Shell Buys Into Fayetteville, Ark. Natural Gas Play

DALLAS, Jan 16, 2006 (Dow Jones Commodities News via Comtex)

Royal Dutch Shell PLC (RDSA) late last year signed a series of deals to begin exploring for natural gas in central Arkansas, marking another sign that Big Oil is increasingly interested in U.S. gas production.

Shell confirmed it had acquired the rights to explore on 70,000 acres in the emerging Fayetteville Shale play and plans to drill its first well this year. It is the first major energy company to enter the field.

Shell's interest in expanding its presence in U.S. fields is part of a turnaround for the world's largest publicly traded energy companies. Years ago, the companies began selling off aging fields and focusing on overseas oil and gas deposits. But high natural gas prices and new technologies are luring them back into under-explored areas such as central Arkansas.

The Fayetteville Shale, like the Barnett Shale near Fort Worth, Texas, is a so-called unconventional resource. There is a large amount of natural gas known to be trapped in the shale, but extracting it economically can be a challenge. Producers typically drill into the shale and fracture the dense rock formations by pumping in water under extraordinarily high pressure, then sucking the gas out.

The Fayetteville field has been dominated by smaller gas producers Southwestern Energy Co. of Houston and XTO Energy Inc. of Fort Worth.

In August, Shell became the first major oil company to enter the Barnett field by purchasing the rights to explore 25,000 acres. In the last five years, the Barnett has skyrocketed from negligible production to becoming one of the top gas producing fields in the U.S. Producers are hoping the Fayetteville field, with similar geology, will follow a similar trajectory.

Shell spokeswoman Kelly Op de Weegh said this was all part of a strategy to increase gas production. "We want to establish a broader position in unconventional shale gas. We believe that provide portfolio diversity and not just short-term growth potential but also long-term growth potential," she said.

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