WONDERVIEW -- Across the giant Fayetteville shale gas field here, country roads that were clogged by truck traffic just a few years ago are empty again. Once aglow at night from the bright lights twinkling on drilling rigs, the roads are dark under the starry Arkansas sky.
Virtually all the remaining rig and frack crews belong to one company: Southwestern Energy, a stubborn believer in the future profitability of natural gas.
"I'd rather have the gas to myself with no one following," Steven Mueller, Southwestern's chief executive, said last month as he watched his rig hands pull pipe and mud from a new natural gas well here in northern Arkansas.
Mueller hardly needs to look back. With the price of natural gas plunging along with oil in recent weeks, virtually no other company is following Southwestern's lead. Twelve of the 13 rigs still drilling among the chicken farms and cattle ranches are Southwestern's. Some 45 other rigs -- once operated by giants that included Chesapeake Energy, BHP Billiton and Exxon Mobil's XTO Energy a few years ago when natural gas prices were more than twice as high -- are gone.
"Most of the companies -- on the pure economics, oil versus gas -- think we are crazy," Mueller acknowledged with a thin smile. "I mean, when I walk in the room it's like, 'They're crazy. They haven't gone to oil.'"
After so much hype and billions of dollars in investment, the nation is deluged with gas and not enough pipelines to carry the bounty to consumers. One energy company after another has written off or slimmed down its investments in Arkansas, Texas and Louisiana.
But not Southwestern Energy, a Houston-based company that has risen from being the nation's 40th to become the fourth-largest producer of natural gas. Southwestern's discovery of the Fayetteville shale field a decade ago, and its quiet leasing of the heart of the field at bargain prices, made the company a power. Since 2007, Southwestern's Fayetteville production has risen 800 percent, and its reserves are up 570 percent. It still drills more than 30 wells every month here.
And in October, Mueller doubled down on natural gas by committing $5 billion to develop 413,000 acres of reserves in the Marcellus and Utica shale fields of West Virginia and Pennsylvania previously owned by Chesapeake, raising Southwestern's debt considerably.
Wall Street analysts have generally been skeptical about the recent deal, thinking Mueller paid too much. Chesapeake's shares surged after the deal was announced and Southwestern's dropped. But that is not unusual for Southwestern, whose share price is considerably lower than it was five years ago.
Undeterred by the skepticism, Mueller signed another deal this month to acquire thousands more acres of a natural gas field in Pennsylvania for $300 million.
"I would like him to prove us wrong but he is an exceptionally, I mean, a very, very stubborn guy," Fadel Gheit, a senior oil company analyst at Oppenheimer and Co., said of Mueller. "Maybe he will be rewarded later. Maybe he will be retired before he will realize his dreams of gas at parity with oil."
Industry experts acknowledge that the company has been effective at cutting costs through efficiencies that also lower the environmental effects of their operations. For example, Southwestern replaces much of the diesel it uses to drive its rigs with natural gas and it pipes water to hydraulic fracturing operations rather than trucking it in. Here in the Fayetteville shale, Southwestern has reduced the average number of days it takes to drill a well from 17.5, in 2007, to 6.7 and lowered the cost of drilling wells by 12 percent.
For Mueller, those kinds of savings make Southwestern profitable -- even with the low price of the commodity he produces. For the first nine months of the year, the company reported adjusted net income of $616 million.
Mueller, a geological engineer, has displayed a lone-wolf streak since the earliest days of his career.
He is looking at the data but with a different set of lenses that see gas with upside demand and price potential.
In the case of gas, "the situation is not nearly as bad as the industry thinks it is," he said. "I may be wrong, but on the other hand, I am looking at it from a different angle and I think the odds are in my favor. Is that stubbornness or courage? I don't know."
Mueller and Southwestern Energy also stand apart when it comes to the environment. In September, Southwestern was the only U.S. firm to join five European, Asian and Latin American oil and gas companies that signed on to a voluntary United Nations-backed program to monitor and disclose methane emissions, as well as invest in technologies to control the greenhouse gas.
Working with the Environmental Defense Fund, Southwestern has offered data about emissions from their operations and has organized other domestic companies to commit to reduce methane emissions.
More immediately, Mueller and Mark K. Boling, Southwestern's executive vice president in charge of environmental policy, pledge that by the end of 2016, their company will be "net freshwater neutral," meaning that the company will compensate for the freshwater it uses to hydraulically fracture shale rock by restoring, purifying or processing an equal amount of water in nearby watersheds. Working with the Nature Conservancy and the Arkansas Canoe Club here, Southwestern recently contributed $2 million to restore the eroded banks of the Little Red River to improve water quality and fish habitat.
Nevertheless, Southwestern is not free of blemishes. In a new report by the Environmental Working Group, two Southwestern gas wells in northeast Pennsylvania were identified among a list of 261 "monster wells" that were fracked from early 2010 to the end of 2013 with more than 10 million gallons of water each. The average for Pennsylvania is 4.3 million gallons of water per fracked well, analysts for the group said.
Mueller argues that natural gas has a bright future, given that it is increasingly replacing coal for utilities. He says the day will come that foreign manufacturers will see the low price of U.S. natural gas as so attractive that they will move their plants en masse to the United States, building a huge new market.
Other analysts say much depends on how quickly Washington approves the building of expensive liquefied natural gas export terminals, which has so far been a painstaking process. Only a few companies are betting on natural gas besides Southwestern, including smaller gas producers like Range Resources and QEP Resources.
"We started out being alone," Mueller said, while traveling in a natural gas-fueled van through the Fayetteville shale, "so we're used to that."
SundayMonday Business on 12/28/2014