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KeySpan, Houston Exploration in Joint Venture

KeySpan, Houston Exploration in Joint Venture

Attempting to gain access to a potentially plentiful Gulf of Mexico gas supply, KeySpan Exploration &amp Production announced Tuesday it agreed with Houston Exploration Co. to jointly drill and develop 55 leases in the Gulf's outer continental shelf. The $300 million agreement has an effective date of Jan. 1, 1999.

The unrisked reserve potential for the property adds up to a total 4.5-5 Tcf. For 45% ownership of the leases, the KeySpan Energy Corp. subsidiary will invest $100 million per year for three years into the drilling program. Houston Exploration will drill, develop, and market the gas. An annual 60-day cancellation provision was included whereby each company retained the right to conclude the program. Offshore leases acquired in sales after the start of the venture will not be part of the program. Houston Exploration acquired the 250,000 acres of property through federal lease sales.

Tom Powers, a Houston Exploration spokesman, said the 5 Tcf estimate is what Houston Exploration "hopes" is available. "True estimates hardly ever add up to the unrisked potential." Three dimensional seismic exploration of the leases has already started.

KeySpan, which owns 64% of Houston Exploration Co., bought its interest in the properties with the intention of turning them into a "critical supply area for the Northeast gas market," said Robert Catell, CEO of KeySpan Energy Corp. KeySpan Energy operates two utilities that distribute gas to 1.6 million customers in New York City and Long Island.

In addition, KeySpan views the joint venture as a way to bolster its presence in the Gulf of Mexico. "We have a strategy to improve our Gulf of Mexico position. We intend to do that using Houston Exploration, which is our main arm in the region," Ed Yutkowitz, a KeySpan spokesman said.

For Houston Exploration, the transaction equals a prime opportunity to increase drilling on the properties. "As a result of the agreement, we'll be able to increase our exposure to a greater number of prospects at a time when costs are low." Powers said.

John Norris

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