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Barrett Lifts Proved Reserves with Assist from SEC Rules

Rocky Mountain natural gas explorer Bill Barrett Corp. (BBG) reported Thursday that its proved reserves last year jumped 18% while production grew 16% from 2008.

Year-end 2009 estimated proved reserves totaled 965 Bcfe, compared with 818 Bcfe at the end of 2008. The reserves were 95% weighted to gas, 50% developed, and the reserve replacement ratio was 264%. Production in 2009 totaled 89.7 Bcfe. Estimated 4Q2009 production was 23 Bcfe, up 11% from 21 Bcfe in 4Q2008 and flat sequentially. the Denver-based producer said.

"The sizable increase in 2009 reserves primarily reflects continued development at our key programs at Gibson Gulch and West Tavaputs, including continued success with 20-acre development at West Tavaputs," said CEO Fred Barrett.

According to analysts with BMO Capital Markets, Corp., BBG was able to book an "extra" 64 Bcfe of total reserve additions under the revised Security and Exchange Commission (SEC) proved reserve reporting rules, which took effect this year (see NGI, Nov. 9, 2009).

"The new reserve reporting rules, particularly the one related to booking offset locations, present the independent with the classic struggle of being aggressive...versus taking a more conservative approach," wrote BMO's Dan McSpirit and Chris Sloan. BBG's reserve report showcases the decision faced by all explorers, "and prompts investors to put on their critical thinking caps when concluding what's more 'real' (read: proved) than not" (see related story).

BBG's additional 64 Bcfe, which amounted to 27% of its total reserve additions, were associated with locations a distance greater than one direct offset in the Gibson Gulch, in the Piceance Basin of Colorado. "Companies are no longer limited to direct offsets, but they may now stretch the boundaries once 'economic productibility at greater distances' is established, said the analysts.

BBG's production in the Gibson Gulch field totaled about 100 MMcfe/d net as of last June. The West Tavaputs development, in the Uinta Basin near Nine Mile Canyon in Utah, currently has a 16-well program (see NGI, Jan. 4).

Total estimated capital expenditures were $406 million last year, which was within cash flow, BBG said. According to the producer, the current estimated value of its proved reserves is $685 million, based on a Colorado Interstate Gas price of $3.04/MMBtu and a West Texas Intermediate oil price of $57.65/bbl.

"Given a backdrop of poor economic conditions and particularly low natural gas prices, we delivered strong reserve and production growth, generated cash flow in excess of our capital program, as well as ended the year with a strong balance sheet and $588 million in available liquidity," said Barrett.

The results translated into a fourth consecutive year of lower finding and development costs, which were about $1.60/Mcfe in 2009, he said.

"Looking to 2010, we have a capital expenditure budget of $400-425 million, before acquisitions, which we plan to allocate approximately 95% to our development programs and approximately 5% toward exploration," Barrett said. "However, spending will remain flexible should circumstances allow us to increase activity at West Tavaputs, Cottonwood Gulch or Yellow Jacket."

Capital spending is again to be aligned with cash flow, he said.

"We are projecting production of 97-100 Bcfe for 2010, which reflects an 8-12% increase over 2009. Currently, the company has approximately 60% of 2010 projected production hedged at an average floor price of approximately $7.55/Mcfe and may continue to layer on hedges up to 70% of production in order to ensure predictable cash flows in 2010."

Quarterly and annual results are scheduled to be issued by BBG on Feb. 23.

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