Coalbed methane (CBM) production, which up to now has been mostly centered in the Rocky Mountain Basin, appears to be where it’s at for both large and small domestic producers, with several recent announcements to beef up exploration and production in not only the well known basin in Colorado, Utah and Wyoming, but also in smaller plays around the United States.

While many producers’ legacy assets are already entrenched in CBM production, others are muscling into the gas-rich arena. Phillips Petroleum’s Americas Division, which last year sold off some of its Gulf of Mexico offshore assets to buy property in the Rocky Mountain region, has a long-range strategy that is putting the energy giant on a path to grow its Lower 48 CBM production to 48% of its total production in the continental United States by the end of the decade. Another venture, by U.S. Energy Corp. and Crested Corp.’s Rocky Mountain Gas Inc. (RMG) subsidiary, has begun drilling developmental CBM wells on its Powder River properties. And on Friday, independent Infinity Inc. reportedly acquired leases on an additional 2,500 acres of CBM assets in its Antelope project in northwestern Colorado.

Phillips made the biggest CBM news last week, unveiling its plans at the 13th Annual Rocky Mountain Natural Gas Strategy Conference. Jim Bowles, president of Phillips Americas Division, told attendees that while the company will continue its exploration and production activities in the deepwater Gulf of Mexico and in frontier regions of Alaska, but said the future of Phillips in the Lower 48 will be focused on the Rockies, where the company will find a “significant source for our reserve replacements” in the future.

Noting that Phillips implemented its Western gas strategy in mid-2000, Bowles said that CBM was and will remain the focus of that strategy. “It has not been an easy road,” he said referring to the difficulty of working in the Rockies to extract CBM. “It’s a tough business.” However, he said, technology is key to making the E&P program work there, and will be the “keys to success” for the future.

Phillips’ expects CBM production to grow 10% a year through the decade, and expects returns of about 25%, Bowles said. Finding and development costs currently are less than $1/Mcf, he said, which makes CBM production profitable if gas stays above $2/Mcf.

Before 1999, Phillips’ CBM production was keyed to its assets in the San Juan basin of New Mexico, where it had 220 wells and was producing about 290 MMcf/d on 110,000 acres. After implementing its Western strategy last year, Phillips moved into the Powder River Basin, beginning work through a joint venture in the Grizzly play. It also has projects begun or in the pilot stage in Drunkards Wash and the Sand Wash in the Powder River, as well its newest acquisition in the Wind River Basin, where it has 40,000 gross acres.

Counting San Juan production, today, Phillips entire CBM production in the Lower 48 totals 1,700 wells, which are producing about 580 MMcf/d on 800,000 acres. Production figures will only rise, Bowles said.

“We’ve moved into a significant growth position in a short period of time,” Bowles said, noting that while its San Juan play has begun to decline slightly, the Powder River play is “emerging in value.”

By 2005, Bowles said Phillips expects to be producing about 400 MMcf/d from the Rockies, which would account for 40% of its total U.S. natural gas production.

During a conference call Friday, Infinity announced it had upped its CBM assets, and also reported that it is generating additional revenues from the unexpected production of oil at one of the initial gas wells at its Pipeline project in Wyoming. The purchase price was not disclosed

The independent energy exploration/development and oilfield services company reported that the acquisition of an additional 2,500 acres in northwestern Colorado expands the amount of its leased property in the Antelope project by 16% to a total of approximately 18,500 acres. Infinity has an approximate 83% net revenue interest and a 100% working interest in the entire 18,500 acres.

“While near-term drilling activities will be focused on our Pipeline and LaBarge coalbed methane projects in Wyoming, we believe the Antelope project has similar long-term potential for natural gas production,” said Stanton E. Ross, Infinity CEO. “We acquired 16,000 acres in the Piceance Basin in northwestern Colorado last November, under lease terms that do not require Infinity to drill for a number of years. While this allows us to initially devote our corporate resources to the development of coalbed methane reserves in Wyoming, the addition of 2,500 more acres in Colorado should enhance the long-term potential of Infinity’s portfolio of coalbed methane properties.”

During the conference call, Ross also informed investors that one of the initial five CBM wells at its Pipeline project is producing approximately 50 bbl/d of high-quality oil as a byproduct of its natural gas production. “This has been a pleasant surprise,” noted Ross. “Of course, we cannot determine if the well will continue to give up condensate at this rate, or if any other Pipeline wells might produce condensate in economic amounts. However, if condensate production continues at current levels from the Pipeline 1-4 well, it could add 3-4 cents per share to our earnings on a quarterly basis.”

Meanwhile, RMG currently holds 22 drilling permits on its CBM properties and has surveyed and applied for an additional 32 permits within the project. RMG President Peter G. Schoonmaker said last week that the company’s objective “is to establish natural gas production and expand our reserves by calendar year end. Location of the initial wells was influenced by their close proximity to gas transmission pipelines and successful wells on nearby properties. Target depths for the initial wells will range from 400 to 2,000 feet below the surface.”

Funding for the RMG deal is coming from Carrizo Oil & Gas Inc.’s wholly-owned subsidiary, CCBM Inc. of Houston, is funding the initial phase of the drilling program under an agreement made in July, according to U.S. Energy. RMG will be the operator.

“Last month, we announced an agreement with Carrizo Oil & Gas, Inc. that provides financing for the further development of approximately 250,000 gross acres prospective for coalbed methane in Montana and Wyoming,” noted Keith G. Larsen, president of U.S. Energy. “Current plans call for the drilling and completion of up to 30 CBM wells on RMG’s Powder River Basin properties before winter weather restricts this year’s activities.”

RMG owns a 50% working interest in approximately 185,000 acres of leases prospective for CBM and shallow gas in the Powder River Basin, of which 112,000 acres are subject to an option and farm-in agreement with Suncor Energy (Natural Gas) America Inc. The companies also own various interests in about 6,000 gross acres in the Powder River Basin and a 100% working interest (subject to a 25% participation option held by Anadarko Petroleum Corp.) in 63,000 net mineral acres in the Oyster Ridge project in southwestern Wyoming.

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