Denver-based Gasco Energy Inc., whose natural gas exploration and production (E&P) is centered in the Uinta Basin of Utah, has shut in some of its wells and will not finish some recompletions until Rocky Mountain commodity prices edge higher, CEO Mark Erickson said.

Speaking at the A.G. Edwards E&P Conference in New York this week, Erickson said Gasco postponed eight planned wells and did no well recompletions in the second quarter.

“We’re not going to sell gas at prices we’re seeing in the Rockies right now,” Erickson said. “In one week recently gas prices on Monday were at 25 cents [per Mcf], by Tuesday, they were 22 cents and on Wednesday, they were 15 cents. I’m not going to sell my assets at that price.”

Rockies producers are being pressured by a lack of pipeline capacity, said Ultra Petroleum Corp. CEO Michael D. Watford. He also spoke at the A.G. Edwards conference.

“Pipeline capacity is key in the Rockies,” said Watford. “It will increase 27% by 2008 with REX [Rockies Express Pipeline LLC], and we have 200 MMcf/d of firm capacity on that line.” Ultra still has a 23% return on its investment when gas is priced at $4/Mcf, but when it makes it to $7, “then it will be very interesting” for the Rockies producers now able to eke out flat returns.

The Federal Energy Regulatory Commission Wednesday granted REX more time to complete work on Phase II of a 327-mile pipeline system that would tie in with the rest of the pipeline in northern Colorado (see related story).

Raymond James & Associates Inc. said in a report Monday that gas-weighted Rockies producers face margin compression in the near term as they wait for REX to come on-line in 2008 and 2009 (see Daily GPI, July 17). Several Rockies producers, including EnCana Corp., Questar Corp., Cabot Oil & Gas and Chesapeake Energy Corp., shuttered wells toward the end of 2006 after gas prices fell below $2/Mcf in the Rockies (see Daily GPI, Jan. 31; Oct. 27, 2006). However, the basis disconnect dropped prices to below $1/Mcf in June (see Daily GPI, June 14; June 5).

Erickson said producers are responding. Gasco’s production jumped a record 123% in 2006 from 2005. However, Gasco curtailed production on some of its wells in April and in June, and some of the wells continued to be shut in this month because “prices continue to be low.” Now, he said, Gasco is again showing “good production growth,” but it’s not because of a turnaround in prices.

“We are reducing the number of days it takes to produce wells,” Erickson said. “Last year at this time it took us 37 days; now it’s about 18.6 days. We did two wells in 14 days. It’s been a dramatic improvement.”

Despite its decision to delay completion activity, Gasco’s estimated cumulative net production in the second quarter was 1.135 Bcfe, up 32% from the same period a year ago, when the company produced 863 MMcfe, and 7.9% sequentially above first quarter output of 1.051 Bcfe. Curtailed and facilities-constrained net volumes for the quarter were estimated to be 100 MMcf, or 1.1 MMcf/d.

Gasco, which operates about 100 wells in the Uinta Basin, has become “more aggressive” with its oilfield service providers, said Erickson. “We’ve reduced our costs 25-30% by more aggressive bidding. For water logging, it used to cost us $50,000 to log; now we get it done for $16,500. There are more companies out here [in the Rockies] to provide services and that means more competition. We used to have only two companies that did wireline services…now we have five.”

In addition, Gasco has implemented new technology to reduce its well costs to a range of $3-3.2 million from around $4.5 million just one year ago. “A couple of wells we were able to do for less than $3 million. We’re targeting $3.25 million per well this year, and all of these are good changes for the positive. We’ve made dramatic strides from an operations standpoint.”

Erickson said Gasco is forecasting “increased volatility and a widening of the basis differential” in the Rockies through the rest of the year. “The pipelines are full, and there’s pressure on the takeaway and [that] leads to gas-on-gas competition.” Given the nature of Gasco’s tight gas reservoirs, “we are not forced to give our gas away at these lower prices when we have wells that can essentially act as storage fields. The current shut-in volumes can entirely be produced into sales as prices in the Rockies improve and improved takeaway capacity in the Rockies comes on-line.”

He added, “Gasco is in the right place at the right time. There’s a tremendous resource base, an exciting resource base in the Rockies, and we feel very good about that.”

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