Arkansas to lease parts of wildlife areas for drilling

LITTLE ROCK Chesapeake Energy Corp. will pay $29.5 million to search for natural gas in two state-managed wildlife management areas. The deal is the company's largest mineral-rights lease ever in Arkansas.

The Arkansas Game & Fish Commission voted Monday to accept the terms of the leases in the Gulf Mountain and Petit Jean River wildlife management areas after taking bids on the opportunity to explore the lands. The leases will allow the Oklahoma City-based company to have access to more than 7,500 acres at Petit Jean River in Yell County and nearly 4,000 acres at Gulf Mountain in Van Buren County.

The leases also entitle the commission to a 20-percent royalty on any natural gas pumped from the sites, money that if it comes in will be used to improve state lands. However, at least one endangered species lives in creeks on land involved in the lease and environmental issues remain a concern as companies explore the state's Fayetteville Shale gas deposits.

"We know it's a huge responsibility and we do not take that responsibility lightly," commission chairman Freddie Black said. "The monetary reward makes it a lot easier. Dealing with a company like Chesapeake, we feel the impact will be minimal, but there will be an impact."

The commission began looking at leasing state lands last year for natural gas exploration in the Fayetteville Shale, a 300-million-year-old deposit across north-central Arkansas, said Loren Hitchcock, a deputy director of the Game and Fish Commission. Chesapeake already holds a $2.9 million lease with the commission on part of the Gulf Mountain WMA.

Several other companies bid on the leases, though Hitchcock said he could not immediately name them.

Hitchcock said Chesapeake will do seismic surveys of the land, then come to the commission to discuss how best to drill for the natural gas there. The commission will work with the company to make sure roads aren't built unnecessarily through large wooded tracts when drilling crews could use frontage areas or already existing roads, Hitchcock said.

The company will face increased restrictions in the basin of the Little Red River in the Gulf Mountain WMA, where the endangered speckled pocketbook mussel lives. The clam-like creature, with a thin dark-yellow or brown shell, was put on the federal endangered species list in 1989.

Hitchcock said federal rules basically banned all development or disturbances near the mussel's habitat.

"It's pretty much hands-off," Hitchcock said.

Danny Games, director of corporate development at Chesapeake, said the company would "not threaten the endangered species there no more than anywhere else." Games said the company carefully tailors drilling sites to avoid erosion or run-off. Drilling requires hundreds of millions of gallons of fluids to break up the shale to release the gas.

Gov. Mike Beebe acknowledged concerns about environmental affects of drilling the wells, whether that meant gouged-out hillsides or contaminating well water. He said money from the commission's lease to Chesapeake, as well as from the state's recently increased severance tax on natural gas, would pay for more oversight by the Arkansas Department of Environmental Quality and the state Oil and Gas Commission.

"There still remains a requirement to be vigilant," Beebe said.

Hunters likely will be the first to notice a change at the WMAs. Black said some hunters would be displaced by the changes, though there wouldn't be any exploration during hunting season.

While the Gulf Mountain WMA is inside the bounds of the region overlying the Fayetteville Shale deposits, the Petit Jean River WMA is in eastern portion of the Arkoma Basin, a proven natural gas region in Arkansas and Oklahoma.

Even before Monday's lease agreements, Chesapeake already held rights to about 1.3 million acres in the Fayetteville Shale at the start of the year. Shares in Chesapeake Energy rose 64 cents in trading Monday to close at $48.93.