Production from Southwestern Energy Co.'s Fayetteville Shale play in the Arkoma Basin is up more than 13-fold in a little more than a year, zooming from 9 MMcf/d Jan. 1, 2006 to 120 MMcf/d on Feb. 26. Still, CEO Harold Korell is humble about the success.

"It took 18 years before the Barnett Shale was producing 120 MMcf of gas per day; we've had the benefit of learning from the Barnett, obviously," Korell said Tuesday at A.G. Edwards' Energy Conference in Boston.

Southwestern holds 892,000 net acres in the Fayetteville, which is equivalent to about 1,400 square miles. Success today is largely attributable to careful planning during the early days, before the Fayetteville was a play. "The only reason we were able to accumulate this position is that we generated this idea and this whole concept and pretty much had a two-year running start...," Korell said. "It was a complete two years before any competition could get into the area."

But before acquiring leasehold Southwestern spent nine or 10 months in 2002 doing a full geological study of the basin. The company's first well, a vertical well, was drilled on the western side of the play. Later, operations migrated to what is now the core area, a "whale-shaped" zone solidly in the eastern half of Southwestern's holdings.

As of Feb. 26, Southwestern has drilled and completed 204 wells in the Fayetteville, of which 124 are horizontal, in 30 separate pilot areas in eight counties. Korell said the company plans to drill 400-450 horizontal wells in the play this year. At average ultimate production of 1.4 Bcf gross per well and 80-acre spacing, the core area has the potential for 8,000 wells, yielding an ultimate recovery of about 11.2 Tcf gross.

Southwestern's projected capital spending program for 2007 is up significantly from last year, to $1.341 billion from $942.4 million. More than 80% of exploration and production capital is allocated to drilling, and the company said it plans to spend $875 million in the Fayetteville Shale play alone, an amount equal to 65% of the 2007 capex budget and 93% of last year's capital spending.

Other metrics are up as well. Southwestern is projecting a steep rise in 2007 production, to 105-110 Bcfe from 72 Bcfe in 2006. Reserve replacement in 2006 was 505%, up from 450% the year before. Earnings were up as well, to $415 million from $346 million in 2005, but so were costs, and sharply. Finding and development costs last year were $2.10/Mcfe, up from $1.51/Mcfe in 2005. At the end of 2006 Southwestern had 1.026 Tcfe of reserves, 95% gas.

More than half, 56%, of Southwestern's reserves are in the Arkoma Basin; East Texas accounts for 37%; the Permian Basin 5% and the Gulf Coast 2%. Arkoma and East Texas are nearly tied in production at about 32 Bcfe; the Permian Basin produced 5.8 Bcfe and the Gulf Coast 2.6 Bcfe, based on 2006 figures.

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