McClendon predicted Chesapeake would spend more than $1 billion in the state each year over the coming years. Despite a national financial crisis, Arkansas'' economy remained relatively stable partly, because of the state''s underground formation. Many jobs were created, royalties were paid to property owners, sales taxes were collected, and companies located in Arkansas to serve the core industry. The development is expected to generate more than 11,000 jobs from 2008-2012 and result in $1.8 billion in state taxes and more than $150 million in local sales and property taxes. In May, Boardwalk Pipeline Partners LP began work on a 167-mile Fayetteville Lateral to pass through eight counties and move gas to the country''s Northeast, Southeast and Upper Midwest regions. Boardwalk''s Arkansas pipeline is part of a $4.7 billion expansion project involving six states. In October, Fayetteville Express Pipeline LLC -- a joint venture between Kinder Morgan Energy Partners LP and Energy Transfer Partners LP -- announced plans for another distribution line. The partners hope to have the $1.3 billion, 187-mile pipeline in service by late 2010. All the activity means more work for Oil and Gas Commission inspectors. And even with four employees added to the agency, the commission said it needed another seven staffers and would seek legislative approval in 2009 for the positions. Likewise, inspectors at the Arkansas Department of Environmental Quality were stretched thin as drilling increased and complaints rose over the use and disposal of water needed to fracture the shale to release the gas. At least two "land farm" operations, permitted to use wastewater from the shale activity on farm land, were ordered shut down in December when inspections found water quality violations. On another front, environmental groups expressed concern when the Arkansas Game and Fish Commission announced an agreement last summer to lease wildlife management land to Chesapeake Energy for $30 million. The agreement allows the Oklahoma City-based company to drill on more than 11,500 acres in the Petit Jean River WMA in Yell County and the Gulf Mountain WMA in Van Buren County. The commission also holds a 20-percent royalty on any natural gas pumped from the public lands. In December, more than four years after it sank its first commercial well in the Fayetteville Shale, Southwestern Energy announced it would invest an additional $25 million for a regional office in Conway. The company said it would continue to run about 20 rigs, while increasing production by 48 percent in 2009. Also, new discoveries in the Haynesville Shale in Louisiana suggested there may be more gas beneath the Ouachita Mountains in Arkansas, keeping the industry buzzing.