Building natural gas reserves in the Fayetteville Shale appears to be high on the wish lists for two Houston-based producers. Leading leaseholder Southwestern Energy Co. said it will spend $1 billion in the coming year to expand its growing gas production in the Arkansas play, and up-and-comer Petrohawk Energy Corp. has added to its stake in the region.

Southwestern, for the second year in a row, said it would invest $1 billion of its total $1.46 billion 2008 capital program in the Fayetteville play. Southwestern is the largest leaseholder in the Fayetteville.

"With 19 rigs currently running in the area, we expect to participate in approximately 475 horizontal wells in 2008 (75% operated), up from approximately 400 wells in 2007," said CEO Harold M. Korell. "Of the planned operated wells in 2008, over 50% will be drilled with lateral lengths greater than 3,000 feet, over 50% will be developed on multi-well pads, and approximately 75% will be drilled with the benefit of our growing 3-D seismic database."

Korell said Southwestern plans to drill about 40 vertical wells to target the shallower conventional reservoirs above the Fayetteville, up from 11 wells drilled in 2007.

"With this planned level of activity, our gross operated production from the Fayetteville Shale area alone could approximate 450 MMcf/d by year-end 2008, up from approximately 300 MMcf/d," a milestone in production that the company achieved earlier this month. In 3Q2007, the independent reported that gas and crude oil production rose to 30 Bcfe, up from 19.3 Bcfe in 3Q2006. By itself, the Fayetteville play reported a four-fold increase in gas output, to 14.7 Bcf, compared with 3.8 Bcf a year earlier (see NGI, Nov. 5).

In the coming year Southwestern plans to allocate a total of $1.33 billion for its exploration and production (E&P) segment, $101 million for its midstream gathering segment and $25 million for its utility business and other corporate purposes.

"With a 35% increase in production volumes built into our plan, in 2008 we will focus on improving per-well results in the Fayetteville Shale and narrowing the gap between our capital investments and our cash flow," said Korell. The CEO said Southwestern in 2008 could make some "changes in our asset holdings...to maximize returns and net asset value per share."

Southwestern also wants to maintain active drilling programs in its conventional Arkoma Basin and East Texas focus areas. In the company's conventional Arkoma Basin drilling program, the producer plans to invest $132 million in 2008 to drill 100-110 wells, including 40 wells in the Ranger Anticline area and 45 wells at its Midway area in Arkansas. The company also plans to invest $122 million in East Texas, where it expects to drill about 40 wells, including 30-35 wells in its Angelina River Trend/Jebel prospect areas. Of these wells, 10-15 are planned to be horizontal wells targeting the James Lime formation.

Southwestern also said it would invest $26 million in various other exploration and "new ventures" projects, including drilling up to three vertical wells targeting the Marcellus Shale in Pennsylvania. In total, Southwestern plans to participate in 650-680 wells in 2008, compared with an estimated 640 wells drilled in 2007.

Meanwhile, Petrohawk said Friday it has completed its purchase of another 24,000 net acres of land in the Fayetteville play from Alta Resources LLC, Contango Oil & Gas Co. and some undisclosed parties. Petrohawk paid $343 million in cash for land that has an estimated reserve potential of more than 500 Bcfe, which is about 50% operated.

Of the total net acreage acquired, Petrohawk estimated that only 11% is classified as proven, with estimated proved reserves of 60 Bcfe. The properties are located in the core of the Fayetteville Shale play, primarily in Van Buren and Conway counties, AR. With the purchase, Petrohawk's total acreage position in the Fayetteville Shale is now about 125,000 net acres.

Earlier this year, the gas-directed independent sold off its Gulf Coast division to, among other things, increase its Fayetteville Shale stake (see NGI, July 2).

At the time, Petrohawk CEO Floyd Wilson said, "We are buying acreage in the fastest growing part of the Fayetteville Shale. We have had notable success there this year, and we've had some of the best wells in the entire play. As we add to our position in this growing tight gas trend, we intend to take advantage of our infrastructure" already in place. He said once the transaction closes, "we plan to really step it up" in the play.

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