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It's Not the Prices, Stupid! It's Supply

It's Not the Prices, Stupid! It's Supply

Where once producers' biggest worry was whether they would get a decent price for their gas, the concern now is whether they can produce enough to meet market demands.

Tom Brown Inc. President James D. Lightner predicts prices will remain "healthy" over the next three to five years, "solidly above" the $3 level, yet volatile. Speaking to a Rocky Mountain Natural Gas Investment Forum last week in Denver, Lightner said he was more concerned about having enough supply to meet gas demand in the years ahead.

"Gas production is having a real challenge. All of these increased drilling rigs are going to be great, and we need that, but it's not going to provide this super big gas bump that's going to take care of all the demand problems," he noted at the investment forum, which was held in conjunction with the 12th annual Colorado Oil and Gas Association conference last week.

"There's a lot of people who think the Rockies have more resource potential [than other regions]. The question is, can you find it and make money on it? These deep basins all have huge gas kitchens in the bottoms. In 1995, we got 95 cents. You can't do anything with that. This stuff that's deep is expensive to go get." Tom Brown produces coal-bed methane (CBM) gas in the Powder River Basin at "deeper depths than anybody understands," and at expensive costs.

If the market drops those costs would not be covered. "I'll be the first to say if gas prices went back to $1.50 Nymex, the Rockies would be one of the first places I think that would slow down," Lightner said. But he's not expecting this to happen anytime soon. "I really think that the entire U.S. has entered into an entirely different era of natural gas prices than it's seen in the past."

The Denver-based independent producer also is drilling and exploring for natural gas and oil in such places as the Wind River Basin, White River Dome, Permian Basin and Piceance. Its production during the first quarter of this year was 158 MMcfe/d. Lightner anticipates the industry should be "really [be] surprised" by the company's volumes for the second quarter.

"We have a much better quality of portfolio, a more diversified portfolio than this company has ever had," he noted. He's also excited about the company's prospects in Canada. "Most of the stuff in Canada I can't even tell you about yet. But we got a lot of neat things going on there that hopefully by next quarter we're going to be able to talk about the specifics," he told NGI.

"If there's been some criticisms of [Tom Brown] in the past, it's that it didn't move fast enough," Lightner said. Investors and analysts have said, "I don't give a darn about your hundreds of acres [in basins]. Get the gas out of it. Quit promising this stuff."

Susan Parker, Denver

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