LITTLE ROCK — Howard Miller moved to Arkansas from Texas in 2010 to work as a drilling consultant for Southwestern Energy in the Fayetteville Shale. But after two years with the company, the 62-year-old now will alternate every two weeks between Arkansas and West Virginia, where he will work for another company because he can no longer find enough work in his home state.
Miller’s move to find work in another state is part of a growing trend within Arkansas’ natural-gas industry.
Companies and independent contractors — like Miller — are turning to other states for work they can no longer find here because of a slowdown in drilling in the Fayetteville Shale formation, which stretches across northcentral Arkansas.
The number of drilling rigs being used in Arkansas has dropped by 50 percent since this time last year, according to Baker Hughes, an oil-field-service company based in Houston.
People in the industry say low prices have made drilling for natural gas less attractive. They are shifting their focus to crude oil, where prices are lower than they were early this year but still make oil a more profitable investment.
During the peak of Fayetteville Shale drilling in 2008, natural-gas prices ranged from $6 to $10 per 1 million British thermal unit on the New York Mercantile Exchange. Over the past few months, prices had been under $3 until last week and briefly were under $2.
Natural-gas prices closed Friday on the New York Mercantile Exchange at $3.08 per 1 million Btu while crude oil closed at $91.44 a barrel.
James Williams, an energy analyst who operates WTRG Economics near Russellville, said natural-gas prices have dropped because of supply. Other shale formations in states ranging from Texas and Louisiana to Pennsylvania and North Dakota have seen a lot of drilling recently.
Natural-gas “prices have been low because we found too much gas,” Williams said. “We were too successful.”
For Miller, the low prices cost him his job.
When he started working for Houston-based Southwestern Energy, Miller monitored drilling operations, but as the company slowly cut back on drilling in the shale, Miller was reassigned to completion sites where he oversaw water transfers.
And then last month, the company told Miller that he was no longer needed.
“They are downsizing, trying to save money until prices go back up,” said Miller.
Four years ago there were about 60 drilling rigs in the state — now there are 17, said Kelly Robbins, executive vice president of the Arkansas Independent Producers and Royalty Owners Association.
The drop in rig count has triggered an outflow of jobs because it means there is less work available in the state, he said.
“Service providers are going to go where the rigs are and drilling activities are going on,” Robbins said. “Many of the jobs are directly tied to drilling rigs, so when rigs leave, the jobs affiliated with it go with them.”
The natural-gas industry has always been volatile because it is largely dependent on natural-gas prices, said Miller, who has worked in the industry since 1963.
He began his job with Noble Energy Inc., an oil and natural-gas company, in the second week of July. Miller, who lives in Bee Branch, about 25 miles north of Conway, will commute to West Virginia every two weeks for work.
The gas-extraction procedure known as hydraulic fracturing, or fracking, for natural gas began in the Fayetteville Shale in 2004, Robbins said. Since then, companies have invested billions of dollars in the state’s natural-gas industry.
During fracking, which occurs after a well is drilled, sand is mixed with thousands of gallons of water and chemicals, and then injected into wells to break apart rock and release natural gas.
Fracking has become more efficient in recent years as new technology allows drilling equipment to slowly turn 90 degrees and horizontally penetrate thousands of feet of rock.
Energy companies have invested more than $12.7 billion in the Fayetteville Shale formation since 2008, according to a study released last month by the Center for Business and Economic Research at the University of Arkansas at Fayetteville.
Companies are not expected to invest as much in the shale this year, said Kathy Deck, director of the university center.
“We know, for example from the study, that these companies have pulled back on their investment in 2012 from levels we had seen before,” she said. “If there are in fact companies moving elsewhere, it is consistent with that.”
Shane Khoury, deputy director of the Arkansas Oil and Gas Commission, said the commission hasn’t seen a slowdown in the number of well completions in the shale, meaning that drilling is being completed, but he expects to see a decrease soon.
Williams, the energy analyst, said drilling is down 30 percent from last year.
He said that in 2008 there were about 75 rigs working. Prices will have to reach at least $3.50 per 1 million Btu for drilling activity to increase, he said.
Direct employment on rigs and employment at service companies are going to remain weak throughout the remainder of the year because of the lack of drilling, Williams said.
Once a well is drilled, fractured and is producing gas, it requires few employees to keep it operating.
Service companies that do business in the Fayetteville Shale fields say the three major operators in the shale — Southwestern Energy, BHP Billiton and XTO Energy, a subsidiary of Exxon Mobil Corp. — have been cutting back on drilling.
Alan Jeffers, a spokesman for Exxon Mobil, declined to discuss the slowdown in drilling, saying the company does not comment on operational issues. In an e-mail, he said XTO Energy doesn’t have plans to reduce its work force.
BHP Billiton, a global company whose U.S. gas operations are based in Houston, said in a statement that it is “responding to market conditions” and has four rigs operating in the shale.
“We remain committed to the development of this important resource over the long-term,” stated Danny Games, a spokesman for BHP Billiton.
Christina Fowler, spokesman for Southwestern, said the company did not want to comment.
As of May, Southwestern had eight rigs operating in the Fayetteville Shale, after starting the year with 12, Steve Mueller, president and chief executive officer, said during Southwestern’s first quarterly earnings teleconference.
He said the company plans to reduce the number of rigs to seven by the end of the year.
The decline in activity in the Fayetteville Shale has been noticed by more than just those who work in the natural-gas industry.
A Conway bank’s volume of financing has declined significantly compared with three years ago, said a banker who asked not to be identified.
The banker provides financing, particularly for cash flow, for companies doing business in the Fayetteville Shale.
“I think that has a direct correlation with the number of rigs in the state and the number of holes being punched and capped, compared with the price of natural gas,” the banker said. “That has driven companies to focus in other plays in other states instead of Arkansas and the Fayetteville Shale.”
The banker said his customers are still doing business in the area but not as much as they used to.
“Like any business, as your sales decline, you have to decline your work force and overhead and machinery,” he said.
Some companies have already started trimming their work forces.
After only a year in business, Compass Energy Services LLC in Greenbrier has cut its work force in half.
When owner Jerrod Groce started the company, he employed about 22 people, now there are only 10-13 people on staff.
Groce said he laid off employees at the beginning of the year because there was not enough work in the Fayetteville Shale to keep them. The company, which performs erosion-control maintenance, has contracts with the major operators in the shale.
“We still do work for them,” Groce said. “The work has just slowed down so much.”
Many companies are leaving Arkansas and going to other states such as Pennsylvania, Texas and North Dakota where they can drill for oil, which is more profitable, he said.
Groce said he is considering following in the footsteps of others and moving his business out of the Fayetteville Shale until natural-gas prices rise.
“With smaller companies and being new, you don’t have a lot to go off, but you have to make the move,” he said.
El Dorado-based Premier Well Services has also had to cut its work force this year, general manager John Lowery said.
He originally planned to hire more employees this year, but instead about 10 employees have been let go.
The company, which employs about 45, anticipates more layoffs soon, Lowery said, adding that the company’s payroll has decreased by about $1.5 million because of the layoffs.
He said employees were let go because there is not as much work for the company, which uses rigs to collect gas after fracking. Premier Well Services has worked for BHP Billiton and XTO Energy, Lowery said.
“My work for all of these companies has slowed dramatically in the last couple of months,” he said. “They are not drilling as many wells.”
Lowery said the company has four of eight rigs operating and might drop the number to three later this year.
“For every rig we lose, that affects about five people,” he said.
Because there’s not as many jobs in Arkansas for Premier Well Services, the company is looking for work in Texas and Oklahoma.
“We are looking at the possibility of going to other states to keep going and paying the bills,” Lowery said. “That’s where the work is.”
He said most employees are Arkansans, but that may change if the company moves.
“If we went to Texas or Oklahoma, we would hire people there to work,” Lowery said. “That’s the sad thing about it, the loss of jobs.”
Current employees would be given the opportunity to move with the work, he said.
Lowery said the company could stay in Arkansas if natural-gas prices go back up, but it’s a risk to stay when he doesn’t know when they will rise.
“I can’t wait on the possibility,” he said.
Information for this article was contributed by David Smith of the Arkansas Democrat-Gazette.
Front Section, Pages 1 on 07/22/2012