ATLANTA — As exploratory oil drilling in the shale formation of south Arkansas and north Louisiana picks up, curiosity and optimism are high as to whether it will bring a boom to the area similar to that of the 1920s.
Production numbers for wells being tested by Southwestern Energy Co. and Cabot Oil & Gas Corp., both of Houston, aren’t available, but the impact is already being felt.
In July, Southwestern Energy announced that it had spent $150 million leasing 460,000 acres in the Brown Dense shale oil field in Arkansas and Louisiana. Since then it has added 40,000 acres in the two states.
Southwestern’s land grab has made it difficult for smaller operators to run their businesses the way they have for years.
Robert Reynolds, president of Shuler Drilling of Magnolia, said that while “this could be the best thing to happen to south Arkansas since the 1920s,” a lot of the area the shallow drillers want is no longer available.
“When anybody, whether Southwestern or anybody else, leases vast tracts of acreage those are no longer available for us to lease,” Reynolds said. This is “unprecedented in size and scope ... and it leaves fewer options for shallower oil drillers.”
He requested permission from Southwestern to drill a shallow well on land it has leased, but so far has not gotten approval for that request.
Mineral owners in the area can do little more than wait.
“I hope it’s huge,” said Kelly Basinger, who lives on and has a mineral interest in land where Southwestern’s first well is located near here. “I get asked about it every time I go to town, but I know about as much as the next guy. It’s very hush-hush.”
Smaller, Arkansas-based oil companies that have been drilling shallow wells for years are finding that competing with Southwestern and Cabot isn’t easy.
“I wish Southwestern Energy the best,” said Mike Davis, who owns Magnolia-based Betsy Production Co. and is a member of the Arkansas Oil and Gas Commission. “But their coming has caused some repercussions to the mom and pop shallow oil drillers.
“I know of situations, not Betsy Production-related, where mineral owners say, ‘Why am I not getting a $300 an acre signing bonus?’” Davis said. “It’s like comparing apples to oranges.”
Betsy Production’s signing bonuses are typically about $80, and a well can cost between $350,000 to about $1 million in rare cases. Davis owns 65 wells in Arkansas. He said Betsy Production’s total output was 700-1,000 barrels of oil a day in December for his Arkansas wells; he also owns wells in Louisiana and Mississippi.
Davis said he fully supports exploring the Brown Dense. “I hope it’s huge,” he said, adding, however, that he still wants to be able to operate shallow wells in the area.
Southwestern said it spent about $300 an acre for a signing bonus in the Brown Dense and that its first well would cost about $10 million, according to financial reports and filings with the commission.
The big companies think that advances in horizontal drilling and hydraulic fracturing, or fracking, for oil will allow them to tap into the Brown Dense, which Southwestern says is the source rock for the oil that started the boom in the 1920s. The Brown Dense, which got its name because of the characteristics of the rock, is between 8,000 and 11,000 feet deep and sits directly underneath the Upper Smackover formation. Fields there range between 2,000 and 8,000 feet.
Fracking is the process of injecting millions of gallons of water mixed with sand and chemicals to maximize the amount of oil and natural gas extracted. Horizontal drilling allows for a larger area of the shale to be tapped.
The technology has unleashed a wave of drilling from Pennsylvania to Texas, including in the Fayetteville Shale natural gas field in north-central Arkansas, where Southwestern is the top producer.
Since Southwestern first announced it would be exploring the Brown Dense, it has finished drilling its first well near the Union and Columbia county line. It is currently in the fracking stage.
Southwestern would not comment for this article. It expects to announce production results for the well sometime this quarter, according to its website. The Arkansas Oil and Gas Commission issued the company a permit to burn off natural gas as it tests the well to see what fracking methods work best, according to commission records.
Southwestern is drilling a second test well in north Louisiana. Oklahoma City-based Devon Energy Corp., the largest operator in Barnett Shale, a major shale natural gas field in north Texas, also has drilled a well in Louisiana and got a permit in December to transport 900 barrels of oil a day from the site. Devon has not reported production numbers to its investors or the Louisiana Department of Natural Resources.
On its website, Southwestern is noncommittal on the field, saying that “[the Brown Dense] has the critical properties necessary to be ... successful. However, [it] has never been exploited with horizontal drilling technology until now.”
The first Brown Dense well was not successful. In December 2010, Shreveport-based Brammer Engineering drilled a well into it but produced only 49 barrels of oil a day, records show. At an estimated $10 million to drill the well, it proved unprofitable. Analysts say it would take about 400 barrels of oil a day for a well in the Brown Dense to be profitable.
But Southwestern says that the Brown Dense “compares favorably to other productive oil plays in the United States.”
In Montana and North Dakota, a shale oil field known as the Bakken has created a boom in what had been a sleepy area. The Bakken produced on average 500,000 barrels of oil a day in 2011, the U.S. Energy Information Agency said. Arkansas extracted 5 million barrels of oil in 2010, the most recent data available.
In 2011, oil companies spent $1.5 billion a month drilling in the Bakken, according to a December article in the Billings Gazette in Montana. Southwestern said recently it plans to spend $1.4 billion for the entire year in the Fayetteville Shale; BHP Billiton, the second-largest producer there, said that it plans to spend about $1 billion in Arkansas in 2012.
The boom in Montana and North Dakota has created a demand for a wide range of services, from ATM machines to trucks and oil drilling supplies. Strip clubs and casinos are also prominent in Williston, N.D., a town of about 15,000 which experienced a population increase of 17.6 percent in 10 years, The Associated Press reported.
Throughout 2011, North Dakota had the lowest unemployment rate in the country, coming in at 3.4 percent in December, according to the Bureau of Labor Statistics.
While it’s too early to know if the Brown Dense will be a boom of the same scope, people are optimistic.
In the old days, the first major development in the Smackover formation was the Busey-Armstrong No. 1 oil well.
Production hit a peak in 1925 with an output of 69 million barrels, according to the Arkansas Oil and Gas Commission.
In 1923, the town of Smackover had grown to 25,000. As the field played out by the end of the 1920s, the population quickly decreased to one-fifth of its boom size, and oil companies turned their attention to fields in Texas and Oklahoma.
The recent leasing activity from Southwestern, and to a lesser degree Cabot, has helped fill the coffers of circuit clerks’ offices in Columbia and Union counties.
Columbia County Circuit Clerk Janice Linkous said her office took in $99,000 from copies last year. That’s up from $50,079 in 2010 — nearly a 98 percent increase. A copy costs $1 a page.
Linkous said that the extra money has helped pay for new furniture and other office expenses.
Union County Circuit Clerk Cheryl Cochran-Wilson said that her office brought in $53,511.40 from 50-cent copies in 2010. Last year, copy fees soared 65 percent to $88,485.
“It’s just been great for the office,” Cochran-Wilson said. “I was working in the red for a couple of years during the recession, but now we’re definitely in the black.”
Meanwhile, mineral owners and others have formed an online discussion board that posts and speculates on even the most minor of Brown Dense events.
“We’re all very interested in this,” said Texarkana insurance agent and mineral owner Teddy Souter, who frequently posts on the Go Haynesville Shale Lower Smackover Brown Dense discussion board. “There are a few of us who are irrationally exuberant, but many people don’t understand how big a scope this could become.”
Business, Pages 67 on 01/15/2012