Western Joins Powder River Pact
Western Gas Resources has joined the Fort Union Gas Gathering
Partnership formed to deliver 450 MMcf/d or more of coal-bed
methane from the Powder River Basin by the end of next year.
Western officially signed on for a 23.3% share of the
partnership which will build a new 106-mile, 24-inch diameter
gathering line to tap the basin in northeastern Wyoming. Western
also will be the construction contractor and field operator of the
header and a related gas treating facility. CMS Gas Transmission
and Storage and Enron Capital & Trade Resources will each hold a
33.3% share, with CMS serving as the managing member. CIG Resources
will hold a 10% interest and provide administrative and gas control
The partnership now has the two largest property owners in the
basin on board. Western and joint development partner Barrett
Resources control over 800,000 gross acres in the play and have big
drilling plans for this year and the foreseeable future. And CMS
Oil & Gas, whose affiliate CMS Gas Transmission and Storage owns
a 33.3% share in Fort Union, bought into Pennaco Energy's position
in the basin, which is estimated to cover about 600,000 acres.
The basin is expected to contain up to 30 Tcf of coal-bed
methane reserves and production will be ramping up quickly this
year. Western's current production is 72 MMcf/d from about 300
producing wells. But Western and Barrett plan to drill 500 more
this year. CMS-Pennaco could be expected to drill a similar number.
"The Powder River development is expanding rapidly and these new
projects should ensure that the increasing volumes from this
low-risk, low-cost gas reserve will have an outlet to favorable
markets," said Western President Lanny Outlaw.
Fort Union plans to build a gathering header with an initial
capacity of 450 MMcf/d. It will deliver gas to a proposed treating
facility near Glenrock, WY. Construction is scheduled to begin in
April with operations to commence in September. Western currently
is completing a 40 MMcf/d expansion of its existing MIGC gathering
line in the basin, increasing total gathering capacity to 130
Wyoming Interstate Co. has filed with the FERC to construct a
new 143-mile, 24-inch interstate gas transportation line known as
the Medicine Bow Lateral that will bring gas from Fort Union at
Glenrock to the Cheyenne Hub, where suppliers will have several
options to downstream markets. But some regional players already
are concerned the Rockies' age-old problem of transportation access
once again will haunt producers.
'Gray Cloud' Approaching
"I see kind of a gray cloud on the horizon," said John Harpole
of Mercator Energy, a marketing company based in Denver. Harpole
noted the basin is likely to have a significant impact on the Rocky
Mountain region marketplace in 1999 and 2000 because it could bring
a flood of new supply on line. While more production generally is
considered a good thing for producers, in the Rockies it is often
considered the cause of a pipeline constraint. This time the
situation could be even worse, Harpole noted, because in addition
to the expected pipeline transportation constraints there will be
more than the average amount of supply displacements. The
production increase in the Rockies will come at a time when
Northern Border and Alliance are displacing Rocky Mountain gas in
The region could end up with a supply glut unless demand from
the western U.S. and the Denver market picks up considerably, said
Harpole. "I think we're going to have a new CIG [price] index.
You've got northern CIG and CIG DJ Basin. You may see DJ Basin go
away. But there's going to be a CIG Cheyenne, WY. Gas is going to
be stuck there."
Some Powder River Basin players are so nervous right now about
being able to move gas away from Cheyenne that they already are
buying up capacity on Trailblazer, one regional marketer said. "CIG
has offered a 2-cent backhaul to Kern River and other westbound
pipes and that's going to be a steal for Powder River shippers,"
the marketer said. He believes CIG could demand 10-15 cents for a
backhaul to westbound pipes and still get producers to sign.
With potentially 300-500 MMcf/d of new Powder River production
taking up space on pipes by the end of next year, at least some
existing Wyoming production is going to be displaced. And when that
happens, prices in the northern Rockies are likely to plummet from
heights they've enjoyed over the past two years.