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 base."

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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