PennzEnergy, Sonat Form New Mexico Joint Venture
PennzEnergy Co. and Sonat Exploration Co. formed a joint venture
to develop mineral interests underlain by coal bed methane at the
700,000-acre Vermejo Park Ranch in northeast New Mexico.
PennzEnergy has held the bulk of the mineral rights since 1970.
Sonat Exploration will pay up to $10 million in cash and fund a
substantial development program to earn a 36-year lease covering
part of PennzEnergy's mineral interest in Vermejo Park Ranch and
adjacent holdings. Houston-based PennzEnergy will initially
participate with a 25% working interest in the venture and will
increase its working interest incrementally to 50% as the project
reaches defined milestones. In addition to its working interest,
PennzEnergy will retain a 25% royalty in its lease to Sonat
Exploration. Closing of the transaction is subject to certain
preferential rights held by the landowner.
"This transaction involving our fee mineral acreage in the Raton
Basin allows us to commercialize a significant non-producing asset
to generate long-term reserve and production growth," said
PennzEnergy CEO Stephen D. Chesebro'. "We can accelerate
development drilling on acreage holding the potential to
significantly increase our reserves while minimizing our capital
exposure and reducing geologic and technical risk. We expect that
Vermejo Park Ranch, a long-lived asset, will significantly increase
the gas component of PennzEnergy's total production and reserve
The venture's acreage position is the largest leasehold in the
Raton Basin. This year PennzEnergy and Sonat Exploration expect to
drill a minimum of 35 wells. Plans call for drilling 80 wells in
2000 and 150 wells each year thereafter. Reserves associated with
the joint venture properties are estimated to exceed one Tcf of
coal bed methane.
To accommodate near-term gas sales generated by the development
program, Sonat Exploration has agreed to construct in 1999 a
gathering line north from Vermejo Park Ranch to interconnect with a
regional transportation pipeline. The most likely tie-in is with
the El Paso Natural Gas system. Longer-term plans call for Sonat
Exploration to possibly build a pipeline to serve the production.
"We're still looking at different options with regard to a pipeline
that would serve this project," a spokesman said.
Joe Fisher, Houston
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