The checkbook will always be a quick and handy tool for growing reserves, and big M&A deals will always garner headlines. But it’s organic growth through the drillbit that keeps the whole thing going. An example would be what Southwestern Energy has cooking in the Fayetteville Shale, an up and coming unconventional gas play the company pioneered.

Earlier this month Southwestern reported that its gross production from the play on the Arkansas side of the Arkoma Basin had grown to 30 MMcf/d, up 50% from 20 MMcf/d on May 1 (see Daily GPI, June 14). The play has caught the attention of other producers, such as Chesapeake Energy, Edge Petroleum, Noble Energy, XTO Energy, KCS Energy [to be acquired by Petrohawk Energy Corp. (see Daily GPI, April 24)], Maverick Oil & Gas, privately held Hallwood Petroleum LLC, Contango Oil & Gas Co., and Shell, the first major to enter the play (see Daily GPI, Jan. 18).

While some of these companies, Chesapeake for instance, have acquired significant acreage in the play, they’ve got a good ways to go to catch up with Southwestern. The company has been learning through trial and error since it first started sniffing around north-central Arkansas in 2002. “We spent nine or 10 months on it before we ever leased the first acre,” remembered Southwestern CEO Harold Korell. In that time, Southwestern did its geological and geophysical homework, he told NGI.

“We knew where to go and we made a very strong effort for a year and a half before we drilled our first well.” That was in mid-2004 when pilot drilling in the Griffin Mountain field in Conway County began. There the shale is 250 to 300 feet thick and the goal of the first wells was just to see if it was going to give up any gas. Southwestern used nitrogen foam fracs on its first vertical wells and got gas out of the ground.

The Fayetteville Shale is Mississippian age, just like the Caney Shale on the Oklahoma side of the Arkoma Basin and the Barnett Shale of North Texas where slickwater frac’ing technology is the most popular. As it continued to search for the best way to develop and produce the Fayetteville play, Southwestern did its first slickwater frac on a Fayetteville vertical well in 2005. “The idea was we wanted to do enough of one kind of a frac job to get a baseline,” Korell said. “Then we would change and do something else, so we did two slickwater frac jobs on vertical wells.”

And the experiment was a disappointment. One of the wells was “low average” and the other was “very poor.” It was decided that nitrogen foam was the way to go after all. “We just discontinued slickwater fracs, even though that’s what was working down in the Barnett in the Fort Worth Basin. We said, ‘Well, maybe these shales are different.'”

So Southwestern proceeded with its drilling plans, moving to horizontal wells and multistage frac jobs, three or four stages in a 2,000-foot lateral section. The company was getting good results with foam fracs and was reluctant to experiment further. That was until pressure differences in the southern part of the play started causing problems with pumping out the frac job. It was time to experiment with slickwater again.

“Lo and behold, when we did that we got kind of interesting results,” said Korell. “The slickwater frac had lower initial production rates than the foam fracs, but as we monitored the performance over time the decline rate was shallower, which, in other words, might lead you to believe you were going to get more ultimate reserves with the slickwater.”

So it was back to the slickwater fracs, and Korell said that since then Southwestern has completed slickwater jobs that yielded initial production even higher than what the company had been seeing with foam. Costs of recently completed slickwater horizontal wells have averaged about $2.1 million each, a little higher than the company and Wall Street would like, but improvement is expected.

“We’re learning as we go, which is what we knew would happen from the day that we began this. Like any of these plays, you go through a learning process,” Korell said. Experimentation continues with Southwestern adding cross-link gel to some of its slickwater fracs in an effort to open the fractures wider and carry sand down farther. The company also is experimenting with well perforation techniques.

Getting in early, scoping out the play and learning how to make it work has put Southwestern steps ahead of its competitors in the Fayetteville, Korell said. “Really, the first player of any significance to compete with us was Chesapeake, who went out and made a major land play. In order to do that they had to pretty much go into areas where we weren’t leasing.” After leasing acreage outside of Southwestern’s rectangular area of concentration, Korell said Chesapeake picked up acreage among its own, but paid a lot more per acre to do so.

Southwestern was able to build a position of about 880,000 net acres in the Fayetteville because it got in early and quietly acquired leasehold before beginning to drill, which would have required a regulatory filing that would have alerted other producers to the play, explained Amir Arif, a research analyst with Friedman Billings Ramsey who follows Southwestern. He said Southwestern has tied up some of the better acreage at more attractive prices and terms than what has been available to latecomers.

There are other companies now drilling in the area of the play staked out by Southwestern. “They’re at the very beginning of the learning curve is the nicest way to say it,” Korell said of their efforts to date. “They’re encountering a lot of well problems; they’re having a lot of difficulties. They haven’t mastered how to do it.”

Korell credits some of Southwestern’s early but continuing success on the fact that the company built some of its own rigs specifically for the Fayetteville play. The built-for-purpose rigs are intended to be put up and taken down quickly. They require half the time and half the trucks to move from one drill site to another. “The mobile nature of these rigs, the fact that we can rig them down, rig them up is real important,” Korell said. Drilling is faster, too. For instance, a lateral that would have taken 15 to 20 days to drill with one of the company’s older rigs can be drilled in about eight days.

Still, Korell remembers when Southwestern struggled with its first steps, and he knows a lot more work is required to develop the Fayetteville Shale to its full potential.

“When we began drilling in the area with the rigs we initially had, we had a lot of drilling problems, and our wells were costing more than they should,” he said. “We had a lot of down time on rigs. We’re kind of seeing that among some of the other operators as they’ve picked up equipment that may not be very suitable, and then there’s the learning curve for their engineers and geologists to sort it out.”

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