PennzEnergy Co. and Sonat Exploration Co. formed a joint ventureto develop mineral interests underlain by coal bed methane at the700,000-acre Vermejo Park Ranch in northeast New Mexico.PennzEnergy has held the bulk of the mineral rights since 1970.

Sonat Exploration will pay up to $10 million in cash and fund asubstantial development program to earn a 36-year lease coveringpart of PennzEnergy’s mineral interest in Vermejo Park Ranch andadjacent holdings. Houston-based PennzEnergy will initiallyparticipate with a 25% working interest in the venture and willincrease its working interest incrementally to 50% as the projectreaches defined milestones. In addition to its working interest,PennzEnergy will retain a 25% royalty in its lease to SonatExploration. Closing of the transaction is subject to certainpreferential rights held by the landowner.

“This transaction involving our fee mineral acreage in the RatonBasin allows us to commercialize a significant non-producing assetto generate long-term reserve and production growth,” saidPennzEnergy CEO Stephen D. Chesebro’. “We can acceleratedevelopment drilling on acreage holding the potential tosignificantly increase our reserves while minimizing our capitalexposure and reducing geologic and technical risk. We expect thatVermejo Park Ranch, a long-lived asset, will significantly increasethe gas component of PennzEnergy’s total production and reservebase.”

The venture’s acreage position is the largest leasehold in theRaton Basin. This year PennzEnergy and Sonat Exploration expect todrill a minimum of 35 wells. Plans call for drilling 80 wells in2000 and 150 wells each year thereafter. Reserves associated withthe joint venture properties are estimated to exceed one Tcf ofcoal bed methane. This is the first time PennzEnergy has partneredwith Sonat, a spokeswoman said.

To accommodate near-term gas sales generated by the developmentprogram, Sonat Exploration has agreed to construct at its ownexpense during 1999 a gathering line north from Vermejo Park Ranchto interconnect with a regional transportation pipeline. The mostlikely tie-in is with the El Paso Natural Gas system. Longer-termplans call for Sonat Exploration to possibly build a pipeline toserve the production. “We’re still looking at different optionswith regard to a pipeline that would serve this project,” aspokesman said.

Sonat Exploration has an option to discontinue participation inthe joint venture beyond September 1, 2000. Sonat Exploration’sinterest in the project, including any related improvements made,would be assigned to PennzEnergy at no cost.

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.