With pipelines under way to move natural gas supplies in almost every direction, basis differentials that have "plagued" Rockies natural gas for so long are nearly gone, Williams CEO Steve Malcolm said last week.
Speaking to attendees at the Bank of America Merrill Lynch 2009 Power & Gas Leaders Conference, Malcolm said Williams continues to see big opportunities in the Rocky Mountains, where the company has substantial holdings in Colorado's Piceance Basin.
"Pipes are moving gas to the north," and the Rockies Express Pipeline "is almost complete to the east," Malcolm noted. He also cited El Paso Corp.'s Ruby Pipeline, which is expected to receive final Federal Energy Regulatory Commission (FERC) approval in early 2010 to move gas to West Coast markets. And Kern River Gas Transmission's fully subscribed 2010 expansion "will add 400 MMcf/d."
The ability to move more supplies to more markets make Colorado's Piceance Basin "as good as any shale play out there," said the CEO. "When you look at the amount of takeaway capacity versus current production in the Rockies, essentially we're going to be in an 'over pipe' position with respect to Rockies gas. The issue that's plagued the Rockies is going away."
Williams believes enough in its Piceance Basin gas and natural gas liquids (NGL) opportunities to "double down with new investments," Malcolm said. The company is nearing completion on the Willow Creek gas processing plant, which is expected to process up to 450 MMcf/d (see NGI, Sept. 7). Last month the company also acquired more acreage in the Piceance Valley, which is estimated to hold 795 Bcfe of net reserves (see NGI, Aug. 17).
The new investments will make the Piceance "a very prolific basin for us," Malcolm said. "The Willow Creek processing facility will dramatically increase the amount of liquids recovery in the area by a factor of five." And in all "likelihood, we will be expanding that over time." Of the Piceance Valley bolt-on acquisition, he said, "The gas is richer, and it seems the recoveries will be greater...generating returns north of 25%, we believe..."
Williams is, in fact, a shale producer as well, with, among its holdings, a leasehold in the Barnett Shale and a growing stake in the Marcellus Shale.
"We don't have assets all over the country," said Malcolm. "We are only in growth basins with a competitive advantage." However, as good as the shale costs may be, the cost structure in the Piceance "is similar to any shale play you might look at out there...the reserves are plentiful. We've identified 9,000 drilling locations in the basin. This play is going to be generating significant returns for Williams for quite some time."
Williams expects the gas market to improve into "2010 plus," said Malcolm. The company is forecasting gas supply and demand to balance in the first three months of the coming year.
"Essentially, we are subscribing to the view that the forward strip suggests," he said. The company "spends a lot of time talking with the so-called experts" in the gas markets, "but for the most part, the current strip makes a lot of sense."
With strong returns in its NGL business and a stable of opportunities onshore and offshore, "the key is, we don't have to get back to $100 oil and $8 gas and 61-cent processing margins, which we experienced in 2008, to get back to a high level of earnings," said Malcolm. "Instead, we expect to see modest improvements in natural gas prices," which the company is forecasting will average around $5.75/Mcf in 2010 and $6.50 in 2011.
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