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Barrett: Rockies Gas Increasingly Headed to Premium Markets

Denver-based Bill Barrett Corp., whose fortunes are tied to the natural gas transportation system out of its core Rocky Mountain operations, is seeing "improving infrastructure" for both gas and liquids, COO Joe Jaggers told financial analysts last week.

Jaggers shared a microphone with CEO Fred Barrett and CFO Bob Howard in a presentation to financial analysts about the company's 4Q2009 and annual performance.

"For both natural gas and for natural gas liquids, I think we all understand how this excess of transportation that has occurred this year has resulted in lower overall basis to Nymex [New York Mercantile Exchange]," said Jagger. "I think a point that's probably less well understood is that the pipeline system out of the Rockies is increasingly oriented toward premium-priced markets for the desert Southwest, Southern/Northern California, Pacific Northwest and Upper Midwest..."

El Paso Corp.'s proposed Ruby Pipeline, which would carry Rockies gas to West Coast markets, is expected to be approved by the Federal Energy Regulatory Commission within days, and once it's completed in 2011, "we'll have some 7.3 Bcf/d available to flow to these premium markets," said the COO.

"When the capacity is combined with regional demand, which runs a couple of B's per day on average throughout the year, virtually all of the exports of gas from the Rockies will be moving toward these higher-price markets at the expense of deliveries into the production areas of the Midcontinent," Jaggers said. "If you look out to 2014 in the Malin, OR, delivery point, which is the termination of the Ruby Pipeline, there's only a 3-cent difference between Nymex and that delivery point over the period."

Natural gas liquids (NGL) prospects in the Rockies also are improving because of new infrastructure, said the COO. "With the operation of the Overland NGL pipeline system, we're no longer constrained on common carrier pipelines out of the Rockies for NGL deliveries, and it's allowed for fuller recovery of NGLs within the Rockies. We've had new plants that have come on during the same period and...NGL production has been a significant uplift to our overall pricing."

Barrett noted that his company produced 248 MMcfe/d in the final three months of 2009, which was 11% higher year/year. The company's realized gas sales price averaged $6.79/Mcf in the final period and averaged $6.96 for the year.

"These strong realized prices reflect our hedging activities that increased our realized natural gas price for the year by $3.10/Mcf and increased sales revenues from receiving natural gas liquids prices for a portion of our gas production, which added 32 cents/Mcf for the realized price for the year," Barrett said. "Much of this benefit was related to the sales in the second half of 2009 and stronger regional pricing that is evidenced by reduced differentials to Henry Hub prices."

As the company contemplates its expected realized gas prices for 2010, Barrett said it would "continue to benefit" from increased Colorado Interstate Gas Co. (CIG) prices relative to Nymex prices.

"The remainder of 2010 CIG prices are being quoted at levels that are 36 cents less than Nymex prices, which compares very favorably to the averages for the last several years," Barrett said.

"We also expect to continue to benefit from natural gas liquids revenue for the full year of 2010 compared to primarily the second half of the year in 2009. At current prices and considering our hedge positions, including the basis-only hedges and continued liquids revenue, we believe that the 2010 realized gas price should be over $7/Mcf."

The CEO also hinted that the company may pursue some acquisitions in its favored Rockies basins or elsewhere onshore in North America.

"2009 was a very good year, and we're well positioned for continued growth in 2010," said Barrett. "We have the financial flexibility to accelerate growth and pursue new opportunities as they become available."

Asked whether the company would look for leasehold positions in the Rockies basins or in other onshore areas, Barrett was coy.

"I think the Rockies provides very, very good opportunities, and we'll be ready and poised for those opportunities," he said. "We're always asked, 'Are you going to do that outside the Rockies?' Our response has always been that because of the work we do in the Rockies and our understanding among conventional resource plays, if there is a project out there that is very good for our shareholders and one where we can transfer our operational expertise, well, then we'll take a look at it. But you look at our portfolio, we are very focused on the Rockies, but I would just leave it with you that because of our financial strength, we're poised for opportunities to emerge."

The company's proved reserves at year-end 2009 were 964.8 Bcfe, up 18% from 818.3 Bcfe at the end of 2008. Capital expenditures for 2009 totaled $406.4 million, down significantly from $601.1 million in 2008 as the Company aligned 2009 capital expenditures with discretionary cash flow.

The Piceance Basin of Colorado continued to be the driving force in Barrett's output in 4Q2009. The company's average net production there totaled 106 MMcfe/d in the period, with 38 wells spud (gross). In its second-biggest focus area, Utah's Uinta Basin, Barrett produced 81 MMcfe/d and it spud four wells (gross). In Wyoming's Powder River Basin, where Barrett produces coalbed methane gas, the company's average production in 4Q2009 was 37 MMcfe/d. The Wind River Basin's output averaged 21 MMcfe/d, while in the Paradox Basin production averaged 2 MMcfe/d.

Net income reached $12.5 million in the final period of 2009, double the $6.1 million earned in the prior-year period. Adjusted net income was $20.3 million, which was nearly flat compared with $19.9 million in 4Q2008. Capital spending in the last three months of 2009 totaled nearly $78 million, and total 2009 spending was around $406.4 million, which was well within Barrett's 2009 discretionary cash flow of $459.6 million. The company now has five rigs drilling, with three in the Piceance Basin, and one each at West Tavaputs and Blacktail Ridge, which are both in the Uinta Basin.

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