Houston-based KCS Energy Inc. said on Wednesday that its third quarter 2001 drilling program was successful in the Mississippi Salt Basin, South Texas and Mid-Continent regions. However, the company warned that because of currently weak commodity prices it plans to scale back drilling in the fourth quarter.

“Although our technical staff continues to build our drilling inventory and we have a cash balance in excess of $25 million, we have planned to reduce the level of rig activity in the fourth quarter in response to the current lower price environment for natural gas and oil,” said COO William N. Hahne.

Hahne told NGI that the company would have been drilling about 120 wells during 2001, but due to the current price levels it has deferred approximately 20 wells until 2002. The 20 wells represent about two-thirds of the wells KCS would have drilled in the fourth quarter, he said. “We are building our inventory, we are amassing prospects and waiting for drilling prices to come down and at the same time conserving some cash,” Hahne said. “Long term, we are bullish about prices, we are very bullish about our inventory of prospects and our ability to really add reserves in production, but we need to be diligent about our cash flow and all of our obligations and make sure we balance them all together. The prices are terrible right now.”

During the third quarter in the Mississippi Salt Basin, KCS said the exploratory Miller Price #1 well in Jones County, MS tested at 636 b/d of 45 degrees gravity oil and 775 Mcf/d of natural gas from a Cotton Valley aged formation. In addition, the extensional Williams #1 well, also in Jones County, MS logged two Hosston aged pay sands with over 50 feet of apparent pay and will be tested in the next few weeks. KCS has a 25% working interest.

The company also participated in four exploratory discoveries in South Texas during the third quarter. The company has also experienced success in the Midcontinent during the third quarter. KCS said it also has a multi-well drilling program ongoing at the Battle Creek Field in central Montana and expects to begin a multi-well drilling program in the Elm Grove and Calhoun fields in North Louisiana in early 2002. Twenty wells have been drilled in 2001 at the Battle Creek Field and are shut in, awaiting completion or pipeline connection.

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