LITTLE ROCK — Drilling in Arkansas’ Fayetteville Shale has slowed to a pace that reflects modest market prices for natural gas, prices that aren’t expected to rebound anytime soon from 2012’s lows, analysts say.

“It is likely Fayetteville has peaked,” said Andrew Coleman, managing director of the exploration and production team for Raymond James and Associates Inc.

“What we are seeing ... after five years of really good natural-gas prices, is companies scale back activity,” he said.

The number of drilling rigs operating in Arkansas has fallen almost 50 percent since last year. At the beginning of 2012, there were 33 rigs drilling for natural gas in Arkansas. On Friday, there were 17, according to Baker Hughes, an oil-field service company.

The Arkansas Oil and Gas Commission also has seen a decrease in new well permits issued to companies drilling in the shale, the commission’s Deputy Director Shane Khoury said.

There are about 8,538 producing natural-gas wells statewide, Khoury said. Of those, 4,406 are in the Fayetteville Shale, which extends across several counties in north-central Arkansas.

Khoury said he’s not sure whether drilling for natural gas has reached a leveling-off point yet.

“I’m not sure if this is the level plain. It very well could be,” he said.

The gas-extraction procedure known as hydraulic fracturing, or fracking, for natural gas began in the Fayetteville Shale in 2004. Since then, energy companies have spent billions of dollars in the state.

Some state and local agencies receive funding from the state’s severance tax on natural gas. Last year, revenue from the tax fell about 31 percent from the previous year. The tax generated just under $40.7 million in 2012, compared with $58.9 million in 2011.

More than $12.7 billion has been invested in the Fayetteville Shale since 2008, according to a study released last month by the Center for Business and Economic Research at the University of Arkansas at Fayetteville.

Kathy Deck, director of the center, said less spending and activity in the Fayetteville Shale this year is “consistent with what we saw last year and with public announcements companies have made.”

“These sustained low prices mean companies don’t want to hurry to get the gas out of the ground. They want to optimize their time.”

Houston-based Southwestern Energy Co. said in December that it expects to spend about $830 million in the Fayetteville Shale in 2013, compared with $1.02 billion that it projected it spent in 2012.

Also, Southwestern Energy and BHP Billiton lowered the value of their natural-gas assets last year, a move that was attributed to lower natural gas prices.

The value of BHP Billiton’s Fayetteville Shale assets, which the Australian company bought from Chesapeake Energy in 2011, was lowered by $2.84 billion.

Southwestern Energy took two separate write-downs - $441.5 million and $935.9 million - on its natural-gas and oil assets, but did not say how much of that was in the Fayetteville Shale.

In response to questions about its drilling activities, Southwestern Energy referred to its latest investor presentation and news releases. The company’s most recent document, released Jan. 8, detailed plans to drill between 385 and 390 wells in the Fayetteville Shale this year.

BHP Billiton has two drilling rigs operating in the state, said Danny Games, spokesman for BHP Billiton.

“We remain steady with our development plans which take into account current market conditions,” he said in an e-mail.

Jeffrey Neu, spokesman for XTO Energy, a subsidiary of Exxon Mobil Corp., said his company is operating four rigs in the shale area.

“XTO invests for the long term and has a long-standing practice of continually reviewing all assets for their contribution to our operational and financial objectives,” he said in an e-mail.

FLAT GAS PRICES

The decline in drilling in the Fayetteville Shale is tied to persistently low natural gas prices, and analysts say activity in the Fayetteville Shale is going to be dictated by the market. If natural-gas prices rise, drilling will pick up again.

“Companies will slow down when gas prices go down and ramp up when prices go up,” said Fadel Gheit, senior analyst with Oppenheimer and Co. Inc.

A few more drilling rigs might be added later this year, but the number won’t exceed four rigs, said Randall Collum, managing director of supply analytics for Genscape Inc.

“I think Arkansas activity will pick up a little, but I don’t think it’s going to be a great amount,” he said.

Warm weather and the amount of stored natural gas have kept natural-gas prices from rebounding to the $4 per million British thermal unit mark that many say will mean more drilling rigs in the Fayetteville Shale, said James Williams, an energy analyst who operates WTRG Economics near Russellville.

“If we would have had a much colder December or even an average cold December, national prices probably would have been [25 cents per million Btu] higher - at least,” Williams said.

“We are going to have more storage than we need in the spring, that means less demand for gas in the summer, so that’s depressing prices,” he said.

Many analysts forecast natural-gas futures on the New York Mercantile Exchange staying below or right at $4 per million Btu for the next two years.

On Friday, the price for natural gas for February delivery closed at $3.566 per million Btu on the New York Mercantile Exchange. Last year, February futures mostly stayed below $3 per million Btu.

Activity in the shale formation peaked in 2008 when natural-gas prices ranged from $6 per million Btu to $10 per million Btu, and even hit $13.50 per million Btu.

Prices failed to reach $4 per million Btu in 2012, and in April briefly dipped below $2 per million Btu on the New York Mercantile Exchange.

Williams, who doesn’t think prices will stay below $4 per million Btu for two years, said supply and demand will push prices back up.

The U.S. Energy Information Administration expects natural gas to average $3.74 per million Btu in 2013 and $3.90 per million Btu in 2014.

Raymond James and Associates set 2013 forecasts at $3.75 per million Btu in September 2012, but it dropped the average to $3.25 per million Btu this month.

The investment company’s forecast for natural-gas prices in 2014 is a more bullish $3.75 per million Btu.

“If natural-gas prices move up again ... they could see some pickup in activity,” Raymond James’ Coleman said about drilling in the Fayetteville Shale. “I’m just not sure if we are going to get up to the rig count we saw three or five years ago.”

PROFITS MOVE RIGS

Companies have shifted their drilling rigs to shale formations that are rich in liquid natural gas and oil because the liquid resources are trading at higher prices on the market.

“Right now, if you have an oil well to drill versus a gas well, you’re going to pick the oil well because it’s more profitable,” said Williams, the Russellville analyst.

He said natural-gas wells in the Marcellus Shale, which stretches from Ohio to Pennsylvania and New York, are more profitable because deposits in that formation include liquids.

Analysts said wells in the Marcellus Shale are more profitable because they produce more and are closer to highly populated areas.

The rate of return on a natural-gas well in the Marcellus Shale is more than 40 percent, Coleman said, while in the Fayetteville Shale, the return is between 15 percent and 20 percent, when prices reach $4 per million Btu.

“God forgot to put liquid in Fayetteville and other plays, so the only place where gas drilling is attractive is where a lot of liquid is associated with the gas,” said Gheit, the Oppenheimer analyst. “This is the hand they are dealt.”

Front Section, Pages 1 on 01/20/2013