Natural Gas Production Cut in Arkansas

A local TV station announced today that Chesapeake Energy will cut natural gas production by 400 million cubic feet a day. Chesapeake is one of the major companies that have come into Arkansas to take advantage of the huge Fayetteville Shale Play that runs through a significant amount of the central part of the state.

The activity related to the shale play has buffered the effects of the economic downturn that has plagued the rest of the country, with Arkansas one of the four states barely effected by the depression. Chesapeake is involved in natural gas extraction in Louisiana and Texas as well as Arkansas. The company contracts out all drill and pipeline work and owns no fracture equipment themselves.

Watching the gas boom play out has been interesting. Chesapeake hired subcontracting companies to get the job done, all the while enjoying the distance from those companies when complaints about fast and crazy tank trucks dominated the roadways in the area. (One fast and crazy driver walked away from his truck that had rolled out of control onto a car, killing two children and seriously injuring the parents.) The political leaders of the area took to shining up to Chesapeake, who hired a PR crew to maintain a constant presence in town. Several lavish, catered events were arranged to pass on information to landowners that had leased mineral rights to Chesapeake. The company sponsored contests, funded several grants, and even bought fireworks for several of the small towns in the area to use for 4th of July celebrations.

But, rumors started punching pins into the cheery balloon image Chesapeake invested heavily in getting out there. Chesapeake may have signed the mineral rights leases, but it was the subcontractors that paid the royalties to land owners. Then, a few of those subcontractors suddenly go bankrupt and head out of town faster than they came in. More than a few cases involving the leases have landed on the civil court docket. Out of nowhere, and as detailed as the above mentioned story, subcontracting companies sued Chesapeake over non payment of millions of dollars. And, Chesapeake sent letters to those small towns saying they will not be buying fireworks, no more fancy catered events, concerts or contests, and very few Chesapeake pickup trucks seen in the area when they used to be on every corner.

Though the boom wasn't welcome in all circumstances, the welcome mat Arkansas rolled out to the gas companies was a wise decision in terms of protecting the state from the national economy. But the boom hasn't been around long enough to produce the residual industry and income projected yet. With one of the major players floundering, Arkansas may end up on the wrong end of the stick when it's all said and done.

This is an issue that needs to be carefully monitored, and when answers aren't forthcoming, they need to be demanded.