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Powder River Production Rises with New Pipes

Powder River Production Rises with New Pipes

By the end of the year, at least 400 MMcf/d of coal-bed methane gas will be flowing from the Powder River Basin in Wyoming and southeastern Montana, which is nearly double what is being produced currently and more than three times the total produced a year ago.

This promising coal-bed methane play, which took the national spotlight last year, is expected to be one of the fastest growing producing areas in the country over the next decade. The major players in the basin see their production growing by 75% or more on an annual basis for the next several years perhaps longer given favorable regulatory treatment and the absence of pipeline constraints.

Several new pipelines put in place late last year have alleviated constraints. They include the Bighorn Gas Gathering Pipeline (formerly known as the Northern Header), a 250 MMcf/d pipeline which opened in December and connects at its southern terminus with another new line, the 450 MMcf/d Fort Union gathering system. Western Gas Resources' also expanded its MIGC gathering line to 130 MMcf/d. Devon and KN Energy (now Kinder Morgan) built the 450 MMcf/d Thunder Creek pipeline late last year. And downstream of those lines at Glenrock, WY, is the new 260 MMcf/d Medicine Bow lateral, which expanded access to Wyoming Interstate Co.'s pipeline system. Several other compressor station expansions also are currently underway.

This year producers are expected to take full advantage of the new market access with aggressive drilling programs. "We're projecting our production to grow substantially over the next couple years," said Barrett Resources Executive Vice President and CFO Frank Keller, referring to Barrett's partnership with Western Gas Resources in the Powder River. Barrett and Western currently hold about 925,000 acres in the basin and were producing about 120 MMcf/d at the end of 1999. With plans to drill 800 wells in each of the next two years, they expect production will grow to 180-200 MMcf/d by the end of this year and to at least 290 MMcf/d by the end of 2001.

"The Powder River basin is gaining quite rapidly as being our largest producing area," said Keller. "The Wind River basin also is quite large to us and we are producing about 100 MMcf/d there also. The Piceance Basin is a development area and we probably have five or six years of drilling out there and will grow that production above 100 MMcf/d; it's a low risk development drilling area also. But if you are looking for a basin with rapid production growth and reserve additions, [the Powder River] is the one that we're certainly going to focus on because we've got over 900,000 acres there and that's a big lease position."

Pennaco Energy, another large leaseholder and one of the most active operators in the basin, said since early November its gross coal-bed gas production has increased by 110% to 46.1 MMcf/d and is expected to grow to 120 MMcf/d by the end of the year and 200 MMcf/d by the end of 2001.

"We are still quite early in the infrastructure buildout since only 42% of our 642 wells drilled thus far are hooked up and producing gas and only 5% of our lease acreage has been drilled," said Pennaco CEO Paul M. Rady. "We are working very hard on connecting wells and expect to shorten the time delays to hook up as we go forward, which should accelerate our production ramp up."

Denver-based Pennaco is entirely focused on the exploration and production of gas from coal bed methane properties in the Powder River. The company currently holds 347,000 net acres, including 285,000 net acres held in its joint venture with CMS Oil and Gas. It was the most active operator in the basin in 1999 with 468 gross wells drilled and operated.

Meanwhile other producers in the basin, such as Devon Energy, are maintaining similarly aggressive paces now that significant new pipeline infrastructure has been installed. Devon spokesman Zack Hager said the company drilled 400 wells last year (335 net) and plans to drill 600 this year. Production is expected to ramp up to 65-75 MMcf/d by year end and reach a peak in either 2003 or 2004 of about 250 MMcf/d. Devon's Thunder Creek Gathering line currently has a throughput of about 60-70 MMcf/d but is expected to reach 160 MMcf/d by the end of 2000. Its capacity is 450 MMcf/d.

"We like what we see so far," said Hager. "Our commitment to the Powder River is pretty strong as is shown by our building the 126 mile Thunder Creek line. There is plenty of capacity now for the basin to grow."

Petrie Parkman analyst Stu Wagner, who has been following the field closely over the past couple years said, "The play seems to be moving ahead very well. There were some delays because of de-watering permits, and the EIS finally came out in November covering 5,500 drilling permits. But 2000 looks like it will be a very good year for the Powder River. There's a lot of pipeline capacity, more than 1.2 Bcf/d of exit capacity. They were pipeline constrained for a while. There isn't a whole lot of space downstream of Glenrock, WY, however. If you get another big drilling this year and another in 2001, you might need a new piece of pipe out of Glenrock to Cheyenne in 2002.

"There's going to continue to be a lot of activity especially in the WyoDak coal," he said. "Then they will get into the Big George coal in the western side of the basin where there are a number of pilot programs going on. It is believed that while there will be a lot of water in the Big George, there also will be more reserves per well and higher deliverability," said Wagner. He said that while the WyoDak coal holds proved reserves of about 5-8 Tcf, the Big George coal on the western side of the basin could easily double that.

"In order to keep this pace of growth going forward," said Barrett's Keller, "there's going to have to be some contribution from the deeper coals. Right now most everybody is producing from a coal that we're calling the WyoDak and that's the coal that is being mined on the eastern plank of this productive area. That for the most part is a development area right now and about half of our acreage is on that development area. But as you move west into the basin, you begin to have the opportunity to drill into deeper coals. The deepest coal out there is about 2,500 feet deep so we're not talking extremely deep coal. But the deeper coal is thicker and gives you the opportunity to tap into 250 feet of coal versus the WyoDak, which is somewhere around 90 feet thick.

"There really isn't any drilling going on in the deeper coal right now because of some of the restrictions getting [EIS] permits. Many operators have drilled into the coal with one or two wells and feel very comfortable that the gas content is there. In fact we think because it is a little deeper and has been under a little higher pressure with the water table on it that these coals are going to contain more gas. In the core samples they do give up more gas. The big question that everybody has to answer is can we de-water this coal. We will be drilling into that deeper coal this year in a 20-well pod, which we will begin de-watering. The question will be can we de-water it, and what period of time will it take to de-water."

Water issues have been somewhat of a stumbling block for producers because the wells in the Powder River carry a large amount of potable water that can be used by ranchers and farmers. However, the producers have been making some headway in negotiations with the Department of Environmental Quality on water discharge issues.

"We're working very closely with the Department of Environmental Quality and believe that we have a process to establish a general use permit, which will standardize the water discharge issue and make it so that everyone knows the rules in order to get a water discharge permits to begin de-watering wells," said Keller.

Beginning in March Barrett also plans to begin writing a new environmental impact statement (EIS) which will incorporate some new lands and may cover as many as 15,000 drilling permits.

"The EIS will cover issuing permits on federal lands, but we have enough [fee-based] and state land where we are projecting that we will be able to drill 800 wells in each of the next two years," said Keller. [The EIS] is not going to hold us up."

Rocco Canonica

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