The CEO of Denver-based Barrett Resources Corp. said last weekthat producers are already worrying about how they will transportfuture supplies of natural gas out of the prolific Rocky Mountainbasin and surrounding areas, and warned that they need to “step upand take some risk” in an effort to move along pipeline proposalsto do more than transport the gas regionally.
Peter A. Dea, who also chairs Barrett, shared investors’ timewith forecasters from Newfield Exploration Midcontinent Co. andPioneer Natural Resources Co. at UBS Warburg’s 13th Annual EnergyConference in New York City. Dea said that the Denver market nowtakes most of the natural gas produced in the region, but hepredicted that within a few years, the production would surpassdemand.
“Denver’s about it, and it can’t consume all of the gas expectedto be produced there,” he told analysts. “We’ve got firmtransportation. And producers will always be able to sell gas, butif you can’t get the gas sold in the Rockies, you’ve got to be ableto send it somewhere else.”
Dea said the “answer needs to be addressed right now. Pipelineprojects haven’t gotten a lot of support” and he said it was “timefor producers to step up and take some risk.” He said there’salways been a hesitation on the part of producers because of thecosts involved and they tend to be more interested in “interbasin”pipeline solutions.
Barrett’s strategic focus has always been on Rocky Mountainnatural gas, and currently the company is leveraged about 96% tonatural gas. It holds lease plays throughout the Rockies, and isone of the largest leaseholders in the Powder River basin, with thehighest coalbed methane production in the United States. Dea saidthat overall, he expects the company to have about a 60% growth inproduction this year and currently, there is “plenty of pipeline totake our gas out of the Powder River basin.” However, with growthcoming not just for Barrett but for other producers, he predictedthat transportation problems would escalate.
David Trice, CEO of newly named Newfield ExplorationMidcontinent, thinks the opportunities in North Americanexploration and production of natural gas have never been better.His company, which is leveraged about 75% to natural gas, broadenedits focus and its name following its acquisition of LariatPetroleum Inc. last month.
With former Lariat CEO Randy A. Foutch running part of theNewfield show from Tulsa, Trice said the company now is expandingits focus on the U.S. Gulf Coast, using investments that have “paidoff” internationally in Australia and China.
“All of our projects are additive to the Gulf of Mexico,” Tricesaid. “We will not dilute our effort in the Gulf of Mexicowhatsoever. We’ll continue to have a very active explorationprogram there. Watch us closely as we move methodically to deeperwater.”
Trice said that the company has had “many discussionsinternally” about adding new focus areas. In 1998, he said Newfieldwas a “single basin” company, completely tied to the Gulf. “Today,we have more flexibility,” and he said the company also has morecapital to “shift spending to onshore areas.”
Trice said Newfield now can “choose areas where the costs aren’tas high and production is better. We can choose the right wells atthe right time. The complexion of Newfield has changed, but the waywe run our business has not changed.”
Pioneer Resources CEO Scott D. Sheffield also pointed to “greatsuccess” in West Texas, Kansas and the Gulf of Mexico, along withinternational growth in Africa, Argentina and Canada. With a growthrate of about 10% a year, Sheffield said the company’s mostimportant focus is “growing natural gas production.”
Pioneer drilled more than 300 wells in 2000 with a 90% successrate and it replaced 150% of its reserves, said Sheffield. With the”obviously high” gas prices, he said the company would use itsnewfound wealth to grow its exploration and production base andreduce debt. Carolyn Davis
Anadarko Chief Predicts Slow,
No U.S. Production Growth
Like other producers last week who pointed to flat growth (seerelated story) despite ramped up exploration and productionprograms, Anadarko Energy Services president Richard Sharplespredicted U.S. domestic gas production may rise only slightly thisyear.
Sharples, who addressed a record crowd at the Cambridge EnergyResearch Associates’ CERAWeek 2001 in Houston last week, called fordomestic energy producers to continue their quest for new gasreserves to offset the sharp declines in production from matureproducing basins.
Just maintaining the “current high level of activity,” Sharplessaid the mature basins would grow 1 Bcf/d, but producers have tofind 8.5 Bcf/d “just to stay even.” However, he held out only asmall hope that mature basins could grow that high. Anadarko now isrunning about 350 rigs for natural gas, mostly in the Bossier play,and it expects to see a “slight increase,” he said. Other basinswon’t do that well.
The outer continental shelf of the Gulf of Mexico has seen asharp decline in its production, and he said the Midcontinent “somature” that it wouldn’t matter how much drilling was done. Evenramped up deepwater drilling in the Gulf will not make up for theoverall decrease, he said.
In the ’70s and ’80s, Sharples said the North American surplusgas supplies were depleted, and U.S. markets depleted Canada’ssurplus supplies more quickly. Today, several things are slowingdomestic gas production, including an aged rig fleet, too-fewworkers and marginal drilling sites.
Rig efficiency has gone down because the producers are workingto obtain the last bit of gas from their mature basins, whichforces drills to go deeper and in tighter formations. Because fewerrigs are now being constructed, Sharples noted that inventory isnow pushed “beyond its capabilities.”
Another problem is a severe personnel shortage, especially onthe professional level, which he said was a critical issue. Theboom-and-bust cycles, coupled with the Internet age, have sentprospective graduates to other types of employment.
Also on his list of problems in the industry were the federalrestrictions, which have depleted prospective drilling sites bothonshore and offshore. Most criticized was the lockup of land in theRocky Mountains, which he said has kept nearly 200 Tcf of potentialgas reserves from development.
Carolyn Davis, Houston
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