LITTLE ROCK — Steve Mueller, chief executive officer of Southwestern Energy Corp., the top natural-gas producer in the Fayetteville Shale, said Thursday that there could be 3 billion barrels of recoverable oil on the company’s 500,000 acres in the Lower Smackover Brown Dense formation in south Arkansas and north Louisiana.
If true, that would put the Brown Dense on the same level as the two topproducing oil formations in the country.
The U.S. Energy Information Administration estimated in July that the Bakken Shale, which includes parts of Montana and North Dakota and extends into Canada, and the Eagle Ford Shale in south Texas hold 3.6 billion and 3.4 billion recoverable barrels of oil, respectively. A barrel is 42 gallons.
“This play is developing rapidly. We’re excited about this,” Mueller said at the Credit Suisse Energy Summit in Vail, Colo. “People say, ‘What could be the potential here?’ On our 500,000 acres, again with just a little bit of core data and a couple of vertical wells to help us out, we think we have about 30 billion barrels [of oil] in place. ... You’ve got a 10 percent recovery factor. We have a potential of about 3 billion barrels of oil.”
Houston-based Southwestern put its first Brown Dense well into production Thursday, but Mueller did not say how much oil was flowing. Those numbers are expected to be released later this month.
Southwestern announced last summer that it spent $150 million leasing about 500,000 acres in the Brown Dense. It is currently drilling a second test well in Louisiana.
Other companies drilling the formation are Cabot Oil and Gas of Houston; Devon Energy in Oklahoma City and Exxon Mobil subsidiary XTO Energy of Irving, Texas.
According to Southwestern’s website, the Brown Dense is the source rock for the old Smackover field that in the 1920s led to one of the first oil booms in the country.
Horizontal drilling, coupled with hydraulic frac- turing, or fracking, has led to a surge in oil and natural gas drilling across the U.S. Fracking is the process of injecting millions of gallons of water, sand and chemicals into a well to break up the rock and allow natural gas and oil to flow.
The new drilling also has led to a glut in the supply of natural gas, driving down the price to near historic lows.
On Thursday, natural gas futures climbed by 4 cents on the New York Mercantile Exchange, or 1.4 percent, to $2.48 per 1,000 cubic feet, the Associated Press reported. In July 2008, natural-gas prices in New York were near $13 per 1,000 cubic feet, and in December 2005 prices were over $14 per 1,000 cubic feet. For most of 2011, prices stayed between $3 and $5.
To deal with the lower prices, Mueller on Thursday said Southwestern will take a rig out of the natural gas producing Fayetteville Shale, among other strategies to slow down natural gas production in north-central Arkansas.
On Wednesday, BHP Billiton, the second-largest producer in the Fayetteville Shale, said it would reduce the number of rigs in the state from eight to five or six. Chesapeake Energy Corp., the second-largest natural gas producer in the country, said Thursday that it would be dramatically curbing production.
Chesapeake investor relations chief Jeffrey Mobley said the company may limit natural-gas production by up to a billion cubic feet per day if prices remain weak, the Associated Press reported.
“The fact of the matter is gas prices are so terrible, there is not a lot of incentive to put a lot of money in the Fayetteville Shale,” said Stacey Hudson, an energy research associate with Raymond James & Associates in Houston. “There is just not that much money to be made.”
But that might not be enough to deal with the oversupply, Hudson and PFGBest energy analyst Phil Flynn both said. They said that companies are shifting their focus to oil producing formations such the Brown Dense, Bakken and Eagle Ford, but that natural gas is also produced from the formations.
“As long as you have oil prices up, these producers are changing focus and ending up with gas regardless,” Flynn said. “What they are trying to accomplish is stopping the bloodbath in the market. The cutbacks will hopefully stop the natural gas market from collapsing.”
Business, Pages 25 on 02/10/2012