The hills of north-central Arkansas are alive with the sound of frac trucks. This region is, somewhat unexpectedly, proving to be a sizable source for future U.S. unconventional natural gas from the Fayetteville shale.

The unconventional play lies in the eastern portion of the Arkoma basin, primarily in Arkansas. Development began in earnest only in the latter half of the past decade, dovetailing with achievements by producers working in the Barnett shale in North Texas.

Geologically, the area of the shale covers more than 5,000 square miles, but a core area has been identified in the Arkansas counties of Cleburne, Conway, Faulkner, Pope, Van Buren and White. The shale is at depths from 1,500 to 6,500 feet and is generally 50 to 550 feet thick.

According to the U.S. Geological Survey’s National Oil and Gas Assessment Report, published in 2010, resource-base estimates for potential undiscovered reserves in two of the three Fayetteville areas are about 13.2 trillion cubic feet of gas. Today, producers are forecasting proved and probable reserves of 10- to 11 trillion cubic feet.

Also, producers reported total well-flow rates of some 1.92 billion cubic feet (Bcf) per day from the play in March 2010. Rates are expected to grow to 2.3 Bcf per day by year-end 2010 if wells are unrestrained. Interestingly, the nearly 2-Bcf-per-day level of production was achieved in a five-year period, decades sooner than its Barnett shale predecessor required to reach a similar level.

Major Producers

Just as other shale plays in the U.S. have their unique characteristics, the Fayetteville shale is rewarding producers who come to play, bring with them techniques and knowledge achieved in previous shale-resource developments, and have the discipline and patience to seek the proper combination of these to uniquely optimize the Fayetteville resource.

Southwestern Energy Inc. and the Chesapeake Energy Corp./BP Plc joint venture are the largest acreage holders. Southwestern is the largest developer to date. Other players include Hallwood Energy LP–Talisman Energy Inc., Petrohawk Energy Corp., Petroquest Energy Inc. and XTO Energy Inc., which since its purchase by ExxonMobil Corp. has formed a new organization to manage global development of unconventional resources.

Fayetteville-shale wells, as is common in other developments, come onstream at high pressures and volume, and then level out into a period of long-term steady production and decline. Due to this up-front, rapidly declining flow-rate characteristic, producers seek to achieve a substantial revenue and recovery kick in the first 12 to 18 months of production. For producers using forward-price hedging strategies, this operational mode is an excellent match.

Meanwhile, the gas flow, post-fracturing, is relatively low pressure. As a result, compression is required to gather the produced gas and optimize individual and collective well performances.

Gathering pipeline systems in the area consist of centralized gathering points, often with multiple compressors and common dehydration facilities. The field-gathering systems are generally small-to-medium-diameter (6 inch to 16 inch) pipelines with larger lines that telescope outward to strategically placed compression and dehydration. The gathering lines are operated at reasonably low pressure to facilitate aggregation of the wellhead gas volumes into the network.

Producers find that maintaining a balance between bringing on newer wells, while ensuring that other wells that have been onstream longer are not sacrificing their capabilities, is a challenge. Yet, the lower pressure also brings opportunities.

Cost Savings

Due to the overall lower operating pressures, capital-cost reductions can be achieved through the purchase and operation of drilling and production equipment, vessel design, gathering-system design, valves, meters and other equipment. Also, since the Fayetteville shale has lower overall CO2 concentrations, both capital and operating costs associated with treating facilities can be reduced or, in some cases, entirely eliminated. This characteristic helps minimize up-front development costs and could later prove to be a valuable attribute if carbon reduction or sequestration legislation is enacted.

Some initial capital-cost savings can also be achieved by renting or leasing major equipment. Compressor units, in particular, can be leased and later exchanged. With today’s compressors employing modular, skid-mounted design, it’s often “slide-one-out, slide-one-in” rather than on-site repair. This modular design also fits the declining flow and pressure profile of the region because, over time, compression and gathering system design configuration and associated equipment are very dynamic.

Meanwhile, with hundreds of small wells attached, the reliability of compressor operation and maintenance is critical. Gathering-system operators often provide gas-fired generators at the central gathering points to assure continuous production during periods of local commercial-power interruption.

Also, since early in the play’s development, export pipelines have been connected to existing pipelines such as Ozark Gas Transmission, CNP Gas Transmission, and Natural Gas Pipeline Co. of America. These legacy pipelines, some with limited available capacity, ensured that volumes had reasonably economic take-away capacity and market access. They brought in initial cash flow to offset development expenses and allowed producers some time to focus on optimizing techniques and costs. Producers could monitor actual production to predict onstream well performance.

Two New Pipelines

As the play has matured and overall volumes have substantially increased, two new major export pipelines have been or are being constructed to manage growing field output and serve customers in the Southeast, East Coast and Midwest.

The first is Boardwalk Pipeline Partners LP’s 36-inch-diameter Fayetteville lateral gathering system, which was built in conjunction with its Greenville lateral that primarily provides delivery to southeastern and eastern markets.

Midwestern markets and seasonal storage are also accessible via the system’s direct connection to Texas Gas Pipeline. The Fayetteville lateral’s initial capacity was 0.8 Bcf per day, but an expansion to1.1 Bcf per day soon followed. The Greenville lateral had a similar initial capacity and was expanded to about 1 Bcf per day.

During construction, the Fayetteville lateral encountered some unanticipated delays and caused some producers to shut in or delay well completions for several months. Thus, when pipeline facilities were finally available, a large inventory of available wells was ready for immediate service.

Kinder Morgan Inc. and Energy Transfer Partners LP are building a 42-inch-diameter pipeline called the Fayetteville Express Pipeline. The 2 Bcf-per-day system should be ready for commercial service in early 2011. It will provide some much-needed capacity cushion and take gas to Midwestern markets via its downstream interconnects. Also, those pipelines can backhaul gas to upstream delivery points and facilitate competition into other markets.

The total export capacity of these two major pipeline systems is more than 3 Bcf per day, facilitating current regional production levels and providing for additional growth.

Gathering Systems

The area’s largest gathering system is operated by Southwestern Energy’s affiliate, Desoto Gathering System. It provides gathering and aggregation service for Southwestern Energy’s regional developments as well as gathering some volumes developed by third parties. As of August 2010, Desoto operated some 1,367 miles of gathering facilities and more than 50 centralized compressor stations.

Other gathering systems are owned by Chesapeake Midstream Development, Fayetteville Gathering Co. (an affiliate of XTO Energy), Hawk Field Services (an affiliate of Petrohawk Energy), Centerpoint Energy Field Services, Frontier Gas Gathering and Ozark Gas Gathering (an affiliate of Spectra Energy).

Chesapeake Midstream operates eight gathering systems in the region. The Hawk Field Services system consists of more than 100 miles of 6-inch to 16-inch pipelines and has a capacity of about 200 million cubic feet per day. Frontier operates four distinct gathering systems as well as leased compression and treating facilities, with capacity totaling some 280 million cubic feet per day.

Asset Rationalization

Given the current gas-price environment, some operators have temporarily slowed their development in the Fayetteville. Producers are rationalizing opportunities within their development portfolios. Some are focusing on rich-gas plays to harvest natural gas liquids, while others are focused on oil plays. This rationalization is expected to continue for several years. As such, some of the existing regional players in the Fayetteville shale are reviewing options to rationalize further. Stay tuned for possible sales of developed and undeveloped assets and gas-gathering systems.

Walter “Skip” Simmons has 40 years experience in the gas industry, predominantly working in the pipeline industry segment with Transcontinental Gas Pipeline, Houston Pipeline, Enron Transportation & Storage (Northern Natural & Transwestern), and Kinder Morgan. In 2005, Simmons joined Wood Mackenzie’s North American Gas Research team and worked in various aspects of gas pipeline, storage infrastructure and operation. He has a bachelor’s of science degree in electrical engineering from the University of Mississippi and works as an independent consultant.

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