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Independents Gain Foothold In Rocky Mountains

Independents Gain Foothold In Rocky Mountains

Horace Greeley's advice to "go west, young man," has never been more true than for independent North American oil and gas companies, which are claiming stakes in the Rocky Mountains and reaping huge returns from the untapped natural gas reserves that lie beneath the deep, thick sands in the mountainous, multi-state region.

In an area where residents could once count goats to boost population figures, they now can count oil and gas companies, which have moved to the region in increasing numbers, prompted by low production costs and near certain success in the area's play. At the Dain Rauscher Wessels Energy Conference in Houston last week, three independents explained why the region is drawing more attention from producers - and why they've decided to concentrate their work there.

The natural gas potential in the Rockies, which, for production purposes basically includes parts of New Mexico, Colorado, Utah and Wyoming is amazing, considering that North America has drawn less attention than other places across the globe because of its aging resources. In the Rockies, however, about 85% of its remaining proven and potential reserves remain - only 15% has been produced - totaling 388 Tcf in probable reserves.

It's no wonder then that for the foreseeable future, "the Rockies will play a significant role in the North American gas supply," said Barrett Resources Corp.'s Bob Howard, vice president of investor relations.

By growing through the drillbit, Denver-based Barrett has increased its stature in the region with niche acquisitions and a conservative fiscal posture - about 90% of its budget is geared toward low risk development. Its 2000 capital budget earmarked $227 million for its 1,224 wells - 96% in the Rockies. The Powder River Basin in Wyoming holds the most, 1,088 wells, while Colorado's Piceance area holds 87, Wind River has five wells and the Uinta leases have 16 wells. Barrett also earmarked $36 million this year to obtain more leases in the Piceance.

"We are realizing unexplored potential there, and have an active exploration effort planned for 2001," said Howard of the company's Rockies development.

Tom Brown Inc.'s Dan Blanchard, CFO, said his company has pinned a lot of its hopes on the Rocky Mountain states as well, and in the last few years has become a "significant" Wind River player. Also focused on natural gas production, Tom Brown had 137 MMcf/d from its Rocky Mountain holdings in the second quarter, or about 82% of its production. Its Rocky Mountain reserves at the end of 1999 totaled 407 Bcfe. Texas holdings, mostly in the Permian basin, added 16%, or 83 Bcfe, and other areas added 6%, or 34 Bcfe.

With nearly 2 million net areas in the Western Rockies, Blanchard said that the company believes it has "one of the most significant net acreage positions" there. But he knows other companies are moving in.

"We are really seeing a reemphasis on exploration in the past six months." A lot of the movement has come, he said, because the area has a low annual acreage maintenance cost and an "excellent development success rate." In the company's Wind River Basin leases, there has been little competition up to now, and there are still many "significant high impact exploration prospects." Tom Brown has 13 exploration prospects in its current Wind River inventory, with an individual prospect size of between 50 Bcfe and 250 Bcfe. Three more exploration wells are set to be drilled this year.

Focusing on what it calls the "forgotten corner" of the Green River Basin in Wyoming, Ultra Petroleum, headquartered in Englewood, CO, is tapping into huge reserves there, now controlling more than 275,000 gross (200,000 net) acres in the play. CEO Michael D. Watford said the company, which is listed on the Toronto Stock Exchange, has the opportunity "to be every bit as big as Tom Brown and Barrett" given the resources it has to deal with.

And that's coming from a near dead last position - in 1999 it had practically zero cash flow. Today, it expects to have $12 million in cash, and "be double that" next year. "I think in five years we will grow 10 fold," Watford said. "We're now delivering about 20 MMcf/d, and I think by the end of the year, the way the prospects are going, we'll be at 30 MMcf/d."

With big successes by the little guys in the Rocky Mountains, Watford said that this is one story that's bringing "a lot of attention to this area."

Carolyn Davis, Houston

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