LITTLE ROCK — A new well drilled by Southwestern Energy Co. in the Lower Smackover Brown Dense formation in south Arkansas met the company’s benchmark by producing about 103 barrels of oil during its best 24-hour period.
Southwestern’s Chief Executive Officer Steve Mueller said at the Credit Suisse Energy Summit in Vail, Colo., earlier this month that he would be “jumping up and down” if the first well initially produced at a rate of 100 barrels of oil a day. A barrel is 42 gallons.
The company has said that for the Brown Dense to be economical, wells will have to produce on average between 400-500 barrels of oil a day on an ongoing basis.
Mueller has said there could be as much as 3 billion barrels of recoverable oil in the Brown Dense on the company’s 520,000 acres in south Arkansas and north Louisiana. He added that it would take a dozen or so wells to perfect drilling.
Meanwhile, because of the low price of natural gas, Southwestern lowered the amount of money it expects to invest in the Fayetteville Shale in north central Arkansas this year, the Houston-based company said in its 2011 earnings report released Monday.
Southwestern’s first Brown Dense oil well, which is in Columbia County, was drilled about 9,300 feet deep and 3,600 horizontally and began producing Feb. 9.
“This well is not the end-all be-all,” Will Green, a Stephens Inc. energy analyst, said in a phone interview. “You could make the case ... that it’s possible they could get a much bigger rate on those wells with a longer [horizontal]” and other drilling techniques.
The Smackover formation was the site of one of the country’s first oil booms in the 1920s, but production steadily declined to less than 10 million barrels of oil a year in 2010, the most recent year available.
On its second well, in Claiborne Parish, La., Southwestern said its horizontal was nearly 3,000 feet longer and potentially was in an area of the Brown Dense limestone formation that would produce more oil.
Southwestern said it started earlier this month drilling a third well in Union Parish.
“If the company’s drilling program yields positive results, it expects that activity in the play could increase significantly over the next several years,” Southwestern said in its earnings release.
If there are 3 billion barrels of oil in the Brown Dense, it would be about as much as in the Bakken Shale in Montana and the Dakotas and Eagle Ford shale in south Texas. Both oil formations had significant economic effects on their respective regions in the past few years as oil and natural gas companies have used horizontal drilling combined with hydraulic fracturing.
Dallas-based Green said before the earnings report was released that the Brown Dense would be what investors were most interested in.
“I think all eyes are going to be on this Brown Dense well, it’s hard to imagine investors being focused on much more than that,” he said.
Southwestern’s earnings report came out after the New York Stock Exchange closed Monday.
In normal trading hours, Southwestern was up 12 cents to $35.33 on the New York Stock Exchange; however, it was down $1.70, or 4.81 percent, in after-hours trading.
Southwestern’s net income of $158.5 million, or 45 cents a share, in the fourth quarter was up 6 percent from the corresponding quarter a year ago when Southwestern had profits of $149.5 million. Revenue for the quarter rose 11 percent to $744.2 million.
Analysts polled by Thomson Reuters had expected a profit of 47 cents with $763 million of revenue, Dow Jones Newswires reported.
For all of 2011, the company had a net income of $637.8 million, or $1.82 share, up 5.5 percent from a year earlier when it had profits of $604.1 million.
As expected, Southwestern said it had reduced the amount of money it will invest in the Fayetteville Shale.
Natural gas futures on Monday remained near historic lows after falling by 11 cents to $2.44 per 1,000 cubic feet on the day on the New York Mercantile Exchange.
The company said it planned to spend about $1.1 billion in 2012 in the Fayetteville Shale, down from about $1.347 billion it spent last year. In December, Southwestern said it would be spending about $1.25 billion in the Fayetteville Shale.
However, Mueller hinted that expectations could change if natural gas prices improve or get worse.
The new year “has already brought new challenges and we have modified our capital investments program and production guidance downward for 2012,” Mueller said. “A low cost structure, strong balance sheet, razor-sharp financial discipline and nimbleness to respond in this rapidly changing environment will still be the keys to success.”
James Williams, an energy analyst with WTRG Economic near Russellville, said Southwestern could ramp up drilling as soon as the fourth quarter if the price of natural gas improves.
“If gas prices start trending higher we could see them drilling more by the end of the fourth quarter this year,” Williams said.
Business, Pages 21 on 02/28/2012