Despite bullish prospects two years ago with the advent ofderegulated energy markets, California independent gas producers atthe start of 1999 are still struggling against depressed prices,slow developing electric and gas restructurings and a hard core ofthree major investor-owned utilities that have proven to beformidable competitors. One independent producer, Tri-Valley Corp.,in Bakersfield still expects to ride out continuing years of redink until real gas/electric competition and increased oil/gasprices eventually make current projects profitable in the long run.

For the short term, Tri-Valley’s CEO Lyn Blystone is bettingprices will stay depressed or perhaps go even lower.

“In a nutshell, we have opted for a fixed-price contract for ourgas supplies in 1999,” said Blystone, who heads the publicly heldnatural gas producer that has expanded to oil and gold in morerecent years. It is one of the top five independent gas producersin California, with most of its currently productive holdings inthe dry gas fields of the Sacramento Valley. Tri-Valley stirredinterest last spring with the announcement of a major drillingventure in the old dry gas fields near the northern central valleytown of Tracey, with the intent of proving up enough new gas tosupport a modest merchant electric power plant in the immediatevicinity. As of Feb. 1, however, Blystone reported that while thedrilling project is continuing, he still doesn’t know if there aresufficient supplies to support a power plant. He now estimates itwill be mid-year before he knows for sure.

In the meantime, Blystone, who is noted for his bullishpredictions and promoting, said he continues to look for similaropportunities elsewhere. “We were close on several other gasprojects, but they all got derailed,” Blystone said. “Sometimes thebest deals are the ones you don’t make. We’re not trying to make astatement, we just want to make some money. When all is said anddone, the utilities in this state are formidable competitors whoare not just going to roll over.”

Blystone is optimistic about gas-fired merchant powergeneration, but he is skeptical about where the long-term supplieswill come from since he thinks producers are currently “blowingdown” the gas cap at Elk Hills, rapidly pulling down what heestimates is up to 3 Tcf of supply, rather than reinjecting more ofthe supplies to bring up more oil.

For the future Tri-Valley thinks deep-drilling is the answer forsubstantial new gas supplies, maybe as much as 10 Tcf by drillingbelow 15,000 feet in a formation geologists call “Temblor,” locatednortheast of Elk Hills.

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