Berry Petroleum Expands Rockies E&P Efforts
Berry Petroleum Co. announced two transactions last week that are designed to increase the independent's exploration and production efforts in the Rocky Mountains.
Last Monday, Berry said it would pay $110 million to purchase more than 130,000 acres of natural gas-rich properties in the Niobrara fields in northeastern Colorado from J-W Operating Co. and other undisclosed sellers. The company, as operator, will have a working interest of approximately 52%.
Current production, net to Berry's interest, is 9 MMcf/d, with estimated proved natural gas reserves of 87 Bcf. The acquisition also includes approximately 200 miles of a pipeline gathering system and gas compression facilities for delivery into interstate gas lines. Approximately 10% of the value is attributable to the pipeline and compression systems.
"This acquisition will establish another significant core area of growth for the company in the Rockies and adds a large long-life natural gas producing asset to our predominantly oil-based portfolio," said CEO Robert Heinemann. "We estimate proved developed reserves to be approximately 34 Bcf and believe that development of the assets carries relatively low geologic risk with low development and operating costs."
Through ongoing development, Heinemann said production from the properties is projected to increase more than 15% a year for the next four years. The focus of the development will be infill drilling to 40-acre spacing. "We expect our capital budget for the properties in 2005 to be in the $4 to $8 million range," he said. Upon closing, the Bakersfield, CA-based producer's new company-wide production target for 2005 is in excess of 23,000 boe/d.
The effective date of the transaction is Nov. 1, 2004. Closing of the transaction, which is subject to standard conditions, is expected during the first quarter of 2005. The purchase will be financed by bank borrowings under Berry's existing credit facility.
On Tuesday, Berry announced it had set up a joint agreement with Petro-Canada Resources (USA) Inc. to develop the Coyote Flats Prospect in the Uinta Basin of northeast Utah. Once a defined drilling program is finished, Berry would own half of the 72,000 undeveloped acres. Berry's total obligation under the agreement is estimated at $10.3 million, depending on drilling costs.
Heinemann said the company was buying into one completed well in the Ferron sand that has tested at more than 1 MMcf/d of natural gas and is awaiting pipeline hook-up. "By the end of December, we intend to begin drilling the first of three test wells into the Ferron sand to a depth of approximately 7,500 feet."
Berry also will drill a six-well Emery coalbed methane (CBM) pilot, "which is based on encouraging coal thickness encountered in the drilling of the earlier Ferron well. This coal, found at approximately 4,500 feet, was cored and has potential to be commercially successful," said Heinemann. When this portion of the drilling obligation is completed, Berry will own half of the acreage.
Michael Duginski, Berry's senior vice president of corporate development, said the acreage is only 35 miles southwest of Berry's Brundage Canyon producing asset, "and will complement our asset base by adding both potential high-volume natural gas producing wells and long-lived gas production through the CBM development. We paid $1.3 million at signing and expect to drill all of our obligation wells in 2005 for around $9 million, which will allow us to earn our interest in the acreage."