Shale Daily / NGI All News Access

Fayetteville Production Pays Well; Prolific Growth Seen as Likely

The Fayetteville Shale in northern Arkansas not only appears destined for sustained significant growth well into the future but commands some of the highest shale pricing around. One of the chief signals of these optimistic expectations was the Dec. 1 start-up of service on Fayetteville Express Pipeline (FEP), providing a major addition to takeaway capacity for the shale's producers.

Except for the two Marcellus sections (northeast Pennsylvania and southwest Pennsylvania/West Virginia), prices for Fayetteville gas tend to be among the highest of the 13 plays covered by NGI's Shale Price Indices (SPI). Fayetteville numbers on SPI averaged $4.47 in Tuesday's trading for Wednesday flow; the next highest non-Marcellus shale was Eagle Ford at $4.40.

Fayetteville Express Pipeline LLC built the 42-inch diameter system under a 50/50 joint venture of Dallas-based Energy Transfer Partners (ETP) and Houston-based Kinder Morgan Energy Partners. FEP is 185 miles long and has capacity to transport up to 2 Bcf/d from Conway County, AR eastward through White County, AR to a terminating interconnect with Trunkline Gas in Panola County, MS. It currently has approximately 1.85 Bcf/d of capacity sold under long-term contracts ranging from 10 to 12 years, ETP said.

For gas day December 7, FEP had a total of 573,100 dth scheduled for flow from its Fayetteville Supply Basin zone, and a total of 1,142,247 dth scheduled for flow across the entire FEP system.

With the addition of FEP, the downstream transportation infrastructure seems to be pretty set for now, said ETP President Mackie McCrea. "There will need to be upstream gathering systems built to the wells, which will mostly be done by producers in the area. As for processing, the natural gas in the Fayetteville Shale is very lean gas, so no processing is needed."

Even with Fayetteville gas already fetching relatively good prices, there is more upside potential as area producers use the new pipeline to increase their access to multiple interstate options, McCrea said. It interconnects with four interstate pipelines (NGPL, ANR, TGT and Trunkline), allowing transport to markets throughout the eastern half of the United States, he said.

Although others may want to enhance the Fayetteville transmission capabilities as production continues to grow, FEP certainly has the ability to be expanded if necessary, McCrea continued. At this point, he said, ETP believes that its system "could more than accommodate the volumes we expect to see out of the Fayetteville Shale over the next two, three or four years."

The Fayetteville represents unique challenges in locating commercial-scale gas that are not found in most other plays, said Mark Raines, spokesman for Chesapeake Energy, the second-largest producer in the shale after Southwestern Energy. "The geological complexity of the Fayetteville impacts geologic and geophysical interpretation as well as drilling and completion. The surface topography -- some steep mountainous terrain -- also presents challenges."

"However, the 3-D seismic imaging technology that we use allows our geologists and geophysicists to thoroughly study the composition of the earth's crust, which helps to estimate the probability of formations existing in a particular area. In fact, this technology has increased the likelihood of locating successful reservoirs by 50%. Ultimately, 3-D seismic imaging ensures more accurate placement of drillsites and results in more productive wells."

Raines said Chesapeake was satisfied with the Fayetteville's existing availability of hydraulic fracturing and other well completion services, along with the buildout of midstream infrastructure; both have posed problems for producers in other plays such as the Haynesville and the Eagle Ford. Fayetteville well depths tend to range anywhere from 2,000 feet to 7,000 feet, he added, with an average of about 4,500 feet.

Sabine Pass Liquefaction LLC included Fayetteville among the most likely shale supply sources in its filing to develop export capability at its existing LNG import facility in Cameron Parish, LA (see Daily GPI, Aug. 20).

Except for the Rockies, shale prices saw sharp increases during the past week (as did the cash market in general), with the Marcellus (northeast Pennsylvania) rising a whopping 78 cents from Nov. 30 trading to average $5.30 this past Tuesday. The other Marcellus section (southwest Pennsylvania-West Virginia) placed second with an increase of 38 cents to $4.76.

Despite a 2-cent daily loss, Fayetteville continued to lead all other shale plays at $4.47 Tuesday, with Gulf Coast/Midcontinent play gains following all the way down to $4.31 by Granite Wash.

What was rather surprising was that as of Monday all three Rocky Mountain shales in SPI (Green River Basin, Piceance Basin and Uinta Basin) had fallen 9-11 cents in the previous five days of trading, and a day later Green River was still down a penny to $4.17 from a week earlier while Piceance and Uinta had realized weekly gains of a nickel and 4 cents to $4.16 and $4.12, respectively.

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