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Gas prospectors beating path to north-central Arkansas.

A HALF-PAGE ADVERTISEMENT IN THE Aug. 21 issue of Conway's Log Cabin Democrat says it all:

"We Will Pay You Top Dollar for an Oil and Gas Lease in Conway, Cleburne, Faulkner, and Van Buren Counties."

The ad points curious landowners, particularly those in "townships 7N-11N; ranges 8W-18W," to the Conway office of Griffith Land Services.

Griffith Land Services of Houston is a broker for at least one of the growing number of gas exploration companies beating a path to a rock formation deep under north-central Arkansas called the Fayetteville Shale Play.

President Marty Griffith wouldn't reveal the name of his client, but he acknowledged that there are several oil exploration companies busily leasing or buying rights to an area that some experts believe may rival the largest shale gas field in the country.

Griffith has moved five employees from Texas to man the Conway office and hired and trained 11 more employees locally.

The biggest investor in the Fayetteville Shale is Southwestern Energy Corp. of Houston, which formerly was headquartered in Fayetteville. As of June 10, Southwestern had acquired some 645,000 acres in the undeveloped play. The company said it invested more than $20 million in the Fayetteville Shale in the first quarter of the yeas; including almost $12 million for drilling 18 wells and almost $7 million for lease acquisitions.

Other companies that have announced activity in the area include Contango Oil & Gas of Houston, which began leasing activity in March and has earmarked up to $4.2 million for the project, and Edge Petroleum Corp., also of Houston, which announced in June that it had leased 4,500 acres in one unidentified county since targeting the Fayetteville Shale about the same time as Contango.

Bill Powers, the Chicago-area operator of Powers Energy Fund, a hedge fund specializing in energy companies, estimated that there were probably about eight different companies jockeying for leases in the Fayetteville Shale.

"The leasing activity over there is really at a torrid pace," agreed Roger Forsythe, an Arkansas-born geologist with GeoMap Co. of Piano, Texas, which has mapped the subsurface of the Fayetteville Shale Play.

GeoMap's Web site describes the play as "an unconventional gas reservoir, ranging in depth from 1,500 to 6,500 feet. The Fayetteville Shale is Mississippian in age and is the geologic equivalent to the Caney Shale in Oklahoma and the Barnett Shale in North Texas."

Barnett Bonanza

The comparisons to the Barnett Shale are driving the current dash to north-central Arkansas, Powers said. The Barnett Shale, near Fort Worth, is the largest unconventional reserve of natural gas in the country, producing about 2 percent of the United States' daily output of gas.

In a conventional well, Powers explained, gas will readily flow through the well bore. But in a shale formation, like Barnett and Fayetteville, the gas is trapped in rocks that have to be fractured in order to allow the gas to escape.

Extracting gas from shale formations is more expensive--too expensive to be commercially viable until efficient fracturing techniques were perfected in the Barnett Shale.

"A lot of that knowledge has transferred into the Fayetteville shale," Powers said.

Last month, Southwestern Energy announced that it had agreed to spend $37.7 million for five drilling rigs specifically for its Arkansas adventure. The first of the rigs is to be delivered in November.

"It's still early, but there's a possibility that this could be as big as the Barnett Shale," Powers said.

Forsythe, of GeoMap, said the Fayetteville Shale "looks like it could be a good gas source for the companies that are drilling there." And, he said, the drilling could be cheaper than in the Barnett play because the gas reserves are shallower, although deeper reserves have more pressure to drive the gas to the surface,

Another advantage of the Fayetteville Shale, from the gas companies' point of view, is Arkansas' severance tax rate. At three-tenths of a cent per million cubic feet of gas production, it is miniscule compared to that of neighboring states. Louisiana, for instance, charges 12.2 cents for MCF; Texas charges 7.5 percent of the market value of the gas, which has been above $6 per MCF throughout the spring and summer.

Landowner Confusion

Larry Bengal, who moved to El Dorado six months ago to become director of the Arkansas Oil & Commission, said his department has heard of leasing activity as far east as Memphis. Leasing has also been reported in White and Searcy counties. And the commission has received a number of inquiries and complaints from landowners approached by leasing agents,

"There's a lot of miseducation and uneducated viewpoints," Bengal said. "Many times the land companies are not exactly forthcoming in communicating with the landowners, which creates mistrust and is the basis of most of the complaints."

Most of the disputes occur when one party owns the surface of the land while another owns the fights to any valuable minerals beneath the surface, he said.

Leases, which are what Griffith Land Services is fishing for, typically last only one to five years, Bengal said. The typical royalty is one-eighth of the value of the gas extracted during the lease term, he said, although landowners might be able to negotiate a better rate.

Powers agreed.

"Your bargaining power goes up with your land holdings." Powers said. "It sure wouldn't hurt to shop it around."

Gwen Moritz
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Title Annotation:In Full View
Author:Moritz, Gwen
Publication:Arkansas Business
Date:Aug 29, 2005
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