Western Optimistic about CBM Permit Approvals

Gross production from the largest Powder River Basin coalbed methane operators, joint partners Western Gas Resources Inc. and Barrett Resources, hit their year-end target of 200 MMcf/d in mid-December, then exceeded that goal by producing 206 MMcf/d in the last two weeks of the year. Now the producers are crossing their fingers that pending permits to further ramp up production gain approval by Wyoming regulators.

Western and Barrett, which are 50-50 partners in their numerous CBM projects in the basin, have begun the new year with about 70% of their water quality permits there approved. Western officials said they also are optimistic that the Wyoming Department of Environmental Quality (DEQ) will give them the green light to move forward with their expanded 2001 production plans.

The Denver-based producers hold approximately 531,000 net acres under lease in the basin, and the companies drilled about 950 gross wells last year. Another 800 gross wells already have approval from DEQ for production in the next 12 months. While that covers nearly _ of this year's planned production, there are still a lot of permits needing approval to meet 2001 targets.

Ron Wirth, director of investor relations for Western, said yesterday that the company is optimistic that its pending 85 permits, which cover 336 existing gross wells and 1,260 locations in the basin scheduled for production this year, eventually will be approved by DEQ.

The Wyoming Environmental Quality Council held a six-hour hearing Wednesday, with an overflow crowd of industry representatives, landowners and environmental groups, to hear how CBM production may be affecting the state's water quality and the state's quality of life. After reviewing comments from the hearing, the council will forward its recommendations to DEQ, which had placed a partial moratorium on permit approvals last year (see Daily GPI, Nov. 6, 2000).

The slowdown in permit approvals followed a request by the U.S. Environmental Protection Agency for the state to more closely scrutinize CBM operations (see Daily GPI, Dec. 18, 2000). Although DEQ has approved eight of the permit requests from Western and Barrett in December, the companies said that without approvals continuing, production could slow sometime this year.

Wirth said the eight approved permits in December covered 132 existing gross well sites and 281 undrilled locations. Another 12 permits, covering 214 existing gross well sites and 294 undrilled locations, also should be approved by DEQ this month. Those pending permits were in the approval loop before the moratorium crackdown.

"We've got about 70% of the permits approved for our planned 2001 production schedule," said Wirth, covering the 800 gross wells currently planned for drilling this year. The other 30% as yet unapproved 85 permits cover 346 existing gross wells and 575 undrilled locations. With DEQ's approval of the permits before the third quarter, the companies most likely would remain on schedule to meet 2001 projections.

"We're in good shape at the present time," Wirth said, but he could not specify when the production outlook might sag without more approved permits.

The biggest issue facing Powder River Basin producers, he said, is the production from wells that flow into Montana waterways. Some Montana groups and Montana regulators have protested the runoff from Wyoming CBM wells because it has found a higher acidity from runoff in those locations. But Western officials are optimistic that other locations' permits should sail through without any problems.

"The Powder River play continues to progress and we are extremely proud of our continued leadership position in all facets of its development," said CEO Lanny Outlaw. "We believe we are on track to reach our next production milestone of 300 MMcf/d of gross coalbed methane production by the end of 2001." Wirth said a search continues to replace Outlaw, who retires at the end of May.

As it targets its production within the basin, Western also sold what it called its "under-performing" Pinnacle Gas Treating Inc. facility in East Texas yesterday to Anadarko Petroleum (see related story) for $38 million. Western plans to initially pay down some debt then use the proceeds for more CBM production.

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