Williams’ exploration and production division increased the sizeof its gas reserve holdings by nearly 30% last week, buying 184Bcfe of proved reserves with 30 MMcf/d of production and 192,000undeveloped acres in the Rocky Mountain region from MCN Energy for$106 million. An additional 35 Bcfe of proved reserves in theRockies were sold by MCN to other unnamed buyers.
The total MCN sale was valued at $165 million and is the firstof four packages of properties, totaling 1.2 Tcf of provedreserves, MCN intends to auction by mid-year. MCN announced plansto exit the E&P business last summer and took at $273 millionone-time charge last year related to the plan. Bids on theremaining packages, including MCN’s Michigan, Appalachian andMidcontinent/Gulf Coast properties, were received in March, anddefinitive agreements are being negotiated, the company said. Thevalues of the reserves being sold vary considerably, but based onyesterday’s sale price of its Rocky Mountain assets, MCN couldbring in more than $785 million from the remaining 1 Tcfe ofreserves to be sold.
MCN Chairman Alfred R. Glancy III noted that each of the fourpackages has its own attributes and will therefore sell atdifferent proved-reserve multiples. “We separated the propertiesinto packages with distinct attributes in order to attract bidsfrom companies that would place the highest value on them. OurAppalachian package consists of coal-bed methane properties,whereas the Michigan package primarily includes Antrim Shale gas.Both of these packages, located near major consuming markets, havevery long-lived reserves and opportunities for lower-riskdevelopment drilling. The Midcontinent/Gulf Coast package, on theother hand, includes higher-volume, shorter-lived reserves and moretraditional exploratory and development types of properties.”
An MCN spokesman said the company intends to use the proceedsfrom the sales to pay down debt, and to invest in power generationprojects, gas processing and in new pipeline projects, such as theVolunteer Pipeline announced Wednesday that would bring midwesternsupply to markets in the Southeast. MCN’s 1999 capital investmentsare expected to total $650 million to $750 million.
A majority of proved reserves and production included in lastweek’s sale is located in the prolific Jonah Field in SubletteCounty, WY. Other properties are in the Antelope Creek Field inUtah, the Fuller Reservoir Field in Wyoming, and the Hiline andEland Fields in North Dakota.
Bryan Guderian, vice president of Williams’ exploration andproduction unit, said Williams plans to drill 30 to 35 wellsannually within the Jonah field boundary “where producers have nothit any dry holes to date.” He said Williams has experiencedeveloping tight sands reservoirs like Jonah. “We’ve successfullyapplied tight sands technology for years at our operations in NewMexico’s San Juan Basin.”
Williams’ Ralph Hill said the MCN properties give the company amore balanced portfolio, allowing it to increase its focus ondevelopment drilling and reduce some exposure to exploration risks.He also noted the gas from the acquired properties can be processedat Williams’ Opal, WY, processing plant and can be marketed andtransported by other Williams companies.
Williams’ exploration and production unit reported year-end 1998proved reserves of 708 Bcfe. The MCN purchase is expected toincrease Williams’ proved reserves by 26%, bringing the estimatedtotal to just under 900 Bcfe.
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