July 2019 Magazine

Bottoming Out: Arkansas’ Oil And Natural Gas Production On The Decline

oil

by Angela Forsyth

Nationwide, oil and natural gas production has been strong in 2019. The U.S. Energy Information Administration (EIA) reported in its June Short-Term Energy Outlook that U.S. crude oil production reached a record 11.0 million barrels per day (b/d) in 2018. The EIA forecasts that U.S. production will increase by 1.4 million b/d in 2019 and by 0.9 million b/d in 2020, with 2020 production averaging 13.3 million b/d. The EIA also forecasts that U.S. dry natural gas production will average 90.6 billion cubic feet per day (Bcf/d) in 2019, up 7.2 Bcf/d from 2018, and expects natural gas production will continue to grow in 2020.

It seems to be all good news when it comes to oil and natural gas numbers across the United States, but that doesn’t necessarily hold true for Arkansas. 

Unfortunately, the state’s numbers don’t mirror the success happening throughout the country. In fact, Arkansas drilling numbers have fallen to almost a complete standstill. Fewer than 15,000 barrels of crude oil are being produced each day compared to the millions of barrels produced by the rest of the country. Natural gas production is only slightly better: 1.5 Bcf/d is produced in the state, a minute percentage compared to the 90.6 Bcf/d produced in the country. 

There was a time when things were looking up in Arkansas. Before 2009, there were a few spikes in the price of natural gas which proved profitable for producers. They continued to drill at high levels until around 2015, even after the price of oil had dropped. 

Energy economist James L. Williams of WTRG Economics explains the rise and the decline. 

“What led to rapid development and employment was the Fayetteville Shale natural gas development in Conway and north of Conway,” he says. “Production increased 3 Bcf/d from just .5 Bcf/d in a relatively short time, in less than a decade. That was drilling mainly done by SEECO, BHP and XTO. Oil prices had gone up to tremendously high levels in early development days, but then dropped below $4 per 1,000 cubic feet (Mcf) when it had once been at $10-12 Mcf.” 

Williams explains that producers continued to drill years after prices had fallen in order to keep the leases on their lands. However, when the prices dropped and were hovering at $3 Mcf, drilling was no longer worth the investment. Additionally, the type of gas found in Arkansas is a dry natural gas, which is not as valuable as wet natural gas. 

Fayetteville Shale has stopped all drilling since 2016 across its wide strip of northern Arkansas, even though estimates say gas reserves can last until 2050. In 2018, mounting debt and falling prices pushed Houston-based Southwestern Energy to sell its Fayetteville Shale assets to Oklahoma City-based Flywheel Energy for nearly $2.4 billion. Other companies have followed Southwestern’s lead and have sold their assets to smaller companies as well. 

Following the halt in drilling at the majority of Arkansas’ wells, it is expected the state lost thousands of jobs between 2009 and 2012. Williams says he is doubtful the oil and natural gas economy in Arkansas will return to where it was a decade ago. 

“It isn’t economical to drill here because of the price,” he notes. “If the gas price doubled we might see some activity in the Fayetteville shale.” 

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