ExxonMobil Corp. plans a big-time expansion in the Piceance Basin to lift natural gas output on the northwestern Colorado leasehold to 1 Bcf/d -- a 20-fold increase from its current 55 MMcf/d.

Senior Vice President Mark Albers, speaking at the Lehman Brothers CEO Energy/Power Conference in New York City last week, said the expansion would be enough to supply 8% of the current gas needs of U.S. households. However, he was cautious about when the expansion would be completed and how much it will cost.

"We are taking a phased approach to Piceance development," Albers told attendees. "The key to unlocking this and other tight gas is increasing the production rate and recovery per well."

Exxon was operating about 100 wells in the Piceance at the end of 2006. The long-term plan calls for drilling wells from up to 120 multiple-well pads.

Tight gas development has, up to now, been only is a small business unit for the Irving, TX-based major. Most of its production is in conventional oil and gas plays, followed by heavy oil, acid/sour gas, Arctic, liquefied natural gas and deepwater exploration worldwide.

Exxon has an array of global oil and gas prospects, but there has been little gas prospecting onshore in North America for several years -- except in the Piceance, where it has drilled for gas for about 50 years through predecessor companies on a leasehold of about 300,000 acres.

The bigger focus on the tight-gas business followed development of a proprietary technology to more easily fracture the low-porosity rocks within the basin, Albers said. The expansion also is spurred by a recent decision by the Bureau of Land Management in Colorado, which in April approved Exxon's next phase of development in the basin. The next development in the Piceance leasehold will be near Rifle, CO, about 180 miles west of Denver.

With its next phase, Exxon's Piceance gas production will increase by about 200 MMcf/d, said Albers. And "subsequent expansion phases are being evaluated, with the potential for production to reach 1 Bcf/d."

Exxon is not alone in the basin, nor is it even the leading producer. According to the Colorado Oil and Gas Conservation Commission, Williams Cos. leads the pack in the Piceance, followed by EnCana Oil & Gas (USA) Inc., Bill Barrett Corp., Marathon Oil Corp. and XTO Energy Inc.

Plains Exploration and Production Co. (PXP), which had been focused on oil-directed exploration in California and along the Gulf Coast, earlier this year also moved into the basin, grabbing 55,000 net acres in a $946 million deal with Laramie Energy LLC (see Daily GPI, April 23).

At the time of the transaction, PXP CEO Jim Flores said, "To us, the Piceance Basin is the San Joaquin Valley of gas. Most of it hasn't been developed yet [and] it's got an estimated 22 Tcf...All the big operators are up there, Exxon, EnCana, XTO, Marathon...You can follow around the majors [because] they're where the best returns are..."

Marc Smith, executive director of the Independent Petroleum Association of Mountain States, said, "Colorado's Piceance Basin has experienced the healthiest growth in natural gas production within the region." The Piceance and adjoining Uinta Basin in Utah together rank as the second-largest area of gas reserves in the United States behind the San Juan Basin. According to the Potential Gas Agency (PGA) based at the Colorado School of Mines, the basins have about 48 Tcf of potentially recoverable gas.

"If ExxonMobil can unlock some of the gas in the Piceance economically and environmentally, it will help to develop other basins in the Rockies," PGA Director John Curtis said.

In related news, Dallas-based Energy Transfer Partners LP (ETP) plans to acquire midstream company Canyon Gas Resources LLC from private equity firm Metalmark Capital. Canyon's system has more than 400,000 of dedicated acres under long-term contracts in the Piceance-Uinta Basin.

"We see a need to expand the takeaway capacity from this region," ETP Vice President Mike Smith said Friday.

The Canyon assets include a gathering system in the basin that consists of more than 1,800 miles of two- to 16-inch pipe with a projected capacity of more than 300,000 MMBtu/d. There also are six processing plants for natural gas liquids extraction and gas treatment with a processing capacity of 90 MMcf/d.

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