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Double Eagle Reports Record Production; Hedges for REX Testing

September 8, 2008
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Double Eagle Petroleum Co. saw total net production of about 750 MMcfe in August, an increase of 20% from July and 186% from August 2007, the company said Thursday. It was the sixth consecutive month the company has achieved record production results.

The production record was driven primarily by the results from new wells Double Eagle drilled in its Catalina Unit in the Atlantic Rim of Wyoming and increased production in the Pinedale Anticline in Wyoming.

Gross production at the Catalina Unit was 767 MMcf, a 357% increase from August 2007. Last year 14 wells were producing an average 387 Mcf/d each; last month 46 wells produced 538 Mcf/d each on average.

The Denver-based independent launched its Atlantic Rim drilling program in the Catalina Unit in July (see NGI, July 21). The drilling project is proceeding according to plan, with five producing wells and five injection wells drilled, and rigs moving onto the drilling sites to commence completions in the next few days, the company said.

"We continue to see excellent production in our Catalina Unit from our newly drilled wells," said Double Eagle chairman Richard Dole. "We expect to add 24 new producing wells and up to an additional eight injection wells from our 2008 drilling program in the second half of 2008."

A total of 18 new wells were completed and brought on-line at the Pinedale Anticline through the end of August, and daily production net to Double Eagle for the month is expected to exceed 7,000 Mcfe/d, up from 1,602 Mcfe/d in August 2007, the company said. The increase is due to the new production wells coming on-line and depressed 2007 results due to wells being shut in for maintenance and low gas prices (last Tuesday quotes averaged less than a dollar in the Rockies except at Cheyenne Hub).

Recent weakness in natural gas prices in the Rockies is likely to continue this month due to low regional gas demand and a significant reduction of pipeline capacity caused primarily by three weeks of hydrostatic testing on the Rockies Express Pipeline (REX), Double Eagle said. The company has approximately 50% of its current production priced under various hedging instruments to reduce its exposure to the current price weakness.

Last week FERC denied producer-shippers' request for a Commission injunction to block REX from carrying out hydrostatic testing on its line beginning Wednesday (Sept. 3), a move that producers contended could shut in half of the Rockies natural gas flowing on the pipeline at the height of hurricane and storage injection seasons (see related story).

REX shippers ConocoPhillips, Shell North America LP and Yates Petroleum Corp. told the Federal Energy Regulatory Commission (FERC) that the testing on the REX pipeline would idle nearly 1 Bcf/d of capacity during September, which they said would result in the shut-in of approximately 750 MMcf/d of natural gas (see NGI, Sept. 1). The domestic gas market would be shorted by approximately 18 Bcf during the peak of the hurricane season as a result of the downtime caused by the REX test, which is scheduled to run through Sept. 26, the producers said.

REX will conduct the hydrostatic testing on a segment of its mainline between Steele City Compressor Station in Gage County, NE, and Turney Compressor Station in Clinton County, MO. REX said the 26.6-mile leg of the pipeline did not get tested at a high enough pressure to allow for the maximum allowable operating pressure of 1,480 psig. Hydrostatic testing will require all of the natural gas to be removed from the pipeline, after which the pipe is filled with water, at a designated pressure, for additional testing.

Production from Double Eagle's 2008 Atlantic Rim drilling program is scheduled to begin in late 2008, after the REX testing has been completed, and should coincide with colder weather which historically arrives in the Rockies in the later half of the fourth quarter, the company said. With additional pipeline capacity going into service, the pricing environment at that time could be considerably stronger.

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