The Wyoming Oil and Gas Conservation Commission has approved 20-acre-density drilling of Lance Pool wells on Questar’s Pinedale Anticline acreage in southwestern Wyoming. The decision allows the company to drill more than 100 additional wells and could lead to a significant expansion of its gas reserves, which prompted some analysts to boost their stock price targets on the company last Wednesday.

Questar (STR) subsidiary Questar Market Resources (QMR) currently has 76 proved developed producing wells and another 96 booked proved undeveloped locations on the Anticline using 40-acre spacing. With 20-acre spacing, the company expects to book an additional 124 proved undeveloped locations, for a total of 220 locations.

When the Pinedale field is fully developed on 20-acre spacing, QMR anticipates having an average 62% working interest in about 430 Lance Pool wells. And each of the wells is expected to recover incremental gross reserves of 3.8 to 8.8 Bcfe. Pinedale wells typically are drilled to depths of 14,500 feet.

The commission’s decision “is a key step in our ongoing plans to develop our Pinedale acreage using advanced pad-drilling techniques that minimize environmental impacts,” said QMR President Charles B. Stanley. “As production grows, the Pinedale field will provide a significant source of natural gas for the region and the nation.”

Merrill Lynch analyst Sam Brothwell called the ruling a “key development that should move the stock.” He estimated that the 20-acre well spacing could add between 500 Bcfe and 1 Tcfe of gas reserves, potentially nearly doubling the company’s reserve base of 1.1 Tcf.

“We believe this development may send a positive signal about the company’s ability to extend its drilling program year-round, which would enable STR to develop its reserves more quickly,” Brothwell added. The Bureau of Land Management is expected to make a decision this fall on whether to allow year-round drilling. Drilling currently is restricted for environmental reasons. “This would be another key catalyst,” said Brothwell.

“We spoke with the company [Tuesday] and drilling began on the 20,000 foot test well at Pinedale last week. Success here would further add to reserves and would be a third key catalyst. Given the depth, we wouldn’t expect to know anything on this front for several months.”

Brothwell set a 12-month stock price target on Questar at $45/share, up from his previous prediction of $40/share. He also reiterated a “Buy” opinion on the stock. STR shares rose 4% Wednesday following the announcement to $40.70 and basically held at that level the rest of the week.

However, analysts at UBS had a more cautious reaction to the news. “The decision by the Wyoming Oil and Gas Conservation Commission will have no affect on earnings and cash flows and therefore no change to our target price,” said UBS analyst Phillip Salles.

“The only result of today’s announcement is that STR will be able to book from the 20-acre spaced wells an additional 124 proved undeveloped locations, increasing reserves by an estimated 250 Bcfe (6.0 Bcfe per well, 62% working interest),” said Salles.

“The key decision that will change our production and earnings forecast is whether the Bureau of Land Management (BLM) will allow STR to drill year-round,” he said, noting that the company has a narrow drilling window (May through November) in the Pinedale area and year-round drilling would cut 10 years off of development time.

“We estimate that year-round drilling would add at least $0.10 – $0.15 to 2005 earnings per share (based on gross production of 1.2 Bcfe per well and 45 wells per year),” said Salles. UBS is maintaining its target price on STR shares of $38.

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