Fayetteville leases 75% held, says Southwestern

By OGJ editors
HOUSTON, Nov. 12
-- Southwestern Energy Co., Houston, has proved 75% of its lease position in the Fayetteville shale in the Arkansas Arkoma basin, where its gross operated production exceeded 1.5 bcfd of gas in the quarter ended Sept. 30.

The company expects to have captured all of its acreage by mid-2012.

Southwestern has averaged 13 rigs in the play, down from 15 in the first 9 months of 2010, and expects to run 13 or fewer rigs there in 2011. It takes 8-9 rigs to keep production from declining.

Drilling in 2010 totaled about 500 operated wells and around 100 nonoperated wells at 25% interest. The 2011 budget is not yet set but likely will be smaller than 2010 spending.

Southwestern needs to have drilled 11 wells by the end of 2011 to capture 156,000 acres of federal land in the north. It drilled three of the 11 in the third quarter of 2010. It also has undrilled acreage on the west side of the play.

The company’s net production was 1 bcfd in the quarter ended Sept. 30, in which Southwestern completed the play’s highest-rate well. Harlan 9-10 No. 1-12H, in Cleburne County, went on line at 8.7 MMcfd of gas after a nine-stage frac in a 3,874-ft lateral. The rate was 5.7 MMcfd after 34 days (see map, OGJ, Dec. 22, 2008, p. 32).

Southwestern has been negotiating contracts with utilities at indexed prices, terms longer than 10 years, and opt-out language.

Spacing issues
Based on the wells drilled to date, the company expects that 10-12 wells/sq mile are needed to effectively drain the reservoir. That works out to 65-acre spacing, at which the company has more than 520 wells on production.

“Early production performance from recent well spacing tests indicates there are areas of the field that may be economically developed at tighter spacing,” the company said.

“At this time we have confirmed that 20% of the roughly 600,000 net acres drilled to date can be drilled at 30 to 40-acre spacing; approximately 40% can be developed at 65-acre spacing; and the remaining 40% requires additional results to determine if development on tighter spacing than 65 acres is warranted,” the company said.

Horizontal well length averaged 4,503 ft in the quarter.

Of 145 Fayetteville wells placed on production in the quarter, 40% were the first wells in their respective square mile and 25% were drilled to test tighter well spacing.

In the third quarter 36 wells were spacing tests that averaged IPs of 3,148 Mcfd, 58 first wells on sections averaged 3,004 Mcfd, and 51 typical 65-acre-spaced wells averaged 3,596 Mcfd.

Southwestern said it has evidence its Fayetteville recovery factor is going to be well above 40% and that it appears to be rising.

The company detects 5-8% interference with wells on 65-acre spacing and as much as 20% interference at 30-acre spacing, at which wells are still easily economic.

Cost reduction
Southwestern sees further cost cuts ahead in several parts of its Fayetteville operation.

Wells in the shallower northern part of the play are 2,000 ft or less in depth and cost $2.4-2.5 million. Southern end wells cost $3.5 million at 6,500 ft.

As it moves more into development pad drilling, the company sees drilling days per well declining from the present 11 to 8 and in the next 2 years to as few as 5, which is probably the technical limit.

In about a year the company expects to have built all of the multiwell pads it will need to drill up its acreage. It could gain frac efficiencies in reduced water and sand volumes by experimentation. To use 10% less water saves $50,000-70,000/well, for example.

Southwestern is 18-24 months from having the backbone of its Fayetteville gathering system built out.

The company hopes to apply what it has learned in the Fayetteville to its emerging Marcellus shale development, its 2012 New Brunswick exploration program, and other new ventures.

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