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Fayetteville Shale

The natural gas field known as the Fayetteville Shale, development of which began in 2004, became recognized as one of the ten largest gas fields in the United States. The exploration of this resource was initiated by Southwestern Energy Company, which, by its high point in 2008, had booked sufficient natural gas reserves to heat every home in New York City for four years. This large find attracted other operators, creating a large, although short-lived, economic stimulus for Arkansas. The Sam M. Walton School of Business at the University of Arkansas (UA) in Fayetteville (Washington County) estimated the economic impact of the leasing programs, drilling operations, and royalty payments generated by the development in its first decade of operation at around $18 billion, along with the creation of more than 11,000 jobs in the first five years of the activity. By 2016, however, an oversupply of natural gas had caused prices to plummet. A high of sixty drilling rigs was seen in 2008; in 2016, there were no active drilling rigs, with the few companies that remained focusing on maintenance and well completion.

The Fayetteville Shale takes its name from its surface presentation (outcrop) near the city of Fayetteville. Even before 1930, it was a known geologic marker and was cited as a possible reservoir for natural gas. It was noted in a report to Governor Harvey Parnell and petroleum geologist Dr. Carey Croneis, who presented a comprehensive geologic study of the oil and gas potential of the Arkansas highlands area. The research that led to the publication of this 457-page book by the Arkansas Geological Survey in 1930 sparked a widespread interest in the fossil fuel potential of the Arkansas Valley and lower Boston Mountains. Speculators, primarily from Oklahoma and Texas, flocked to the area and purchased thousands of mineral acres from poorly informed landowners. Bitterness among the descendants of these families still exists toward some of the major buyers. Those mineral rights still reside with the successor companies and finally have significant value.

While the formation was known to hold natural gas, only the use of modern drilling techniques allowed for the development of these “unconventional” gas wells. Shale gas is contained in layered sedimentary rock deposited in shallow seas that covered the area during the Mississippian Period, about 325 million years ago. The plants and animals living in these seas provided the accumulation of decaying organic matter, and the “cap rock” formed by later sediments protected the gas reservoir. The production is called unconventional because flows at commercial levels must be stimulated by hydraulic pressure fracture techniques. Additionally, the wells, which may be more than a mile deep, can reach lengths of more than 7,000 feet. A horizontally drilled lateral may underlie more than one section of land and result in payments to royalty owners who are more than one mile away from the drill site.

The area of production involved approximately 25,000 square miles in parts of Cleburne, Conway, Faulkner, Jackson, Johnson, Pope, Van Buren, and White counties. While other areas may have been involved, the primary focus was in north-central Arkansas—a swath that begins in northern Conway County and follows an east-by-northeast path that ends in western White County.

The activity began in 2002 when Southwestern Energy Company of Houston, Texas, which was formed as an Arkansas company in 1929, re-worked an older well in western Arkansas and confirmed speculation about commercial levels of gas within the formation. By using their Arkansas subsidiary SEECO in addition to third-party brokers, Southwestern Energy began one of the most successfully concealed leasing operations of the modern era. By the time they drilled the “discovery well”—the Thomas 1-9, near Jerusalem (Conway County)—they had secured 455,000 acres in the prime development area. By late November 2004, the discovery was known within the industry, and heavy land-leasing efforts were under way. Small record rooms in some county courthouses were overrun with landmen and leasing agents. Local abstract companies were overwhelmed or purchased outright by the gas companies. Area motels and other concerns that cater to business visitors saw significant spikes in revenue, and many could not keep pace with the rush of activity.

Along with the many jobs created and increased revenue into state and local tax coffers, hundreds of local businesses were developed in these areas. Noting this activity, in an extraordinary session in 2008, the Arkansas General Assembly approved an increase in the severance tax on natural gas for the first time in more than half a century. Vocational education programs were created to serve both the demands of the industry and of the students hoping to take advantage of these new job opportunities. With more than 2,000 wells completed in the first five years, natural gas development in central Arkansas had clearly established a significant new industry and a new culture for the region.

As with other fossil fuel developments, environmental concerns arose. The major issues involved the disposal of waste products such as saltwater and certain drilling and fracture fluids. Endangerment to the freshwater zones is always a concern of subsurface drilling activities. The Arkansas Oil and Gas Commission and the Arkansas Department of Environmental Quality monitored these disposals and freshwater threats. Both agencies revised their regulations to provide additional safeguards for both the public and private interests. The rural nature of this shale development did not result in the complaints from landowners that are typical of these developments in more urbanized areas. Land values in the areas involving the shale development increased significantly during the shale boom, with or without mineral rights.

Soon, major investments had been made by more than twenty-five companies and their brokers. By 2008, after multiple acquisitions, consolidations, and some failures, the actual operating companies had been narrowed to SEECO; Chesapeake Energy of Oklahoma City, Oklahoma; Petrohawk Energy Corporation of Houston; XTO of Forth Worth, Texas; David H. Arrington of Midland, Texas; and One-Tec Operating Company of Austin, Texas. A few smaller companies continued to drill “wildcat” wells as they tested the outer perimeters of the productive area. That same year, British Petroleum (BP) purchased one quarter of the interest held by Chesapeake for $1.9 billion, as Chesapeake was experiencing recession-related difficulties. In 2011, Chesapeake announced plans to sell all of the company's interests in the Fayetteville Shale to BHP Billiton Petroleum.  However, the following year, BHP Billiton announced that it was writing down its Fayetteville Shale assets; by January 2015, the company was planning essentially to pull up stakes in Arkansas. Due to low market prices, the number of active rigs in Arkansas had fallen to just a handful by September 2015. In January 2016, Southwestern Energy announced intentions to lay off 600 workers, about forty percent of its workforce, due to low natural gas prices brought on by an oversupplied market.

By 2016, no active rigs remained, and many of the economic gains due to shale production had dwindled, including jobs, building projects, royalty payments, and revenue for school districts.

For additional information:
Croneis, Carey. Geology of the Paleozoic Area. Bulletin 3. Little Rock: Arkansas Geological Survey, 1930.

Daily, Thomas A. “Lawyering the Fayetteville Shale—Welcome to My World.” Arkansas Lawyer 44 (Spring 2009): 10–12, 41–42. 

“Fayetteville Shale Information.” Arkansas Oil and Gas Commission. http://www.aogc.state.ar.us/Fay_Shale_Data.htm (accessed July 19, 2016).

Seaman, Jessica. “Fayetteville Shale Boom Gone Bust.” Arkansas Democrat-Gazette, July 17, 2016, pp. 1A, 8A.
 
Seaman, Jessica, and Emily Walkenhorst. “Energy Firms Gone, but Their Impact Lingers.” Arkansas Democrat-Gazette, July 17, p. 8A.



Larry Taylor
Springfield, Arkansas

Last Updated 7/19/2016

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