Independents Say U.S. Gas Production to Grow

The CEO of Denver-based Barrett Resources Corp. said last week that producers are already worrying about how they will transport future supplies of natural gas out of the prolific Rocky Mountain basin and surrounding areas, and warned that they need to "step up and take some risk" in an effort to move along pipeline proposals to do more than transport the gas regionally.

Peter A. Dea, who also chairs Barrett, shared investors' time with forecasters from Newfield Exploration Midcontinent Co. and Pioneer Natural Resources Co. at UBS Warburg's 13th Annual Energy Conference in New York City. Dea said that the Denver market now takes most of the natural gas produced in the region, but he predicted that within a few years, the production would surpass demand.

"Denver's about it, and it can't consume all of the gas expected to be produced there," he told analysts. "We've got firm transportation. And producers will always be able to sell gas, but if you can't get the gas sold in the Rockies, you've got to be able to send it somewhere else."

Dea said the "answer needs to be addressed right now. Pipeline projects haven't gotten a lot of support" and he said it was "time for producers to step up and take some risk." He said there's always been a hesitation on the part of producers because of the costs involved and they tend to be more interested in "interbasin" pipeline solutions.

Barrett's strategic focus has always been on Rocky Mountain natural gas, and currently the company is leveraged about 96% to natural gas. It holds lease plays throughout the Rockies, and is one of the largest leaseholders in the Powder River basin, with the highest coalbed methane production in the United States. Dea said that overall, he expects the company to have about a 60% growth in production this year and currently, there is "plenty of pipeline to take our gas out of the Powder River basin." However, with growth coming not just for Barrett but for other producers, he predicted that transportation problems would escalate.

David Trice, CEO of newly named Newfield Exploration Midcontinent, thinks the opportunities in North American exploration and production of natural gas have never been better. His company, which is leveraged about 75% to natural gas, broadened its focus and its name following its acquisition of Lariat Petroleum Inc. last month.

With former Lariat CEO Randy A. Foutch running part of the Newfield show from Tulsa, Trice said the company now is expanding its focus on the U.S. Gulf Coast, using investments that have "paid off" internationally in Australia and China.

"All of our projects are additive to the Gulf of Mexico," Trice said. "We will not dilute our effort in the Gulf of Mexico whatsoever. We'll continue to have a very active exploration program there. Watch us closely as we move methodically to deeper water."

Trice said that the company has had "many discussions internally" about adding new focus areas. In 1998, he said Newfield was a "single basin" company, completely tied to the Gulf. "Today, we have more flexibility," and he said the company also has more capital to "shift spending to onshore areas."

Trice said Newfield now can "choose areas where the costs aren't as high and production is better. We can choose the right wells at the right time. The complexion of Newfield has changed, but the way we run our business has not changed."

Pioneer Resources CEO Scott D. Sheffield also pointed to "great success" in West Texas, Kansas and the Gulf of Mexico, along with international growth in Africa, Argentina and Canada. With a growth rate of about 10% a year, Sheffield said the company's most important focus is "growing natural gas production."

Pioneer drilled more than 300 wells in 2000 with a 90% success rate and it replaced 150% of its reserves, said Sheffield. With the "obviously high" gas prices, he said the company would use its newfound wealth to grow its exploration and production base and reduce debt. Carolyn Davis

Anadarko Chief Predicts Slow,

No U.S. Production Growth

Like other producers last week who pointed to flat growth (see related story) despite ramped up exploration and production programs, Anadarko Energy Services president Richard Sharples predicted U.S. domestic gas production may rise only slightly this year.

Sharples, who addressed a record crowd at the Cambridge Energy Research Associates' CERAWeek 2001 in Houston last week, called for domestic energy producers to continue their quest for new gas reserves to offset the sharp declines in production from mature producing basins.

Just maintaining the "current high level of activity," Sharples said the mature basins would grow 1 Bcf/d, but producers have to find 8.5 Bcf/d "just to stay even." However, he held out only a small hope that mature basins could grow that high. Anadarko now is running about 350 rigs for natural gas, mostly in the Bossier play, and it expects to see a "slight increase," he said. Other basins won't do that well.

The outer continental shelf of the Gulf of Mexico has seen a sharp decline in its production, and he said the Midcontinent "so mature" that it wouldn't matter how much drilling was done. Even ramped up deepwater drilling in the Gulf will not make up for the overall decrease, he said.

In the '70s and '80s, Sharples said the North American surplus gas supplies were depleted, and U.S. markets depleted Canada's surplus supplies more quickly. Today, several things are slowing domestic gas production, including an aged rig fleet, too-few workers and marginal drilling sites.

Rig efficiency has gone down because the producers are working to obtain the last bit of gas from their mature basins, which forces drills to go deeper and in tighter formations. Because fewer rigs are now being constructed, Sharples noted that inventory is now pushed "beyond its capabilities."

Another problem is a severe personnel shortage, especially on the professional level, which he said was a critical issue. The boom-and-bust cycles, coupled with the Internet age, have sent prospective graduates to other types of employment.

Also on his list of problems in the industry were the federal restrictions, which have depleted prospective drilling sites both onshore and offshore. Most criticized was the lockup of land in the Rocky Mountains, which he said has kept nearly 200 Tcf of potential gas reserves from development.

Carolyn Davis, Houston

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