COMPANY NEWS: EnCana buys gas reserves in Colorado Rocky Mountains

May 6, 2002
Units of EnCana Oil & Gas (USA) Inc. will acquire natural gas and NGL assets in the Northwest Colorado Rocky Mountains from El Paso Corp., Houston, for $461 million (Can.).

Units of EnCana Oil & Gas (USA) Inc. will acquire natural gas and NGL assets in the Northwest Colorado Rocky Mountains from El Paso Corp., Houston, for $461 million (Can.).

In another major western US assets deal, XTO Energy Inc., Fort Worth, agreed to buy coalbed methane holdings in the Powder River basin for $101 million from CMS Oil & Gas Co. In turn, XTO Energy agreed to swap those properties with Marathon Oil Co. for oil and natural gas properties in East Texas and northern Louisiana.

Other acquisitions included:

  • Houston Exploration Co., Houston, said it will acquire certain onshore producing properties in South Texas from units of Burlington Resources Inc., also of Houston, for $48.1 million in cash.
  • Aquila Inc., Kansas City, Mo., has agreed to buy independent power producer Cogentrix Energy Inc., Charlotte, NC, for $415 million plus the assumption of $1.1 billion in debt.

In other company news:

  • A new joint venture company, Sigma 3 (North Sea) Ltd., has signed a 7-year contract worth £750 million to support operations of Shell UK Exploration & Production Co. (Shell Expro).
  • India’s Oil & Natural Gas Corp. (ONGC) has kept open its options of buying out the 30% equity stake in Panna-Mukta and Tapti oil and gas fields that were acquired by BG Group PLC from collapsed Houston energy firm Enron Corp.
  • BJ Services Co., Houston, was awarded $98.1 million in damages to be paid by Halliburton Co. in connection with its patent infringement lawsuit filed in March 2000 against the Dallas-based firm.

EnCana

The EnCana US units are indirect, wholly owned subsidiaries of Calgary-based EnCana Corp., which was formed through the merger of PanCanadian Energy Corp. and Alberta Energy Co. Ltd. (OGJ, Feb. 4, 2002, p. 35). The acquisition includes developed and undeveloped reserves, a gathering system, a gas processing plant, and 180,000 net acres of undeveloped land in the Piceance basin (see map).

Click here to enlarge image

"The US Rockies are a major component of our North American natural gas growth strategy, and this acquisition solidifies our position as a leading producer in the region," said Randy Eresman, president of EnCana’s onshore North America division.

The acquired assets contain ‘liquids-rich’ reserves in the initial stages of development. "These properties offer growth potential similar to our Mamm Creek field, where we have significantly expanded production and reserves since we acquired it about 15 months ago," Eresman said.

Current production from the assets is about 38 MMcfed, EnCana said. The assets contain 500 bcfe of proven plus probable (established) reserves, the company added. "Roughly 85% of the reserves are gas, with the balance, associated natural gas liquids," EnCana said.

EnCana intends to drill about 50 wells on the acquired lands during 2002, which would increase production to about 55 MMcfed by yearend. "Production, which is centered in the North Douglas Creek arch north of Grand Junction, Colo., is sold under short-term agreements," EnCana noted. "Infill drilling and further exploitation have the potential to triple production from this property in the next 3 years," said Roger Biemans, president of EnCana Oil & Gas.

XTO acquisitions

XTO Energy said the transactions would increase its positions in East Texas, Louisiana, and the San Juan basin of New Mexico for a total cost of $164 million.

Collectively, these properties will increase XTO Energy’s production by 37 MMcfd of natural gas, 1,050 b/d of NGL, and 120 b/d of oil.

CMS Oil & Gas is selling all of its 280,000 net acres in the Powder River basin in Wyoming. CMS Energy will continue to own gathering and processing assets in the Powder River basin through CMS Field Services Inc., including ownership in the Bighorn and Fort Union gas gathering systems.

In turn, XTO has agreed to sell the Powder River basin properties acquired from CMS to Marathon Oil for properties in East Texas and Louisiana. In addition, XTO is buying producing properties in the San Juan basin from Mara- thon for $43 million.

XTO also recently completed a $20 million acquisition of properties in the East Texas Freestone trend from an undisclosed party.

"With a proved producing reserve base of 145 bcfe, these transactions provide a solid wedge of long-lived production in our core areas, with the potential for additional development," said Bob R. Simpson, XTO chairman and CEO.

Marathon’s purchase from XTO was to close May 1. In addition, XTO’s purchase from Marathon is expected to close July 1.

As a result of the asset trade, Mara- thon will add more than 400 bcf of Powder River basin resources, including 110 bcf of proven reserves. The company also will reduce unit operating expenses by leveraging economies of scale in this core area. The effect on 2002 worldwide production is expected to be neutral or slightly incremental, the company said.

Steve Hinchman, Marathon’s senior vice-president of production operations, said, "This is part of our strategy to create sustainable value growth by investing in high-quality opportunities, reducing operating costs, and building financial strength and doing so in an innovative and agile way. We’re focused on getting bigger and better in fewer places."

Houston Exploration

The acquired acreage includes producing and undeveloped properties covering 24,800 gross acres in four fields in Webb, Jim Hogg, Wharton, and Calhoun counties in Texas. These fields are Northeast Thompsonville, South Loredo, McFarlan, and Maude Traylor.

The acquisition–which Houston Exploration will finance through cash flow from its previously announced $250 million capital budget–includes interests in 146 wells and will add 42 bcfe of proved reserves to the independent’s portfolio.

The largest field being acquired, Northeast Thompsonville, produces from the Wilcox and comprises 70% of the proved reserves and three quarters of current production, Houston Exploration said. The acquired properties are next to the company’s existing operations in Charco field.

"Our expansion in South Texas is a direct result of our historical operating performance and the investment in 3D technology that continues to improve drilling and development results," said William G. Hargett, president and CEO.

Aquila

The addition of 3,496 Mw of power generation capacity will nearly double Aquila’s existing portfolio of 3,655 Mw in operation and under construction, said Aquila, a North American wholesale provider of electricity and natural gas that is a unit of Utilicorp United. The $1.1 billion in debt involves $355 million of recourse debt and $770 million of nonrecourse project-level debt.

Aquila Pres. and CEO Robert K. Green said the acquisition "is expected to accelerate our strategy and improve the predictability of our cash flow and earnings." After combining operations, Aquila’s generation mix will be 70% contracted.

Closing is expected in the third quarter. Cogentrix operations will be combined with Aquila Merchant Services’ North American Capacity Services business.

Before Aquila acquires Cogentrix, General Electric Capital Corp. or its subsidiaries will acquire 1,024 Mw of capacity from Cogentrix so that certain plants can maintain their qualifying facility status under the Public Utility Regulatory Policy Act.

Sigma3

AMEC PLC, Wood Group Engineering (North Sea), and Halliburton Co’s engineering unit KBR jointly formed Sigma 3 to provide integrated services following discussions last year between Shell Expro and the three contractors about consolidating services.

Shell Expro operates in the UK North Sea on behalf of Shell and ExxonMobil Corp. subsidiary Esso.

More than 1,400 people will work on behalf of Sigma 3, which will support Shell Expro’s four main business groups in the North Sea.

Mark Carne, Shell Expro asset director, said, "We believe that by combining the strength of these contractor companies in Sigma 3, we will be able to take further strides forward in safety, production, and cost-competitiveness."

ONGC

"The offer to buy out BG’s stake [in Panna-Mukta and Tapti fields] is still very much on, but we have not yet heard from [BG]," said Subir Raha, chairman and managing director of ONGC, which owns 40% of the equity in these oil fields and remains keen on acquiring sole operatorship.

"Even though the issue of operatorship has been resolved amicably [OGJ, Apr. 15, 2002, p. 36], and it has been agreed that ONGC, BG, and the third partner Reliance [Industries Ltd.] will have joint operatorship, our offer to buy out BG has not been withdrawn," he said.

The fields produce 29,000 b/d of oil and 300 million cu m/day of gas.

BJ Services lawsuit

A Houston-based federal court jury rendered the award verdict in BJ Services’ case, which sought damages for Halliburton’s "infringement of the patented method for fracturing oil and gas formations with a low-polymer fracturing fluid," BJ Services said.

The jury found that the patent for the low-polymer fracturing fluid–which BJ Services markets under the trade name Vistar–was being infringed upon by Halliburton’s competing system, known as Phoenix. The court will also issue a permanent injunction barring Halliburton from the continued sale of its Phoenix system. Halliburton has said it would appeal the award.