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Bill Barrett Cuts Capex, Double-Digit Gas Growth Still Expected

Denver-based Bill Barrett Corp. will trim 2009 capital spending (capex) by at least a third from last year, but even at lower spending levels, double-digit natural gas output growth is expected to continue from its Rocky Mountain operations, the company said Friday.

Barrett, whose operations are concentrated in the Uinta and Piceance basins, saw proved reserves jump 47% in 2008 from a year earlier. Estimated output rose to 77.6 Bcfe, which was 95% weighted to gas. For the final period of 2008, Barrett's output hit a record 20.6 Bcfe, which was 20% higher than the 17.2 Bcfe in 4Q2007 and 5% higher sequentially. All of the growth was organic; Barrett had no material acquisitions or divestitures in 2008.

However, the global credit crunch and low gas prices are forcing Barrett to move more conservatively. Last year Barrett's capex totaled around $601 million. This year the company's capex is set at "up to $400 million." In any case, the company intends to align capex with cash flow from operations.

CEO Fred Barrett gave a nod to the company's 2008 record results in production, reserves, finding costs and cash flow, which he said reflected "the quality of our development assets and management's ability to execute as a premier Rocky Mountain exploration and production company." Among other highlights: Barrett's exploration arm established first gas sales from its Yellow Jacket Gothic gas shale project in Colorado's Paradox Basin.

But the current environment is not for the weak of heart, the CEO noted.

"Looking ahead, we have a strong hedge position for 2009 and $331 million in liquidity, which helps sustain us in these challenging times," said Barrett. "We expect to invest in a strategically balanced capital program including development, delineation and exploration as we continue to grow our production and reserves, generate strong returns and expose our investors to potential new growth prospects."

Among other things the producer wants to continue to develop its West Tavaputs program, which he said was "not dependent upon receiving a record of decision (ROD) on our environmental impact statement (EIS), which has been delayed as the Department of Interior transitions to the new administration. We look forward to completing this process in the coming months. We will remain disciplined but flexible with our 2009 capital spending as we monitor business conditions and commodity prices..."

The Government Accountability Office (GAO), the investigative arm of Congress, in October said it was looking into the way the federal Bureau of Land Management may have bypassed some environmental reviews to issue drilling permits (see NGI, Oct. 13, 2008; Aug. 11, 2008). One particular area of GAO's inquiry involves how some permits were issued to Barrett in the Nine Mile Canyon of Utah, where its West Tavaputs program is located.

Barrett said the company is projecting that the ROD could be issued in the next six months for the West Tavaputs program. "The company's ability to conduct its planned 16-well program in 2009 is not affected by the status of the EIS. We will remain flexible to expand our development upon approval of the EIS and business conditions."

Total company reserves at the end of 2008 reached 818.3 Bcfe. Most are held in the Uinta (328.9 Bcfe) and Piceance (372.1 Bcfe) basins. Another 66 Bcfe of reserves are in its leasehold in the Powder River Basin and 50.8 Bcfe are located in the Wind River Basin. Output last year was highest in the Piceance (31.5 Bcfe), which was slightly above Uinta's 28.2 Bcfe of production. Another 8.1 Bcfe of output came from the Powder River, while 9.6 Bcfe was from Wind River.

The company produced 77.6 Bcfe last year, and in 2009 output is expected to range 85-91 Bcfe. Barrett intends to drill up to 175 wells this year. At West Tavaputs and Piceance the company had 70 wells that were drilled in 2008 and that were waiting on completion at year's end.

Barrett also noted that there are hedges in place for 70-75% of the current forecast 2009 production. The company is scheduled to release its 4Q2008 and full-year results on Feb. 24.

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