The stars are aligned for the exploration and production industry, particularly in the Rocky Mountain region, according to Stuart Wagner of Petrie Parkman and John Olson of Sanders Morris Harris. Speaking at GasMart in Denver Tuesday, Olson told producers the next five years are probably going to be their best ever, with “vast” revenue forecasts coming in.

“I’ve never seen this in my checkered 30-year career,” said Olson. He said revenue forecasts are climbing higher each month. Domestic producers now can expect $197.1 billion in revenues in 2004, compared to $118.7 billion in 2002, thanks to the nation’s hunger for natural gas and oil. In January 2003, forecasters were only predicting $134.3 billion in producer revenues for 2004.

Wagner said that the nation’s hunger for gas unmistakably points at the Rocky Mountain region, and Wyoming is the most likely location for the best production growth going forward. It already is home to three of the largest gas fields found in the United States in the last decade: the Jonah Field and the Pinedale Anticline in the Greater Green River Basin in western Wyoming and the Powder River Basin in eastern Wyoming. All three have promising futures with substantial continuing production growth.

“We are running out of the easy stuff [the conventional gas resources] and we’re getting into the unconventional resources now: the coalbed methane (CBM), the shales, the tight gas sands, and that’s the Rockies,” Wagner noted. “About 85% of the Rockies resource base is still in place.”

Jonah in the southwest part of Wyoming is expected to produced 3 Tcf of gas ultimately and could even double that, according to Wagner. But the “world class basin” already has seen tremendous infill drilling.

Just to the north of Jonah is the Pinedale, which is producing 250 MMcf/d and also could end up producing multiples of the 4.5 Tcf expected. Meanwhile, CBM production in the Powder River has grown 57% since 1999 with a cumulative 1.2 Tcf of production. The dips in production growth have been because of drilling permit delays due to a four-year environmental review process by the Bureau of Land Management. But permits are finally picking up steam.

Nevertheless, there are some concerns about the ability of producers in the Rockies to perform up to the industry’s high expectations. There are external limitations on what can be done. Although there are 125 Tcf of accessible conventional and unconventional resources in the Rockies, there also are 69 Tcf off limits to production due to regulatory or government restrictions.

“Basically about 20-40% of the [major] basins are off limits,” Wagner noted. “And the regulatory issues are just going to get bigger and bigger.”

The sage grouse that covers the Rocky Mountains could be put on the endangered species list. “If that happens it could be a huge problem,” he said.

People probably will be surprised to find that the Rockies will only be part of the nation’s supply solution, he said. Besides the regulatory issues, the Rockies resource base is “probably going to be less than we hoped for and it’s going to take longer to develop than we expected.”

There already are some concerns with the Powder River Basin, according to Wagner. The WyoDak coals are aging and could be partly phased out in the near future, he said. The future CBM production growth in the basin will come from the Big George coals. Industry estimates have pegged peak gas production from the Powder River at about 3 Bcf/d compared to its current 1 Bcf/d. However, Wagner is more pessimistic. He believes the basin may top out at only 1.5-2 Bcf/d.

Meanwhile the industry will have to turn to other unconventional resources such as the shales in eastern Colorado, which will be time-consuming to produce because of formation tightness. “The Niobrara shale formation in eastern Colorado is going to be very large,” said Wagner. “People see those kinds of plays throughout the Rockies, so keep and eye on the shales. But it is going to take a long time frac those things.”

The Rockies traditional nemesis, however, tight pipeline capacity, finally appears to be vanishing. In fact, because of the 900 MMcf/d Kern River Gas Transmission expansion in 2003, Wagner sees some spare capacity currently available.

Meanwhile, El Paso’s Cheyenne Plains pipeline is expected to provide about 700 MMcf/d of new capacity next year with expansion capability to 1.8 Bcf/d. The similar Advantage Pipeline expansion, proposed by Kinder Morgan Interstate, also could end up being built, said Wagner. Together they represent another 2 Bcf/d of pipeline takeaway capacity. EnCana also has proposed a 1 Bcf/d pipeline from the Piceance Basin in Colorado to the Cheyenne Hub in northeastern Colorado.

“I think if you are a producer, you’ve got to feel pretty good about infrastructure in the Rockies. On the other hand, another 2 Bcf/d in a country that consumes 60 Bcf/d is not going to fix our problem.”

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