By the end of the year, at least 400 MMcf/d of coal-bed methanegas will be flowing from the Powder River Basin in Wyoming andsoutheastern Montana, which is nearly double what is being producedcurrently and more than three times the total produced a year ago.

This promising coal-bed methane play, which took the nationalspotlight last year, is expected to be one of the fastest growingproducing areas in the country over the next decade. The majorplayers in the basin see their production growing by 75% or more onan annual basis for the next several years perhaps longer givenfavorable regulatory treatment and the absence of pipelineconstraints.

Several new pipelines put in place late last year havealleviated constraints. They include the Bighorn Gas GatheringPipeline (formerly known as the Northern Header), a 250 MMcf/dpipeline which opened in December and connects at its southernterminus with another new line, the 450 MMcf/d Fort Union gatheringsystem. Western Gas Resources’ also expanded its MIGC gatheringline to 130 MMcf/d. Devon and KN Energy (now Kinder Morgan) builtthe 450 MMcf/d Thunder Creek pipeline late last year. Anddownstream of those lines at Glenrock, WY, is the new 260 MMcf/dMedicine Bow lateral, which expanded access to Wyoming InterstateCo.’s pipeline system. Several other compressor station expansionsalso are currently underway.

This year producers are expected to take full advantage of thenew market access with aggressive drilling programs. “We’reprojecting our production to grow substantially over the nextcouple years,” said Barrett Resources Executive Vice President andCFO Frank Keller, referring to Barrett’s partnership with WesternGas Resources in the Powder River. Barrett and Western currentlyhold about 925,000 acres in the basin and were producing about 120MMcf/d at the end of 1999. With plans to drill 800 wells in each ofthe next two years, they expect production will grow to 180-200MMcf/d by the end of this year and to at least 290 MMcf/d by theend of 2001.

“The Powder River basin is gaining quite rapidly as being ourlargest producing area,” said Keller. “The Wind River basin also isquite large to us and we are producing about 100 MMcf/d there also.The Piceance Basin is a development area and we probably have fiveor six years of drilling out there and will grow that productionabove 100 MMcf/d; it’s a low risk development drilling area also.But if you are looking for a basin with rapid production growth andreserve additions, [the Powder River] is the one that we’recertainly going to focus on because we’ve got over 900,000 acresthere and that’s a big lease position.”

Pennaco Energy, another large leaseholder and one of the mostactive operators in the basin, said since early November its grosscoal-bed gas production has increased by 110% to 46.1 MMcf/d and isexpected to grow to 120 MMcf/d by the end of the year and 200MMcf/d by the end of 2001.

“We are still quite early in the infrastructure buildout sinceonly 42% of our 642 wells drilled thus far are hooked up andproducing gas and only 5% of our lease acreage has been drilled,”said Pennaco CEO Paul M. Rady. “We are working very hard onconnecting wells and expect to shorten the time delays to hook upas we go forward, which should accelerate our production ramp up.”

Denver-based Pennaco is entirely focused on the exploration andproduction of gas from coal bed methane properties in the PowderRiver. The company currently holds 347,000 net acres, including285,000 net acres held in its joint venture with CMS Oil and Gas.It was the most active operator in the basin in 1999 with 468 grosswells drilled and operated.

Meanwhile other producers in the basin, such as Devon Energy,are maintaining similarly aggressive paces now that significant newpipeline infrastructure has been installed. Devon spokesman ZackHager said the company drilled 400 wells last year (335 net) andplans to drill 600 this year. Production is expected to ramp up to65-75 MMcf/d by year end and reach a peak in either 2003 or 2004 ofabout 250 MMcf/d. Devon’s Thunder Creek Gathering line currentlyhas a throughput of about 60-70 MMcf/d but is expected to reach 160MMcf/d by the end of 2000. Its capacity is 450 MMcf/d.

“We like what we see so far,” said Hager. “Our commitment to thePowder River is pretty strong as is shown by our building the 126mile Thunder Creek line. There is plenty of capacity now for thebasin to grow.”

Petrie Parkman analyst Stu Wagner, who has been following thefield closely over the past couple years said, “The play seems tobe moving ahead very well. There were some delays because ofde-watering permits, and the EIS finally came out in Novembercovering 5,500 drilling permits. But 2000 looks like it will be avery good year for the Powder River. There’s a lot of pipelinecapacity, more than 1.2 Bcf/d of exit capacity. They were pipelineconstrained for a while. There isn’t a whole lot of spacedownstream of Glenrock, WY, however. If you get another bigdrilling this year and another in 2001, you might need a new pieceof pipe out of Glenrock to Cheyenne in 2002.

“There’s going to continue to be a lot of activity especially inthe WyoDak coal,” he said. “Then they will get into the Big Georgecoal in the western side of the basin where there are a number ofpilot programs going on. It is believed that while there will be alot of water in the Big George, there also will be more reservesper well and higher deliverability,” said Wagner. He said thatwhile the WyoDak coal holds proved reserves of about 5-8 Tcf, theBig George coal on the western side of the basin could easilydouble that.

“In order to keep this pace of growth going forward,” saidBarrett’s Keller, “there’s going to have to be some contributionfrom the deeper coals. Right now most everybody is producing from acoal that we’re calling the WyoDak and that’s the coal that isbeing mined on the eastern plank of this productive area. That forthe most part is a development area right now and about half of ouracreage is on that development area. But as you move west into thebasin, you begin to have the opportunity to drill into deepercoals. The deepest coal out there is about 2,500 feet deep so we’renot talking extremely deep coal. But the deeper coal is thicker andgives you the opportunity to tap into 250 feet of coal versus theWyoDak, which is somewhere around 90 feet thick.

“There really isn’t any drilling going on in the deeper coalright now because of some of the restrictions getting [EIS]permits. Many operators have drilled into the coal with one or twowells and feel very comfortable that the gas content is there. Infact we think because it is a little deeper and has been under alittle higher pressure with the water table on it that these coalsare going to contain more gas. In the core samples they do give upmore gas. The big question that everybody has to answer is can wede-water this coal. We will be drilling into that deeper coal thisyear in a 20-well pod, which we will begin de-watering. Thequestion will be can we de-water it, and what period of time willit take to de-water.”

Water issues have been somewhat of a stumbling block forproducers because the wells in the Powder River carry a largeamount of potable water that can be used by ranchers and farmers.However, the producers have been making some headway innegotiations with the Department of Environmental Quality on waterdischarge issues.

“We’re working very closely with the Department of EnvironmentalQuality and believe that we have a process to establish a generaluse permit, which will standardize the water discharge issue andmake it so that everyone knows the rules in order to get a waterdischarge permits to begin de-watering wells,” said Keller.

Beginning in March Barrett also plans to begin writing a newenvironmental impact statement (EIS) which will incorporate somenew lands and may cover as many as 15,000 drilling permits.

“The EIS will cover issuing permits on federal lands, but wehave enough [fee-based] and state land where we are projecting thatwe will be able to drill 800 wells in each of the next two years,”said Keller. [The EIS] is not going to hold us up.”

Rocco Canonica

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