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Black Hills Not Giving Up on Mancos Utility Cost-of-Service Gas Reserves, CEO Says

With a continuing vision of riding its Mancos Shale holdings to successful development, Rapid City, SD-based Black Hills Corp.'s CEO has reiterated the multi-state utility holding company's desire to establish a series of utility cost-of-service natural gas reserve programs.

Black Hills is evaluating various options for the substance and timing of re-filing with various state regulatory commissions for the gas reserves programs, including the option of filing for specific sets of reserves, such as the company's Mancos Shale holdings, CEO David Emery said.

In August, Black Hills suspended its push in six states to create utility cost-of-service natural gas reserve programs and has been rethinking its approach (see Daily GPIAug. 9).

"We continue to believe strongly that a utility cost-of-service program provides long-term price stability and a reasonable expectation of long-term lower costs for customers," Emery said Thursday during a 3Q2016 earnings conference call. The applications most likely will be filed in the first half of next year.

Emery said he feels the company's Mancos Shale holdings would make excellent reserves for a cost-of-service utility program. "We're looking at long-term modeling of what that play would look like." Emery would like Black Hills to be able to re-file in some of the states in which it has utility operations during the first half of 2017 -- late first quarter or thereafter.

He was less precise when asked about what Black Hills intends to do with its Mancos properties if the gas reserve proposals continue to be shot down by state regulators. Current gas prices are "marginal" for doing any additional drilling in the Mancos right now. Black Hills hasn't drilled any tests wells there in recent months.

"We're not excited about investing dollars for just a straight up E&P investment," Emery said. "So our plan with the Mancos is to make it part of the gas reserves decision where it is an ideal property. We'll have to do the economic analyses and make sure it works. If that doesn't work, then I am not sure what we would do with it [Mancos assets].

"I don't see us pouring hundreds of millions of dollars into a drilling program, so in that case, we would probably be looking for a partner. I really think it is an excellent property for cost-of-service gas."

Among the company's oil/gas holdings after selling off its E&P (see Daily GPIFeb. 5), Black Hills has been selling off it relatively small noncore holdings, many on non-operating properties.

Emery said even if the gas reserve program gets under way, he doesn't expect anything to happen regarding development or sale of the Mancos Shale property next year.

For 3Q2016, Black Hills reported net income of $14 million (26 cents/share), compared to a net loss of $9.9 million (minus 22 cents) for the same period last year. There were impairment charges for oil/natural gas properties and acquisition costs of its purchase of SourceGas Holdings LLC for both periods (see Daily GPIJuly 13, 2015): 15 cents and 80 cents/share for impairment, and 7 cents and 6 cents/share for acquisition costs in the respective periods.

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