Shales are big news in unconventional resource plays, and Arkansas makes a healthy contribution.

One of the more interesting plays in gas shale is the Arkansas Fayetteville Shale play. This play was quietly developed principally by Southwestern Energy of Fayetteville, Ark., over the last 3 years. As the Texas Barnett Shale was showing promise, Southwestern Energy amassed a huge acreage position in Arkansas, now encompassing over 1,300 sq miles (3,367 sq km) of prospects. With the pooling and spacing regulations of the Arkansas Oil and Gas Commission, its control of the play is significantly more than is shown by the acreage position.
Between 1980 and the end of 2005, 109 wells have been drilled or planned in the Fayetteville Shale. The first nine wells were dry hole verticals, because they occurred before the technology and price provided economic solutions. At year-end 2005, 29 wells were currently permitted to drill, and 71 wells were drilled, spudded, or completed and 41 wells were producing in the play.
The areal extent of this play will be well over 5,000 sq miles (12,950 sq km), stretching from Crawford County on the west past Woodruff County on the east. Southwestern Energy and Chesapeake are the acreage leaders in the play. Other players include Pathfinder, and Alta-Teepee. A number of other players like XTO have acquired some significant acreage in the play, but have yet to start development. Acreage cost buy-in compared to the Barnett Shale is very competitive and inexpensive. Currently there are two principle pipelines that can take gas out of the area, with one pipeline running along the southern border of the play.
The Fayetteville Shale
The Fayetteville Shale is an unconventional gas reservoir, ranging in depth from 1,300 ft to 6,500 ft (396 m to 1,982 m). It is Mississippian in age and is the geologic equivalent to the Caney Shale in Oklahoma and the Barnett Shale in North Texas. This play is in its infancy and is potentially another Barnett Shale play in the making. One of the first horizontal completions showed its potential by initially flowing at the rate of 3.7 MMcf/d.
The Fayetteville Shale is generally gray or black, fossil, carbonaceous shale with the prominent sandstone Wedington incongruity near the top and the Mayes embedded fossiliferous limestone near the base. The formation averages 100 ft to 500 ft (30 m to 152 m) in thickness and the Wedington sandstone member averages about 10% of that total. The Fayetteville outcrops in central Washington County.
Fayetteville Shale activity
Since beginning in the Fayetteville Shale play in 2004, Southwestern Energy has drilled about 66 wells of which 18 were horizontal. The wells are located in 10 separate pilot areas in Franklin, Conway, Van Buren, Cleburne and Faulkner counties. It has drilled wells and established production in an area bounded by wells 50 miles (80.5 km) apart east to west and 15 miles (24.1 km) apart north and south. In addition, it obtained field rules for three fields and is now producing at a gross daily rate of approximately 10 MMcf/d of gas. A fourth field, Cove Creek has been proposed.
The company is preparing to accelerate its drilling program in the Fayetteville Shale. To improve rig availability for its development plan, the company entered into a sales agreement with a private company to build 10 new company-owned land rigs capable of drilling 4,500-ft (1,372-m) horizontal laterals in the Fayetteville Shale. The company will drill horizontal and vertical wells, conduct some seismic acquisition and test new areas on its acreage, starting in shallower deposits in Crawford County, to prove up its extreme eastern acreage in the play.
In addition to the purchase of new drilling rigs for the play, Southwestern Energy increased its capital program from approximately US $100 million to $127 million to fund its growing development program and to continue leasing. It planned to drill 80 to 90 wells in 2005 in the play with approximately 50 of these wells being horizontal. The company originally was planning to drill 150 to 160 wells in 2005. Because of rig availability and slow deployment, the company continues to fall short of planning targets. The company plans to drill 175 to 200 wells in 2006.
In the third quarter of 2005, Southwestern Energy held approximately 724,000 net acres in the undeveloped play area. In addition, it controls approximately 125,000 net developed acres in the traditional fairway area of the basin. Of the 66 wells drilled by mid-year, 51 were producing, 10 were in some stage of completion or waiting on pipeline hookup, and two were shut in due to marginal performance. In the 12 horizontal wells drilled, the average initial potential has been 2.5 MMcf/d. The Griffin Mountain area had the greatest number of verticals completed.
The Koone #2-34 horizontal well, located in Gravel Hill field, initially flowed at approximately 1.7 MMcf/d of gas. In addition, the Hall #1-12 horizontal well, located in Southwestern Energy's Brookie pilot area, was production tested at 2.8 MMcf/d, and the Black #2-17 horizontal well in Scotland field tested at 2.9 MMcf/d. The initial test rates for the completed horizontal wells have ranged from 1.4 MMcf/d to 3.7 MMcf/d.
The first nine horizontal wells have, on average, taken 16 days to reach total depth and most recent well costs have been between $1.4 million and $1.8 million per well, excluding non-recurring costs. Fracturing and stimulation treatments are a big part of the cost. The company has mainly performed nitrogen foam fracs on its wells after using two slick fracs early in their drilling of the play. As in the Barnett Shale, companies will learn better fracturing processes and change well architecture to achieve significantly better production. Southwestern's strategy to date has been quite conservative while aligning early with Schlumberger's concept of a full service approach.
As of June 2005, the Arkansas Oil and Gas Commission approved rules for the Gravel Hill and Scotland fields in the Fayetteville Shale area that provide for a 560-ft (171-m) minimum distance between completions in common sources of supply and up to a maximum of 25 horizontal or vertical wells per section.
In the Barnett Shale a general rule emerging is the initial potentials (IPs) amount to one-one thousandth of reserves, i.e. if a well gets 3 MMcf/d, that would roughly translate to 3 Bcf ultimate recovery. The horizontals in the Fayetteville Shale play are showing good initial potentials but initial reserve estimates are showing half of the reserves when compared to the Barnett Shale. Part of this is due to the early experience by companies in understanding how to use horizontal and horizontal stimulation.
Chesapeake is a later entry into the play, but has taken on 600,000 acres, particularly on the east side of the play fairway. Well over two-thirds of its acreage was obtained in the third quarter of 2005 by an aggressive land effort. Chesapeake is starting to develop its acreage with an initial 6 well program. The first well drilled was the Ronny 1-7 in White County. The company had permitted only 4 wells near the end of 2005 in White and Woodruff counties in the eastern part of the play. The company is employing advanced micro-seismic technology to understand the fracturing development and application.
Fayetteville Shale economics
Philip C. Crouse and Associates, Inc. ran economics on horizontals in the Fayetteville Shale to determine the desirability and economic viability of the play. The following table shows that in the current market, the average horizontal well would turn over 8 times the before-tax income over investment. The economics were run using an average drilling and completion costs of $1.7 million with $500-per-acre bonus and a eighth royalty.
Most of the wells pay out in less than a year. Even if natural gas prices fall back to the $5 to $6/Mcf range, the play is quite economic, showing very quick payouts and a before-tax income over investment of more than four times. A conservative case of $5.71 escalating at 3% per year to a price of $8/Mcf shows an impressive return of more than five times. On the downside, if natural gas prices plummeted back to $3/Mcf, the investment would not have favorable returns, but the investment would return invested money.
Conclusions
As the industry has more experience with drilling and completing the Fayetteville Shale, the play will prove out to be one of the major gas producers for the United States. The extent of the play requires vast capital investment and resource investment, but the economics are not to be denied. This play, along with other non-conventional plays in the country, has become the new gold rush of the 21st century oil and gas industry. Soon, non-conventional plays will become the conventional.

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