Bill Barrett Corp. announced plans last Wednesday to divest its Williston Basin oil and natural properties, beginning marketing efforts in early 2007 and closing during the second quarter. Production in the Williston Basin is approximately 1,200 boe/d or 5% of the company’s current production rate, the Denver, CO-based producer said. The company reported it has approximately 160,000 net undeveloped acres in the Williston Basin, and that proved reserves at year-end 2005 were approximately 32 Bcf equivalent. “Although we have been pleased with our progress in the Williston Basin thus far, we look forward to focusing our management effort and capital on other projects in our portfolio that should have a larger impact on our expected double-digit reserve and production growth,” said Fred Barrett, chairman and CEO of the company. Williston Basin is located along the eastern edge of the Rocky Mountains in western North Dakota, eastern Montana and southern Canada.
El Paso Corp. said it has paid PPM Energy and PPM Energy Canada Ltd $188 million to assume a 145,750 MMcf/d firm capacity obligation on Alliance Pipeline. El Paso said it will take a one-time charge in that amount in the fourth quarter. The capacity obligation represented largest remaining legacy pipeline capacity obligation of its dismantled energy marketing operation, El Paso Marketing LP. The capacity assignment and assumption of demand charges begins on Nov. 1, 2007, and extends until Nov. 30, 2015. The capacity runs from Western Canadian supply basins in British Columbia and Alberta to the Chicago market area. The transaction eliminates $65 million of annual demand charges. The company continues to make progress on divesting legacy assets. The marketing and trading division reported a third quarter loss of $108 million but that compared to a $398 million loss for the same period in 2005. In the first and second quarters of the year, the segment was in the black and its third quarter loss was mainly a result of the sale of Midland Cogeneration Venture.
Denver-based Teton Energy Corp. initiated a costless collar gas hedging program for 2007 that is intended to improve financial flexibility by locking in a portion of revenues and cash flow in the event that gas prices decline. The strategy should allow Teton to develop its long-lived producing assets and increase borrowing under its credit facility with BNP Paribas. Teton bought a Colorado Interstate Gas (CIG) put at $6.00/MMBtu and sold a CIG call at $7.25/MMBtu each for 30,000 MMBtu per month for January through December 2007 for a total of 360,000 MMBtu for the year. The company sells its gas in Colorado’s Piceance Basin at CIG index. Teton completed the hedges with senior bank BNP Paribas. Teton is an independent oil and gas exploration and production company focused on the acquisition, exploration and development of North American properties and has current operations in the Rocky Mountain region.
With its Alaska business forever tied to the possibility that natural gas supplies could be curtailed, Agrium Inc. plans to switch over its Nikiski nitrogen plant in Kenai, AK, from gas to coal. A final decision on whether to move forward with coal plant construction is scheduled for 2008, and if approved, the revamped plant would be operational in late 2011, company officials said. Agrium, Cook Inlet’s largest employer, considered shuttering the fertilizer facility this year after it once again had trouble securing gas contracts with area producers in 2005 (see NGI, Nov. 21, 2005). However, Alaskan officials and Agrium teamed up to consider using coal gasification as a feedstock for the facility, and earlier this year, a feasibility study was begun (see NGI, Sept. 11). Agrium is in the front-end engineering design and permitting phase for the project, which is expected to last 18-20 months. Under the current plan, the Homer, AK, Electric Association would take the lead role in building the Kenai Blue Sky Coal Gasification Project, which would include a 190 MW coal-fired power plant. About two-thirds of the power would be dedicated to the gasifier planned by Agrium. Another 70 MW would be available for the regional grid. Agrium now uses natural gas as a chemical feedstock to manufacture ammonia and urea at its fertilizer facility. Normal operations, which shut down in the winter, will resume in the spring. Agrium’s current gas contracts will expire in late 2007.
A modified settlement agreement reached between Vectren and the Indiana Office of Utility Consumer Counselor (OUCC) requires the utility to establish a five-year energy efficiency program estimated to cost $4.315 million. State regulators included a decoupling mechanism to allow Vectren to recover up to 85% of the gas sales it loses by encouraging utility customers to conserve energy. In the settlement (Cause Nos. 42943 and 43046) approved by the Indiana Utility Regulatory Commission (IURC), Vectren agreed to advocate conservation to all of its utility customers, establish a call center to answer customer questions about ways to reduce bills, provide benefits to customers as they work to reduce their bills, and provide an on-line audit tool. The IURC denied a proposed alternative return on equity test requested by the settling parties.
Houston-based midstream operator Copano Energy LLC. expanded its commodity risk management portfolio through the purchase of Houston Ship Channel Index natural gas call spread options to hedge a portion of its net operational short position in gas when operating in a processing mode at its Houston Central Processing Plant. The call spread options represent the purchase of gas call options and the concurrent sale of call options for the same volumes at a higher strike price. The call spread options will be settled monthly over a five-year period beginning January 2007 and ending December 2011. The company purchased the call spread options on Nov. 21 from two investment grade counterparties in accordance with its risk management policy. These options were implemented as cash flow hedges to mitigate the impact of increases in natural gas prices on the company’s Texas Gulf Coast Processing segment. Copano paid about $9.2 million for the options. The call strike (buy) price is $8/MMBtu in 2007, $8.15 in 2008, $7.75 in 2009, $7.35 in 2010 and $6.95 in 2011. Call volumes for the same years, respectively, are 11,400 MMBtu/d, 9,400, 8,000, 7,100 and 7,100. In each case the call strike (sell) price is $10/MMBtu.
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