The Gothic Shale of the Paradox Basin in southwestern Colorado appears to hold a “significant” amount of natural gas, according to Denver-based Bill Barrett Corp., which reported its initial well results last week.

The company is encouraged by initial results from the first two horizontal shale gas wells at its Yellow Jacket prospect in the basin. “This is a widespread but shallow (5,500 to 6,500 feet) resource play where the company has built a 397,000-gross acre position over the past four years,” said CEO Fred Barrett. The company’s leasehold in the basin includes about 208,000 net undeveloped acres.

Within the Yellow Jacket prospect, Barrett’s Koskie well produced for 17 days and averaged 4.5 MMcf/d of natural gas over the final 10 days. The testing period was completed at a rate of 5.7 MMcf/d, the company noted. The well, in which Barrett holds a 55% stake, now is shut in and is awaiting connection to a pipeline, with sales expected to begin in December. Barrett in late October also spudded a third horizontal well, the 15H-27, as an offset to the Koskie well.

“The second horizontal well, the Neely well, located 14 miles north of the Koskie discovery, is currently testing early in the flowback stage at 3.1 MMcf/d natural gas,” said the CEO. Barrett completed an eight-stage fracture stimulation along a 3,655-foot lateral at the Neely well. The company also drilled a vertical well nine miles north of the Neely well to obtain core information and to evaluate field extension.

Because of the “encouraging results from the wells drilled to date, in 2009 we will operate a continuous program to evaluate the area and will begin construction of infrastructure,” the CEO said. Production and gathering infrastructure are being installed to begin sales by the end of the year. The company also is working with its partner and area pipeline operators to determine long-term processing and transportation alternatives. The TransColorado and Northwest pipes are located with the project area, which is about 60 miles northwest of the San Juan Basin.

The independent also is testing a 5,800-foot vertical well in the Green Jacket prospect, which is located west of Yellow Jacket. The vertical well, which is expected to spud by the end of the year, is a test of the Hovenweep Shale, which is similar to the Gothic Shale, “yet at slightly shallower depths,” the company noted.

In addition, the company reached total depth at 8,506 feet at its first Pine Ridge well in the Salt Flank of the Paradox Basin, where it holds an 80% stake. “Good to excellent gas shows and porosity were noted in the targeted Cutler and Honaker Trail formations,” said the producer. Because of winter closings, the well tests will be delayed until the middle of 2009.

Gas-weighted production for the independent grew 33% in 3Q2008 from a year ago to 19.6 Bcfe, and output was up 2% sequentially from 2Q2008 “despite a 30% decrease in the average regional natural gas price,” the CEO noted. Including the effects of all of the company’s hedging activities, the average sales price realized in the third quarter of 2008 was $7.86/Mcfe, compared with $5.58/Mcfe in 3Q2007.

“2008 is proving to be a very successful year and will position us well for 2009,” said Barrett. “As the broader market environment presents challenges going into 2009, we will continue to focus on our operating strengths while managing a disciplined capital program. We will enter 2009 with a strong balance sheet, ample liquidity and a substantial hedging program, all to ensure financial stability and cash flows that support our exploration and development plans.”

Barrett posted its highest quarterly earnings ever in 3Q2008, with net income reaching $36.1 million (80 cents/share), compared with $0.2 million (1 cent) for the same period a year earlier. Net income rose on higher production and a higher per-unit profit margin, including reduced per-unit depreciation, depletion and amortization expenses.

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