DAMASCUS — Despite natural-gas prices hovering near a 10-year low in the country, Southwestern Energy Co. said its operation in the Fayetteville Shale region of north-central Arkansas is still profitable, according to a senior vice president for the company.
Still, should the price of natural gas continue to fall, the Houston-based company may have to slow production in Arkansas.
“[Southwestern is] still cash-flowing positively,” said Jack Bergeron Jr., senior vice president of Southwestern’s Fayetteville Shale division. “Yes, there is a price [where Southwestern would curb production]. We’re not going to give our gas away; we’re not going to lose money.”
He said he did not know at what price Southwestern would have to slow down production.
The comments came Friday while U.S. Deputy Secretary of Energy Daniel Poneman toured some of Southwestern’s operations. President Barack Obama highlighted the importance of shale gas in the U.S. economy during last week’s State of the Union address.
Though Obama is stressing the need for the country to be less dependent on Mideast oil, critics have said that his not approving the Keystone XL pipeline that would carry crude oil from Canada to refineries on the Gulf Coast and create jobs shows he is inconsistent.
But, Poneman said, Obama’s decision is in line with what the president has been saying.
“The president has been very clear — we are strongly supportive of responsible development of our hydrocarbons,” he said. “And we’re also very dedicated to doing so safely. The problem with the way the Keystone issue was last presented was that an impossible deadline that did not permit [responsible] analysis was put before the president, and we’re not going to sacrifice doing the job responsibly ... to meet some arbitrary deadline.”
As for unlocking shale gas, Poneman said that there have been a lot of environmental issues raised by new drilling across the country, but that Southwestern is leading the way in terms of transparency and technology.
“This is exactly what President Obama was talking about in his State of the Union,” Poneman said. “It’s very exciting to see the great work happening out here. It’s very important for the nation.”
Companies such as Southwestern have learned to tap huge reserves of natural gas trapped in shale formations using hydraulic fracturing and horizontal drilling. With the increase of drilling has come an abundance of supply, lowering the price of natural gas for consumers.
On top of that, this winter has been warmer than normal, further driving down the price as consumers burn less fuel to heat their homes.
On Friday, natural gas fell by 5.5 cents to finish the week at $2.499 per 1,000 cubic feet on the New York Mercantile Exchange. Natural gas hit a 10-year low last month at $2.32 per 1,000 cubic feet, and the price is still less than half of it what it was in 2010, The Associated Press reported.
While the low gas prices may slow down production, Southwestern remains profitable because it was one of the first companies to develop the area, allowing it to get lowercost leases, said James Williams, an energy economist who owns WTRG Economics near Russellville.
Williams added that Southwestern, which is the largest operator in the shale, is also the most efficient; with shorter drilling times than the other major operators, Australia-based BHP Billiton and Exxon Mobil Corp. subsidiary XTO Energy.
In July 2008, natural-gas prices in New York were near $13 per 1,000 cubic feet, and in December 2005, when Southwestern started ramping up drilling in the Fayetteville Shale, prices were over $14 per 1,000 cubic feet. For most of 2011, prices stayed between $3 and $5.
With the price of natural gas as low as it is, Chesapeake Energy Corp. will slow down drilling and production in the U.S., the company said in January. Chesapeake was the second-largest producer in the Fayetteville Shale until selling its assets in the state to BHP Billiton last year. It remains one of the top natural-gas producers in the country.
However, Exxon, the largest natural-gas producer in the U.S., said this week that it has no intentions of curbing production.
While the low price of gas may be affecting profits and shareholder returns, it’s been an economic boon for consumers.
“Gas prices have come down, putting more money in the pockets of consumers,” Poneman said, adding that things will level out eventually. “With gas at $2.50 you can bet the demand will go up. We think over time it will achieve the right kind of balance, but obviously we need sufficient demand.”
Poneman later held a roundtable discussion about clean energy at the state Capitol. The discussion was put together by the Arkansas Advanced Energy Association, a group that promotes energy technologies in the state.
Among those in attendance were retired Army Gen. Wesley Clark; state Sen. David Johnson, D-Little Rock; former Gov. Jim Guy Tucker of Arkansas Biosciences International; and Michael Skelly, chief operating officer of Clean Line Energy.
Business, Pages 29 on 02/04/2012