Arkansas Earthquakes Could Be Result of Shale Gas Production (SWN, CHK, BHP)

More than 700 mild earthquakes have shaken an area of north central Arkansas in the past six months. State geologists aren’t sure if the quakes are part of a natural swarm, such as the state experienced in the 1980s, or if they are related to natural gas production in the Fayetteville shale gas play.

The Arkansas Geological Survey does not see a correlation between production wells and the quakes, but it’s not so sure about the injection wells that are used for long-term storage of the wastewater generated by the hydraulic fracturing procedures used to extract the gas. Water used for the fracturing is recycled and re-used several times before becoming too dirty for further use. At that point, it is injected under high pressure into a well where it is intended to be stored essentially forever.

Local residents believe that the injection wells are causing the quakes, and the state has issued a six-month moratorium on drilling new injection wells while it studies the issue. Four companies operate current injection wells, including a subsidiary of Southwestern Energy Co. (NYSE: SWN) and a subsidiary of Chesapeake Energy Corp. (NYSE: CHK), which recently sold all its Fayetteville shale assets to BHP Billiton (NYSE: BHP) for $4.75 billion.

While it may seem far-fetched to believe that the injection wells are the cause of these earthquakes, there is precedent. In late October of 2008, the Dallas-Fort Worth airport (DFW) experienced a number of quakes in an area where no earthquakes had ever been recorded before. A team of researchers from the University of Texas at Austin and Southern Methodist University analyzed seismograms of the DFW quakes and concluded, “On the basis of time and spatial correlations, we conclude the DFW sequence may be the result of fluid injection at the [salt water disposal] well, but we are puzzled as to why earthquakes occur at this particular location but not near other [salt water disposal] wells in the region.”

The Dallas-Fort Worth area is home to the Barnett shale gas play, the first major shale gas deposit to be exploited in the US. There are more than 200 salt water disposal wells actively in use in the area. Only a couple of locations experienced any earthquake activity, and the ground movement was quite small — less than an inch after the largest of the quakes, which registered a magnitude of 3.3. The recent quakes in Arkansas have also been relatively minor, with the exception of a 4.7 magnitude quake that occurred on February 27^th.

In the DFW case, once two injection wells near the airport were shut down, the quakes stopped. No injection wells have been shut-in yet in Arkansas.

The Arkansas quakes are probably not strong enough to cause any damage to the pipelines and gathering systems in the area. And while that is definitely a concern for residents, a more compelling concern is what is causing the quakes. If it turns out that the injection wells are at least a contributing factor, there are likely to be demands that the injection wells be shut-in.

If the injection wells are shut-in, then the wastewater will have to be disposed of either in evaporative pits or trucked to some other location for disposal. Both methods are more costly and potentially more environmentally damaging than the injection wells.

Paul Ausick