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Falcon's 14 Bcf Worsham-Steed Storage Field Starts Base Gas Fill

With the market currently demanding more gas storage capacity, Falcon Gas Storage said it has activated its proposed 14 Bcf Worsham-Steed gas storage facility near Dallas/Fort Worth and expects storage operations to ramp up through next spring, followed by an expansion that would raise the deliverability of the field.

The storage field began receiving base or cushion gas earlier this month from the Energy Transfer pipeline system at rates of up to 50 MMcf/d. By next spring, injection capability will reach 80 MMcf/d with 70 MMcf/d of withdrawal capacity. A Phase II expansion project would bring both injection and deliverability rates to 300 MMcf/d.

"Our Hill-Lake gas storage facility [10 Bcf] in Eastland County is completely full right now," said Falcon CEO John M. Hopper. "With gas prices in the North Texas market area dropping precipitously over the last several weeks, this was an opportune time to start injecting gas into Worsham-Steed in preparation for full gas storage operations. If gas prices are as low at the end of the winter as they are right now, we should be able to commence full operations late next spring.

"As the Phase II expansion at our Hill-Lake facility nears completion, the addition of Worsham-Steed to our active portfolio of storage assets will bring our total gas storage capacity in North Texas to over 22 Bcf, putting us in a great position to meet the growing demand for storage services in the Dallas/Fort Worth and North Texas markets," Hopper added.

Falcon launched plans in 2000 to turn existing depleted field storage operations into high-deliverability storage fields to provide service to power generation markets and utilities and industrial customers in North and East Texas areas. It bought Hill-Lake and Worsham-Steed from Lone Star Pipeline when TXU was in the process of selling off assets in 2000. Falcon held an open season last year to bring Worsham-Steed online, but high gas prices prevented it from buying base gas for the facility.

"We've been waiting for the market to come to us and tell us we need more storage, and that's what it's telling us right now so we are quickly trying to get as much low-priced gas in there as we can to get up to the minimum operating level," said Hopper in an interview with NGI. He wouldn't say how much base gas is required, but the Worsham-Steed facility is expected to have 7.5 Bcf of base gas when fully operational, according to NGI's gas storage database. Hill-Lake has 2.89 Bcf of base gas.

"Anybody who is developing a new storage facility or trying to retrofit an old one like we have done -- unless it has the pad gas in it already, which typically isn't the case -- has to confront this issue [of the high cost of adding base gas]," he said. If a company had to buy 7 Bcf of base gas at last Tuesday's Katy Hub spot price of $7.59, that would be about $53.1 million in sunk capital.

To offset some of the high cost of base gas, Falcon is planning to drill four pilot wells to confirm the viability of an enhanced oil recovery (EOR) project at Worsham-Steed. "We have over 15,000 acres leased for both EOR and gas storage, about half of which is prospective for EOR operations," Hopper said. "We just completed an EOR feasibility study that confirmed there are more than 50 million bbl of crude oil remaining in the oil leg of the reservoir down-dip of the gas cap. As much as 15-20% or more likely is recoverable through EOR operations.

"Worsham-Steed has proven to be a unique asset that we intend to fully exploit in order to maximize its value in this unusually high energy commodity price environment."

With the huge loss of Gulf supply this year from the hurricanes, gas prices reaching highs of $18, and the flood of liquefied natural gas (LNG) on the horizon, the time seems right to invest in more storage capacity. The high season ending working gas levels this year and last clearly indicate a need for more storage space.

"It has taken the market a while to say, 'Oh God, if I want more storage capacity I'm going to have to pay the price that takes into account the fact that we're having to put relatively expensive pad gas into these facilities," said Hopper. "That's just the market reality. If they want developers like us to build new storage capacity, they are going to have to be willing to pay the price.

"At the end of the injection season, people want to inject more gas but there's just no space for it," he noted. "That's just going to get worse when you have LNG coming in because where's that gas going to go? We need more storage. The market just has to be willing to pay for it."

Utility companies have been unwilling to sign longer-term agreements in recent years largely because of state regulatory scrutiny, he said. Although the market is pointing them in the right direction, utilities require more assurances from state regulators that adding storage space is a prudent commodity cost management tool.

FERC has expressed interest over the last several years in relaxing restrictions on awarding storage operators market-based rates, but Hopper said the slow growth of storage development has been caused more by state regulatory scrutiny than on anything that FERC has or has not done. However, the market has been the biggest factor hindering development.

Hopper said the power generation market has been revived in Texas and the Gulf Coast region. Traditional electric utilities are taking more of an interest in storage now, too.

Falcon also is developing the MoBay Storage Hub in southwestern Alabama that ultimately will have up to 50 Bcf of working gas capacity available to serve markets in Florida and the Southeast. The company currently is producing gas from the MoBay field but plans to convert it to a storage facility soon. It expects to file a FERC application for MoBay in the next few months because there has been so much demand for storage in the Southeast, said Hopper.

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