Attempting to gain access to a potentially plentiful Gulf ofMexico gas supply, KeySpan Exploration &amp Production announcedTuesday it agreed with Houston Exploration Co.to jointly drilland 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 atotal 4.5-5 Tcf. For 45% ownership of the leases, the KeySpanEnergy Corp. subsidiary will invest $100 million per year for threeyears into the drilling program. Houston Exploration will drill,develop, and market the gas. An annual 60-day cancellationprovision was included whereby each company retained the right toconclude the program. Offshore leases acquired in sales after thestart of the venture will not be part of the program. HoustonExploration acquired the 250,000 acres of property through federallease sales.

Tom Powers, a Houston Exploration spokesman, said the 5 Tcfestimate is what Houston Exploration “hopes” is available. “Trueestimates hardly ever add up to the unrisked potential.” Threedimensional seismic exploration of the leases has already started.

KeySpan, which owns 64% of Houston Exploration Co., bought itsinterest in the properties with the intention of turning them intoa “critical supply area for the Northeast gas market,” said RobertCatell, CEO of KeySpan Energy Corp. KeySpan Energy operates twoutilities that distribute gas to 1.6 million customers in New YorkCity and Long Island.

In addition, KeySpan views the joint venture as a way to bolsterits presence in the Gulf of Mexico. “We have a strategy to improveour Gulf of Mexico position. We intend to do that using HoustonExploration, which is our main arm in the region,” Ed Yutkowitz, aKeySpan spokesman said.

For Houston Exploration, the transaction equals a primeopportunity to increase drilling on the properties. “As a result ofthe agreement, we’ll be able to increase our exposure to a greaternumber of prospects at a time when costs are low.” Powers said.

John Norris

©Copyright 1999 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.