KeySpan, Houston Exploration in Joint Venture
Attempting to gain access to a potentially plentiful Gulf of
Mexico gas supply, KeySpan Exploration & Production announced
Tuesday it agreed with Houston Exploration Co. to jointly drill
and develop 55 leases in the Gulf's outer continental shelf. The
$300 million agreement has an effective date of Jan. 1, 1999.
The unrisked reserve potential for the property adds up to a
total 4.5-5 Tcf. For 45% ownership of the leases, the KeySpan
Energy Corp. subsidiary will invest $100 million per year for three
years into the drilling program. Houston Exploration will drill,
develop, and market the gas. An annual 60-day cancellation
provision was included whereby each company retained the right to
conclude the program. Offshore leases acquired in sales after the
start of the venture will not be part of the program. Houston
Exploration acquired the 250,000 acres of property through federal
Tom Powers, a Houston Exploration spokesman, said the 5 Tcf
estimate is what Houston Exploration "hopes" is available. "True
estimates hardly ever add up to the unrisked potential." Three
dimensional seismic exploration of the leases has already started.
KeySpan, which owns 64% of Houston Exploration Co., bought its
interest in the properties with the intention of turning them into
a "critical supply area for the Northeast gas market," said Robert
Catell, CEO of KeySpan Energy Corp. KeySpan Energy operates two
utilities that distribute gas to 1.6 million customers in New York
City and Long Island.
In addition, KeySpan views the joint venture as a way to bolster
its presence in the Gulf of Mexico. "We have a strategy to improve
our Gulf of Mexico position. We intend to do that using Houston
Exploration, which is our main arm in the region," Ed Yutkowitz, a
KeySpan spokesman said.
For Houston Exploration, the transaction equals a prime
opportunity to increase drilling on the properties. "As a result of
the agreement, we'll be able to increase our exposure to a greater
number of prospects at a time when costs are low." Powers said.
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