Pipeline expansions in the Rocky Mountains are a “bullish sign for Rockies producers…that should result in lower differentials going forward and add value” to the region’s natural gas reserves, Gasco Energy Inc. CEO Mark Erickson said Wednesday.

Speaking to financial analysts about the company’s quarterly results, Erickson said Gasco “will benefit significantly” from the Rockies Express West (Rex West) pipeline, which received a positive draft environmental impact statement by the Federal Energy Regulatory Commission earlier this month (see NGI, Nov. 6). Rex West is sponsored by Kinder Morgan, Sempra Energy and ConocoPhillips.

Rex West will transport gas from the Cheyenne Hub in north-central Colorado to its terminus at the Panhandle Eastern Pipe Line interconnect in Audrain County, MO. It will include powering up the formerly named Entrega pipeline, which currently extends from the Piceance Basin to the Wamsutter Hub in Wyoming and to the Cheyenne Hub.

Gasco’s leasehold is in the Uinta Basin of Utah and the Greater Green River Basin of Wyoming, and Questar’s 20-inch diameter system passes through its Riverbend Project. About 97% of Gasco’s reserves are gas.

Gasco’s current wellhead break-even cost is $2.70/MMBtu, and the pipeline is sure to contribute to Gasco’s bottom line, said Erickson. Early last week, Rockies prices on CIG were $1.95/MMBtu, and on Northwest, they were $1.85/MMBtu. CIG prices were averaging in the mid $2.20s, down more than 70 cents. Opal was down 75 cents to just under $2.20, Northwest domestic plummeted more than $1.20 and Northwest South of Green River collapsed more than $1.60 to the $2.30s.

Despite strong production gains in the quarter, Erickson blamed lower gas prices across the board for Gasco’s earnings losses. In 3Q2006, Gasco reported a net loss of $0.8 million (minus 1 cent/share), compared with net income a year ago of $0.6 million (1 cent). Total revenues were up 30% to $6.1 million, versus $4.7 million in 3Q2005. Oil and gas sales for the quarter were $4.9 million, ahead of the $4.0 million for the same period in 2005, an increase of 22.5%. Gathering revenues were unchanged at $0.5 million.

Gasco reported lease operating expenses for the quarter increased to $0.7 million, 79 cents/Mcfe, from $0.2 million, 48 cents/per Mcfe. The increase was attributed to higher water hauling and disposal costs and to five workovers. Depletion and impairment expense decreased to $2.33/Mcfe from $2.47. Gathering expenses increased to $1.1 million from $0.3 million because of the cost of installing additional compression to the system and revisions in the way compressor fuel charges are calculated.

Gasco posted record quarterly production of 946.8 MMcfe, versus 489.3 MMcfe in 3Q2005. Gasco’s average price for natural gas and liquids was $5.00/Mcf, compared with $8.02/Mcf a year earlier. Net production increases are attributed to the completion of new wells and behind-pipe recompletions partially offset by normal production declines in existing wells.

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