Williams Grows Reserves 26% With MCN Purchase
Williams' exploration and production division increased the size
of its gas reserve holdings by nearly 30% last week, buying 184
Bcfe of proved reserves with 30 MMcf/d of production and 192,000
undeveloped acres in the Rocky Mountain region from MCN Energy for
$106 million. An additional 35 Bcfe of proved reserves in the
Rockies were sold by MCN to other unnamed buyers.
The total MCN sale was valued at $165 million and is the first
of four packages of properties, totaling 1.2 Tcf of proved
reserves, MCN intends to auction by mid-year. MCN announced plans
to exit the E&P business last summer and took at $273 million
one-time charge last year related to the plan. Bids on the
remaining packages, including MCN's Michigan, Appalachian and
Midcontinent/Gulf Coast properties, were received in March, and
definitive agreements are being negotiated, the company said. The
values of the reserves being sold vary considerably, but based on
yesterday's sale price of its Rocky Mountain assets, MCN could
bring in more than $785 million from the remaining 1 Tcfe of
reserves to be sold.
MCN Chairman Alfred R. Glancy III noted that each of the four
packages has its own attributes and will therefore sell at
different proved-reserve multiples. "We separated the properties
into packages with distinct attributes in order to attract bids
from companies that would place the highest value on them. Our
Appalachian package consists of coal-bed methane properties,
whereas the Michigan package primarily includes Antrim Shale gas.
Both of these packages, located near major consuming markets, have
very long-lived reserves and opportunities for lower-risk
development drilling. The Midcontinent/Gulf Coast package, on the
other hand, includes higher-volume, shorter-lived reserves and more
traditional exploratory and development types of properties."
An MCN spokesman said the company intends to use the proceeds
from the sales to pay down debt, and to invest in power generation
projects, gas processing and in new pipeline projects, such as the
Volunteer Pipeline announced Wednesday that would bring midwestern
supply to markets in the Southeast. MCN's 1999 capital investments
are expected to total $650 million to $750 million.
A majority of proved reserves and production included in last
week's sale is located in the prolific Jonah Field in Sublette
County, WY. Other properties are in the Antelope Creek Field in
Utah, the Fuller Reservoir Field in Wyoming, and the Hiline and
Eland Fields in North Dakota.
Bryan Guderian, vice president of Williams' exploration and
production unit, said Williams plans to drill 30 to 35 wells
annually within the Jonah field boundary "where producers have not
hit any dry holes to date." He said Williams has experience
developing tight sands reservoirs like Jonah. "We've successfully
applied tight sands technology for years at our operations in New
Mexico's San Juan Basin."
Williams' Ralph Hill said the MCN properties give the company a
more balanced portfolio, allowing it to increase its focus on
development drilling and reduce some exposure to exploration risks.
He also noted the gas from the acquired properties can be processed
at Williams' Opal, WY, processing plant and can be marketed and
transported by other Williams companies.
Williams' exploration and production unit reported year-end 1998
proved reserves of 708 Bcfe. The MCN purchase is expected to
increase Williams' proved reserves by 26%, bringing the estimated
total to just under 900 Bcfe.