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Williams Grows Reserves 26% with MCN Purchase

Williams Grows Reserves 26% with MCN Purchase

Williams' exploration and production division increased the size of its gas reserve holdings by nearly 30% yesterday, buying 184 Bcfe of proved reserves with 30 MMcf/d of production and 192,000 undeveloped acres in the Rocky Mountain region from MCN Energy for $106 million. An additional 35 Bcfe of proved reserves in the Rockies were sold by MCN to other unnamed buyers.

The total MCN sale was valued at $165 million and is the first of four packages of properties, totaling a 1.2 Tcf of proved reserves, MCN intends to auction by mid-year. MCN announced plans to exit the E&P business last summer and took at $273 million one-time charge last year related to the plan. Bids on the remaining packages-MCN's Michigan, Appalachian and Midcontinent/Gulf Coast properties-were received in March and definitive agreements are being negotiated, the company said. The value of the reserves being sold vary considerably, but based on yesterday's sale price on its Rocky Mountain assets, MCN could bring in more than $785 million from the remaining 1 Tcfe of reserves to be sold.

MCN Chairman Alfred R. Glancy III noted that each of the four packages has its own attributes and will therefore sell at different proved-reserve multiples. "We separated the properties into packages with distinct attributes in order to attract bids from companies that would place the highest value on them. Our Appalachian package consists of coal-bed methane properties, whereas the Michigan package primarily includes Antrim Shale gas. Both of these packages, located near major consuming markets, have very long-lived reserves and opportunities for lower-risk development drilling. The Midcontinent/Gulf Coast package, on the other hand, includes higher-volume, shorter-lived reserves and more traditional exploratory and development types of properties."

An MCN spokesman said the company intends to use the proceeds from the sales to pay down debt, and to invest in power generation projects, gas processing and in new pipelines projects, such as the Volunteer Pipeline announced Wednesday that would bring midwestern supply to markets in the Southeast. MCN's 1999 capital investments are expected to total $650 million to $750 million.

A majority of proved reserves and production included in yesterday's sale are located in the prolific Jonah Field in Sublette County, WY. Other properties are in the Antelope Creek Field in Utah, the Fuller Reservoir Field in Wyoming, and the Hiline and Eland Fields in North Dakota.

Bryan Guderian, vice president of Williams' exploration and production unit, said Williams plans to drill 30 to 35 wells annually within the Jonah field boundary "where producers have not hit any dry holes to date." He said Williams has experience developing tight sands reservoirs like Jonah. "We've successfully applied tight sands technology for years at our operations in New Mexico's San Juan Basin."

Williams' Ralph Hill said the MCN properties give the company a more balanced portfolio, allowing it to increase its focus on development drilling and reduce some of exposure to exploration risks. He also noted the gas from the acquired properties can be processed at Williams' Opal, WY, processing plant and can be marketed and transported by other Williams companies.

Williams' exploration and production unit reported year-end 1998 proved reserves of 708 Bcfe. The MCN purchase is expected to increase Williams' proved reserves by 26%, bringing the estimated total to just under 900 Bcfe.

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