Aspen Pipeline LP affiliate Odessa Fuels Marketing LLC has signed a definitive agreement with Tulsa-based Arena Resources Inc. to purchase natural gas from Arena’s Fuhrman Mascho properties in the Yates formation in Andrews County, TX. Aspen has also signed a definitive agreement with PSEG Texas LP subsidiary Odessa-Ector Power Partners LP to deliver Yates formation gas in a dedicated pipeline to the PSEG Texas 1,000 MW energy generation facility just outside Odessa, TX.

The gas from the Yates formation at an approximate depth of 3,000 feet has a high nitrogen content and is often considered too costly to produce because of the need to remove the nitrogen before transporting. The PSEG Texas power plant can consume a gas blend containing Yates formation gas without removing the excess nitrogen. Terms of the deals were not disclosed.

Aspen said it plans to construct a 20-inch diameter pipeline with an initial length of 65 miles to gather Yates formation gas, inclusive of recompletions and new drilling opportunities from Ector and Andrews counties in Phase I and later from Gaines County in Phase II. The agreements call for primary terms of 15 years for both Arena and Odessa-Ector Power Partners.

“Given the shallow depth and relative easy access to this formation for the producer, an advantageous market fuel source in addition to a new pipeline gathering installation in the region, this project is a win-win for all parties involved,” said Russ Bourquein, senior vice president of Aspen Pipeline LP. “Aspen is pursuing expanding its footprint in the region through current negotiations with incremental en- user markets. In addition, Aspen has co-development partners looking to participate in contracting and drilling Yates formation acreage along the proposed pipeline route with Aspen.”

Bourquein told NGI that the natural gas purchases will begin with the start-up of the pipe, which is expected to be ready for commercial service during 1Q2009.

Arena’s Fuhrman Mascho properties comprise in excess of 22,000 acres with drilling rights to the Yates formation on approximately 18,000-plus acres. Arena has agreed to dedicate the gas reserves to the project for the life of the reserves. It estimates there are 450 potential drilling locations, including approximately 100 idle or temporarily abandoned well bores.

Aspen noted that these wells that were drilled to a deeper, oil-bearing formation can be excellent candidates to be recompleted at the shallower Yates formation. The agreement with Arena requires that they drill or recomplete 60-90 wells per year for the first four years and strive on a best efforts basis to attain a volumetric goal of 30 MMcf/d or more.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.