Horace Greeley’s advice to “go west, young man,” has never beenmore true than for independent North American oil and gascompanies, which are claiming stakes in the Rocky Mountains andreaping huge returns from the untapped natural gas reserves thatlie beneath the deep, thick sands in the mountainous, multi-stateregion.
In an area where residents could once count goats to boostpopulation figures, they now can count oil and gas companies, whichhave moved to the region in increasing numbers, prompted by lowproduction costs and near certain success in the area’s play. Atthe Dain Rauscher Wessels Energy Conference in Houston this week,three independents explained why the region is drawing moreattention from producers — and why they’ve decided to concentratetheir work there.
The natural gas potential in the Rockies, which, for productionpurposes basically includes parts of New Mexico, Colorado, Utah andWyoming is amazing, considering that North America has drawn lessattention than other places across the globe because of its agingresources. In the Rockies, however, about 85% of its remainingproven and potential reserves remain — only 15% has been produced— totaling 388 Tcf in probable reserves.
It’s no wonder then that for the foreseeable future, “theRockies will pay a significant role in the North American gassupply,” said Barrett Resources Corp.’s Bob Howard, vice presidentof investor relations.
By growing through the drillbit, Denver-based Barrett hasincreased its stature in the region with niche acquisitions and aconservative fiscal posture — about 90% of its budget is gearedtoward low risk development. Its 2000 capital budget earmarked $227million for its 1,224 wells — 96% in the Rockies. The PowderRiver Basin in Wyoming holds the most, 1,088 wells, whileColorado’s Piceance area holds 87, Wind River has five wells andthe Uinta leases have 16 wells. Barrett also earmarked $36 millionthis year to obtain more leases in the Piceance.
“We are realizing unexplored potential there, and have an activeexploration effort planned for 2001,” said Howard of the company’sRockies development.
Tom Brown Inc.’s Dan Blanchard, CFO, said his company has pinneda lot of its hopes on the Rocky Mountain states as well, and in thelast few years has become a “significant” Wind River player. Alsofocused on natural gas production, Tom Brown had 137 MMcf/d in thesecond quarter, or about 82% of its production. Its Rocky Mountainreserves at the end of 1999 totaled 407 Bcfe. Texas holdings,mostly in the Permian basin, added 16%, or 83 Bcfe, and other areasadded 6%, or 34 Bcfe.
With nearly 2 million net areas in the Western Rockies,Blanchard said that the company believes it has “one of the mostsignificant net acreage positions” there. But he knows othercompanies are moving in.
“We are really seeing a reemphasis on exploration in the pastsix months.” A lot of the movement has come, he said, because thearea has a low annual acreage maintenance cost and an “excellentdevelopment success rate.” In the company’s Wind River Basinleases, there has been little competition up to now, he said, andthere are still many “significant high impact explorationprospects.” Tom Brown has 13 exploration prospects in its currentWind River inventory, with an individual prospect size of between50 Bcfe and 250 Bcfe. Three more exploration wells are set to bedrilled this year.
Focusing on what it calls the “forgotten corner” of the GreenRiver Basin in Wyoming, Ultra Petroleum, headquartered inEnglewood, CO, is tapping into huge reserves there, now controllingmore than 275,000 gross (200,000 net) acres in the play. CEOMichael D. Watford said the company, which is listed on the TorontoStock Exchange, has the opportunity “to be every bit as big as TomBrown and Barrett” given the resources it has to deal with.
And that’s coming from a near dead last position — in 1999 ithad practically zero cash flow. Today, it expects to have $12million in cash, and “be double that” next year.
“I think in five years we will grow 10 fold,” Watford said. Withrapid production and cash flow, Watford said the Green River Basin,its core asset, is helping to make the company the “premier energygrowth story of today.”
“We’re now delivering about 20 MMcf/d, and I think by the end ofthe year, the way the prospects are going, we’ll be at 30 MMcf/d,”said Watford. He’s also pushing for production success so that thecompany can move into a position to become more well known in theUnited States, something that will come entirely from its Rockies’assets.
With the huge successes by the little guys in the RockyMountains, Watford said that this is one story that’s bringing “alot of attention to this area.”
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