Oh, to be an independent today holding properties withdiscovered natural gas! Two years ago, you may not have been ableto use that collateral for much, but those days are gone. Naturalgas prices have skyrocketed, coupled with consumers’ thirst for it,and if you have properties ready to be tapped for natural gas,these are the days.

According to Houston’s Baker Hughes Inc. rig counts haverebounded big time. In the United States, soaring energy prices anda tight supply market is keeping producers drilling on andoffshore. In August, the U.S. rig count was 987, up 45 from Julyand 348 from August 1999. The Canadian rig count, artificially lowbecause of bad weather, saw its rig count rise to 319 in August, up11 from July and 49 from August 1999.

But even if producers have the properties, it’s not full steamahead yet. The Independent Petroleum Association of America (IPAA)estimates it takes three to 15 months for a “relatively routineproject” to be completed, depending on government permitting,availability of drilling equipment, labor availability, time todrill the well, infrastructure to connect to natural gas pipelinesand the weather at the drilling site. The larger and morecomplicated sites take even longer.

Still, it has been a remarkable summer for many North Americanindependents. In just the past few weeks, some of the smallercompanies, which sat on many of their properties through thedownturn, now are primed for production, and are pushing newproduction through the end of the year.

The future never looked so bright for San Diego-based RoyaleEnergy, which has successfully drilled and completed two new wellsin its Victor Ranch/East Rice Creek field, and now is producing ata cumulative rate of 3,800 Mcf/d. A third well was logged on Sept.2, with more than 30 net feet of natural gas-filled sands. Thecompany is now drilling a fourth well in the field, and expects todrill three more wells there before the end of the year.

“We’re taking advantage of the current strength in commodityprices and the resulting cash flow generated to increase ourcapital expenditures and drilling schedule through the remainder ofthe year,” said Royale President Don Hosmer. Despite the downturnin prices, Royale made an investment in seismic data in 1998 and1999, and Hosmer said that the recent success has “validated ourexploration strategy.”

Calgary’s Tusk Energy Inc. has seen a dramatic rise in itsproduction since the beginning of the year, too. During the thirdweek of August, including a recent well success at Saddle Lake,production was 684 boe/d, or 26% higher from the average levels ofthe entire second quarter. (Tusk uses a 10:1 ratio to convert gasto oil equivalent; using 6:1; Tusk’s boe would be 835 boe/d.)

“The focus on the second half of the year will be on addingproduction and cash flow through drilling,” said the company in astatement. Since June 30, the Canadian independent has beeninvolved in five wells, including a gas well at Saddle Lake, AB,(40% ownership) and oil wells at Silverdale. Current plans call forthe drilling of at least two more wells at Silverdale and up tofour more in the Saddle Lake/Whitefish Lake areas before the end ofthe year.

The increased cash flow to operations also is allowing a lot ofthe independents to do more exploration and take chances. Houston’sEEX Corp. invested nearly $36 million in the first six months ofthis year to increase production and add reserves in its onshoreproducing assets. Tom Hamilton, CEO, said that the investment isproviding a “solid base for our long-term growth strategy.”

By all accounts, the strategy is paying off. Following a recentsuccess at its Llano No. 3 in the Gulf of Mexico, EEX now isdrilling a well to test the Jason Prospect in water depths of up to18,000 feet. It also has an interest in a second well drilling inthe Mason Prospect on Garden Banks 562.

“We believe that these two wells are important steps to definethe potential of the area surrounding the Llano discovery,” saidEEX’s David Henderson, COO. “Additional discoveries would enhancethe value of our major leasehold and infrastructure holdings in thearea.”

Denver’s Credo Petroleum Corp. is enhancing its production,especially in the Powder River Basin of Wyoming, where it owns anaverage 23% in 17,000 gross acres of coal bed methane leases.Nearly 20 wells already have been drilled on the Recluse Prospect,and production testing and pipeline connections are expected byyear’s end. It also is developing four gas wells in Woods County,OK, where initial production rates ranged up to 1.5 MMcf/d.

Clayton Williams Energy Inc., based in Midland, TX, hascompleted and is testing the bottom 104 feet of reef in its fourthPinnacle Reef well, the McGrew Unit #1, in Robertson County, TX for9.9 MMcf/d with 4,000 psi flowing tubing pressure and 465 barrelsof water per day. After the testing, the company plans to completethe drilling and begin production.

Just last week, Houston’s Beta Oil & Gas Inc. announced twonew successful wells in the Expanded Yegua/Frio trend in JacksonCounty, TX. One well tested at a rate of 2.8 MMcf/d with nearly 30barrels of condensate/day. The other tested at a rate of 1.2 MMcf/d.

Also last week, Osprey Energy Ltd., based in Bridgewater, NS,began production on an additional six wells in its NorthernLouisiana Cotton Valley field. Three more wells are expected to bein production by the end of the year. All of the wells there nowwere drilled in 1997 and 1998 by a major producer, and 11 of the 12wells are fully equipped and tied to gas pipelines. Osprey saidthat it would continue to “pursue opportunities in the oil and gasmarketplace to enhance shareholder value by increasing cash flowand building reserves.”

Danoil Energy Ltd., headquartered in Calgary, said last weekthat it has passed a “significant milestone,” and estimates thatits current daily production exceeds 5,000 boe – 16 MMcf/d and3,400 b/d of oil and NGLs. The production additions resulted fromstepped up drilling activity and the completion of an existingwell. Six new wells were added in the third quarter alone, and thecompany plans to drill six more before the end of this year.

United Heritage Corp., based in Cleburne, TX, said that itswholly owned subsidiary UHC New Mexico Corp. will begin an infillwell drilling program in the northwest portion of the Cato unit inCaves County, NM on Oct. 1. The program will consist of as many asfive wells, drilled on 20-acre spacing. The first phase of theproject calls for production of up to 1 MMcf/d of gas by Dec. 31and up to 1,000 b/d of oil.

Irving, TX-based Magnum Hunter Resources Inc. has participatedon two natural gas discoveries in the shallow water shelf of theGulf of Mexico, and estimates that its net daily production shouldreach 9 MMcf of natural gas by the end of summer, and exceed 25MMcf/d by early 2001 from just its latest discoveries.

Chieftain International Inc., based in Edmonton, has brought ineight new fields that will begin production in the last few monthsof this year and first quarter of 2001. So far this year alone,Chieftain has participated in drilling 16 wells in the Gulf ofMexico and onshore South Louisiana — nine have been successful.

Carolyn Davis, Houston

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