PennzEnergy Co. and Sonat Exploration Co. formed a joint ventureto develop mineral interests underlain by coal bed methane at the700,000-acre Vermejo Park Ranch in northeast New Mexico.PennzEnergy has held the bulk of the mineral rights since 1970.

Sonat Exploration will pay up to $10 million in cash and fund asubstantial development program to earn a 36-year lease coveringpart of PennzEnergy’s mineral interest in Vermejo Park Ranch andadjacent holdings. Houston-based PennzEnergy will initiallyparticipate with a 25% working interest in the venture and willincrease its working interest incrementally to 50% as the projectreaches defined milestones. In addition to its working interest,PennzEnergy will retain a 25% royalty in its lease to SonatExploration. Closing of the transaction is subject to certainpreferential rights held by the landowner.

“This transaction involving our fee mineral acreage in the RatonBasin allows us to commercialize a significant non-producing assetto generate long-term reserve and production growth,” saidPennzEnergy CEO Stephen D. Chesebro’. “We can acceleratedevelopment drilling on acreage holding the potential tosignificantly increase our reserves while minimizing our capitalexposure and reducing geologic and technical risk. We expect thatVermejo Park Ranch, a long-lived asset, will significantly increasethe gas component of PennzEnergy’s total production and reservebase.”

The venture’s acreage position is the largest leasehold in theRaton Basin. This year PennzEnergy and Sonat Exploration expect todrill a minimum of 35 wells. Plans call for drilling 80 wells in2000 and 150 wells each year thereafter. Reserves associated withthe joint venture properties are estimated to exceed one Tcf ofcoal bed methane.

To accommodate near-term gas sales generated by the developmentprogram, Sonat Exploration has agreed to construct in 1999 agathering line north from Vermejo Park Ranch to interconnect with aregional transportation pipeline. The most likely tie-in is withthe El Paso Natural Gas system. Longer-term plans call for SonatExploration to possibly build a pipeline to serve the production.”We’re still looking at different options with regard to a pipelinethat would serve this project,” a spokesman said.

Joe Fisher, Houston

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