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Arkansas Energy Forum Newsletter
October, 2012
In This Issue
Fayetteville Shale Exceeds Expectations
Randy Zook, Executive Director,
Arkansas State Chamber of Commerce
Featured Article

Randy Zook
Randy Zook, Executive Director, 
Arkansas  State
Chamber of Commerce 
"The Fayetteville Shale has been a very positive development during a period when we desperately needed it to keep our economy as solid as possible."

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Dave Delie, President
Welspun Tubular

"The benefits of the [Keystone XL Pipeline] project are numerous." 

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Randy Zook: Fayetteville Shale Far Exceeds Expectations


By Susan Dumas and Amy Glover Bryant    


        In the summer of 2008, Randy Zook was stepping in to his role as the new Executive Director of the Arkansas State Chamber of Commerce while Arkansans were slowly starting to grasp the potential impact the Fayetteville Shale might have on the state's economy and its people.

        It was also in 2008, that the University of Arkansas's Center for Business and Economic Research and its Director, Kathy Deck, released a study anticipating the potentially huge impact the Shale play would make not only on the counties included in the Fayetteville Shale, but the entire state of Arkansas.

        In June, 2012, the Center released a follow-up study showing that while the economic impact expectations the Center predicted were high, the actual impact was higher.

        According to the 2008 survey, exploration and production companies planned to invest almost $9.9 billion in Fayetteville Shale activities from 2008 to 2011. According to the 2012 survey, companies invested more than $12.7 billion during that time - 29 percent more than had been planned.

        "The Fayetteville Shale has been a very positive development and a very powerful influence on our state's economy during a period when we desperately needed it to keep our economy as solid as possible," said Zook. "And it has all been done without one nickel of economic development incentive or rebate from the State of Arkansas or its economic development agencies. The natural gas companies have done it 100 percent independent of financial support, tax rebates or tax incentives from the State of Arkansas."

        Among the gains Arkansans have experienced are royalties being paid out to more than 28,000 owners throughout every county in Arkansas; more than $100 million in tax revenues given to the Arkansas Highway and Transportation Department for road improvements and maintenance; between 8,000 and 10,000 new jobs being created as a direct impact of the natural gas industry and countless more as an indirect affect of the drilling.    

        "The impact the Shale play has had on the lives of Arkansans is enormous," said Zook. "We want people to understand that the current severance tax is yielding significant amounts of money for road and street projects in every county in Arkansas not just in the nine Arkansas counties included in the Fayetteville Shale area [Cleburne, Conway, Faulkner, Franklin, Independence, Jackson, Pope, Van Buren and White]."

Making the Nation's Pipelines Possible, Right Here in Little Rock 

By Susan Dumas and Kate Chagnon


        Dave Delie, President of Welspun Tubular, has been busy leading the growing pipe production company since he took the helm of the company's only US location in 2011. Recently, he took some time to share with us some details about the organization, how it came to Little Rock, and his thoughts on the Keystone XL Pipeline project.

        Delie grew up and attended college in Pittsburgh, where he earned a bachelor's degree in electrical engineering and a master's degree in industrial engineering and engineering management. He got his start in the pipe industry while working with US Steel in Pittsburgh, eventually specializing in large diameter pipe.

        'Large diameter' pipe is generally 16" or larger in diameter, and it may be seamless or welded. Seamless pipe has heavier walls and is generally used in deep wells, while welded pipe has thinner walls and larger diameters, and is typically used for gas and oil transmission lines that cover long distances, like the Alaskan Pipeline. A pipeline infrastructure is similar to a tree, with a trunk and main branches having the largest diameters of pipe and smaller branches consisting of gradually smaller diameter pipe carrying gas to the end users.

        In Little Rock, Welspun's current facility produces spiral-welded large diameter pipe. The company is developing a new plant adjacent to the current operation to build smaller diameter pipes as well. Phase 1 of this construction project will be completed in December, 2012. Welspun will invest about $100M in the new facility, which will produce 175,000 metric tons of pipe per year. This level of production is above average in comparison to the rest of the industry. Many mills are "single-coil feed" mills, which produce about half of what Welspun's new high-speed mill will produce. The currently-existing operation in Little Rock employs 600 people, and it has so many orders for production at this time that the plant must work 24 hours a day, 6 days a week, for the next year in order to complete current orders. Delie believes that Welspun products are in high demand because of the company's excellent reputation.

        Welspun started out 27 years ago as a textile company in India, and the business has grown phenomenally since then. First, it became larger within the textile industry, making ties to Arkansas due to a large order from Walmart early on in the company's history. This order helped Welspun break into the US textile market, a move which has proved successful. Welspun is now the #1 producer of bath towels sold in the US, which are sold by major retail stores such as Target, Sam's Club, Walmart, Costco, Kohl's, and Bed, Bath & Beyond under brand names including Nautica and Polo. The company is also the #4 producer of bedding sold in this country. A few years ago, Welspun acquired Christie Towels, which is one of the most famous towel manufacturers and produces towels for the Queen of England and is the sole supplier of towels to Wimbledon.

        About 10 years ago, in the interest of growing the business, Welspun built a pipe plant in India, a presence which soon expanded to 4 spiral plants, multiple other kinds of mills and a plant that manufactures steel, just in India alone. Welspun also has a plant in Saudi Arabia and is considering other sites across the globe. In 2009, the company saw its first date of production in the US at its only American site, located in Little Rock, Arkansas.


 DELIE continued below 

Zook from above
Randy Zook
        According to the 2012 survey, from 2008 to 2011, almost $2 billion in state and local taxes from permit fees and severance, property, income, sales and other taxes were collected as a result of Fayetteville Shale activities. This is higher than the $1.2 billion projected in the 2008 study, following higher than projected expenditures by companies in the area and higher total employment.

        "That's big," said Zook. "We are also pleased that the salaries of the almost 10,000 Arkansans directly employed by the natural gas industry is almost double the state average."

        Employment growth has been in areas and industries that may or may not spring to mind when one thinks of natural gas drilling. In addition to obvious jobs on and around the drilling platforms, companies such as American Railcar Incorporated in Paragould have hired approximately 1,000 people to meet a record number of orders they have received for building rail cars to transport sand all over the country for fracking. Arkansas has also seen the development of sand mines in North Central Arkansas and countless trucking firms that are hauling fluids and sand all over the state. "These are giving terrific jobs to lots of Arkansans," said Zook. "You also have to consider the number of people who are seeing increased business in motels and the increased business directed toward lawyers, doctors, dentists, fast food companies and the like."

        "This industry has had a dynamic influence on the state of Arkansas," said Zook. "I am very optimistic about the future of this industry in Arkansas. We also have a growing opportunity in South Arkansas for both oil and natural gas. The natural gas industry has invested close to $150 million in South Arkansas. For the last four years these companies have made a huge investment in our state. It is our responsibility to make sure we nurture this industry and make it as attractive to do business in Arkansas as in other states. Not punish them for their time and investment."


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Delie from above

        When asked why Welspun chose Arkansas for its first US operation, Delie said, "No amount of incentives can make a bad location good." He went on to say that Little Rock offers a central location in this country with intermodal transportation options, including river, road and most importantly, rail access. In the large diameter pipe business, hundreds of thousands of tons of raw materials are needed to produce a finished product that is also extremely heavy and difficult to move. River access is especially helpful in bringing raw materials to the plant, and rail access is key to shipping out pipe orders. In addition to ease of access, Little Rock also offered a large site, which can be tough to find in bigger cities. Lots in many cities ranged from 60-80 acres, about the size that one pipe-producing plant requires, not counting storage space. Welspun's 789-acre site in Little Rock offers a generous amount of room to grow and plenty of storage space, which the company is pleased to make available to its customers in addition to satisfying its own storage needs.

        Moving on to the topic of the Keystone XL Pipeline, Delie shared his thoughts on this project and his take on what the pipeline means for the gas industry and America's economy. First, some background information: The original Keystone Pipeline was built in 2007-2008, then TransCanada made plans to build another pipeline parallel to the Keystone called the Keystone XL. This new pipeline would be a 650-mile line stretching from the "Tar Sands Region" in western Canada to Houston, Texas. However, pipelines that cross the US must receive approval from the President.

        When the proposal for the Keystone XL was submitted, approval was expected by December 2010. But this approval has still not been received. Environmental opposition has stalled it until at least after the election later this year.

        As Delie states frankly, "Canada is going to recover that oil in some way or another." Oil and gas make up 25% of the Canadian GDP, so it's essential to their economy. Luckily for the US oil and gas industry, a stretch of the Keystone XL, the Gulf Coast Pipeline, has been approved. It consists of 485 miles of the originally planned route, running from Cushing, Oklahoma to Houston, Texas, an area that is currently bottlenecked much of the time. And luckily for Welspun, TransCanada has already purchased all the pipe for Keystone XL, even though the project is on hold at the moment.

        Hopefully, the waiting period on this project will end soon. Delie warns, "This oil's getting to market one way or another. Right now, it's moving mostly by train rather than by pipeline, and moving oil by train is much more dangerous than it is by pipeline. And it's much more costly."

        Overall, Delie's outlook on the Keystone XL Pipeline is optimistic. "The benefits of the project," he says, "are numerous." It will create many high-paying jobs; states will receive a continuous source of funds from it; it will be funded by the private sector; and it will give the US an edge on the global market due to a cheaper energy source than what is available in some other countries. "Cheap energy is going to give the US a competitive advantage. If our labor rates aren't competitive with India or China, but we do have a cheaper energy market - that's what's going to give us an advantage to help keep manufacturing jobs. Not everybody can go to college and get a high-paying college job. We do need manufacturing jobs. We need jobs for the general population that provide good wages, that provide benefits, and can support a family. And these are the kind of jobs that this pipeline and other future pipelines would create."


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