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Powder River Potential Draws New Gathering Consortium

Powder River Potential Draws New Gathering Consortium

The tremendous supply potential of the Powder River Basin in Montana and Wyoming has attracted a new consortium of energy companies with plans to build a large gas gathering system. CMS Energy, Enron Capital &amp Trade Resources, Western Gas Resources and CIG Resources announced they have formed Fort Union Gas Gathering, L.L.C. to build a $43 million, 106-mile, 24-inch gathering header from Glenrock, WY, north to a point near Gillette, WY. A gas treating facility also will be installed at Glenrock.

The pipeline would have an initial capacity of 450 MMcf/d with the capability to be expanded to 700 MMcf/d. It would be connected near Glenrock to Wyoming Interstate Co.'s proposed Medicine Bow Lateral, which is expected to be in service Jan. 1, 2000. WIC told FERC in its recent application for the lateral that it has long-term transportation commitments totaling 178 MDth/d and that commitments are expected to increase to 440 MDth/d over a four-year period.

Over the next decade, the Powder River Basin is expected to be one of the Rocky Mountain region's fastest growing producing areas. Current estimates show the basin could hold more than 30 Tcf of gas reserves. Coal-bed gas production is expected to reach about 1 Bcf/d in the next decade from about 100 MMcf/d in 1998.

What makes the basin such an attractive resource is the relatively low drilling costs, no water disposal problems and the forecast for favorable gas prices. The basin's coal deposits are at a shallow 300 to 400 feet as compared with depths measuring thousands of feet in the San Juan Basin of Colorado and Nevada. Wells can be drilled for about $60,000, according to producers operating in the Powder River.

"I think it's going to ramp up to 300 to 400 MMcf/d pretty quick," said CMS' Tim Young, executive director of business development. "We have the acreage. Western and Barrett, and [CMS] and Pennaco are Nos. 1 and 2 in combined acreage in the basin. We have 600,000 acres with Pennaco, and Barrett and Western have 700,000. That's a pretty strong position to support our system." In October, CMS paid $28 million to enter into a joint development project with Denver-based Pennaco to develop Powder River coal-bed methane gas reserves. The two companies are planning to begin a $30 million drilling program next year that will include about 600 wells. Meanwhile Western and Barrett are planning to drill at least 400 wells next year in the basin. Other producers also have significant drilling plans.

CMS Energy's international gas pipeline unit, CMS Gas Transmission and Storage, and Enron Capital &amp Trade will each hold a 33-1/3% interest in the Fort Union partnership, with CMS serving as managing member. Western Gas Resources will operate the field facilities and hold a 23.3% interest, while CIG Resources Co., a Colorado Interstate Gas affiliate, will hold a 10% stake and CIG will provide administrative and gas control services.

"Through our participation in this pipeline, ECT will be able to provide producers with an economical means to deliver gas to the market as well as offer more comprehensive gathering, compression and marketing services to our customers," said Kevin Hannon, president and COO of Enron Capital &amp Trade.

Rocco Canonica

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