Denver-based PRB Gas Transportation, Inc. and Calgary-based Enterra Energy Trust said Wednesday that they have finalized the definitive agreement to develop coal bed methane properties in an area of mutual interest in Wyoming and Montana. As reported in July (see Daily GPI, July 13), PRB will have the right to earn up to a 50% working interest in certain properties of Enterra’s recently acquired subsidiary, Rocky Mountain Gas (RMG).

The RMG properties, which hold natural gas leases in Montana and Wyoming, include in excess of 130,000 net acres of coal bed methane production rights. Under the final agreement, PRB will be able to provide up to $21.8 million to acquire, drill and develop coal bed methane properties owned by RMG in the Powder River Basin. There are five development areas within the RMG properties.

As PRB expends capital, it will earn a 50% interest in the 80 acres around each well developed and, on completion of the development of an area as defined in the agreement, PRB will earn an interest in such development area. The Wyoming development areas include the North Gillette, South Gillette, Reno and Dilts acreage and the Montana property is Castle Rock.

PRB said it has already initiated a drilling program in the three development areas in Wyoming and is participating in a 63 well program in Castle Rock. For the sake of continuity, PRB hired the RMG employees that are managing the RMG production for Enterra effective August 1, 2005, and as agreed, Enterra will reimburse PRB for the cost of these employees. As production increases from the drilling program, PRB said it will begin to share on a proportionate basis the cost of these employees.

In Wyoming, PRB said it has drilled or completed eight wells so far. Management anticipates these wells will be generating cash flow during the fourth quarter of 2005. Plans call for having an additional rig deployed in North Gillette in mid-September where two more wells, which have necessary permits, will be drilled. PRB management said it anticipates that drilling permits for 12 more wells in the North Gillette will be issued in September and plans to have a total of 24 wells drilled by the end of October 2005. By the close of the first half of 2006, management said it expects to have nearly 140 wells drilled and completed on the Wyoming properties.

As for the South Gillette play, a hearing with the Wyoming Oil & Gas Commission has been scheduled for Sept. 13, 2005. PRB said it believes that the necessary permitting will be obtained during Nov. 2005. Based upon this timetable, the company plans to have drilled and completed 20 wells on the South Gillette acreage by 2005 year-end.

On the Castle Rock acreage in Montana, PRB said it is participating in three wells that are currently being drilled. Upon completion, the wells will enter a 30 day production test. After the evaluation of the well tests, the plan is to drill 60 more wells utilizing several drilling rigs. The plan calls for all 63 wells to be producing by mid-year 2006.

Also on Wednesday, PRB announced its entry into to the midstream gas market adding that it is currently in the process of constructing a new gas processing facility to service several producers. The plant is expected to generate cash flow beginning in early 2006.

“We have modified and expanded our business plan with the finalization of this agreement with Enterra which marks a major milestone in our corporate development,” said PRB CEO Robert W. Wright. “This allows us to have greater control over our operations and since the signing of the Letter of Intent, we have been moving forward with our strategy of finding additional opportunities for gas processing and gathering by partnering with Enterra on these drilling programs. As the drilling partner, we will also be earning a working interest in the gas production, the percentage of which will increase as our investment grows. The production that we expect to have going in the fall should make PRB operating cash flow positive for the fourth quarter of 2005. We are also very enthusiastic about the prospects of providing gathering services to producers in this area.”

Enterra CEO Keith Conrad said, “This is a win-win arrangement for both companies. PRB has the know-how and access to capital to develop and expand our existing coal bed methane assets. Enterra enjoys the benefits of the cash flow generated by the additional production on the properties without additional capital expenditures.”

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