Difficulties with gas marketing and frustration over low crude oil prices have accompanied Tengasco's drilling success in Swan Creek field in the mountains of northeastern Tennessee.
The company completed a 28 mile gas pipeline from the field over mountainous terrain in Hancock and Hawkins counties in 1998, and production and sales of oil and gas began in August and September 1998.
Swan Creek field lies in a remote, economically depressed area of Appalachia, northeast of Knoxville, Tenn. Some of the larger towns in the area have gas utilities that purchase gas from interstate pipelines.
Initial deliveries were to Hawkins County Utility District in August 1998. Tengasco shut-in the pipeline Dec. 1, 1998, blaming contractual complications. It is not certain when sales will resume.
About 20 utility districts in Tennessee oppose Tengasco's direct sales to end-users. The Tennessee Regulatory Authority approved the direct sales in July 1998 but is reconsidering the case.
The Tennessee Oil & Gas Association intervened in the case, supporting what it said is Tengasco's right to bypass local utility districts and transport gas directly to industrial customers. Locally produced gas can be sold at a lower price than interstate gas, the association said.
Swan Creek field operating costs are modest. Drilling and completion cost is about $250,000/well, and operating costs are $500/month for gas wells and $800/month for oil wells. However, without significant revenue from oil and gas sales the company has turned to equity offerings in order to continue.
Tengasco disclosed in December 1998 that Proton Capital LLC, New York and Houston, purchased 370,000 shares, or nearly 5% of its common stock, in a privately negotiated transaction. Proton Capital is Tengasco's investment banking firm.
Last year Tengasco purchased 208 producing oil and gas wells, 30,000 acres of leases, and 80 miles of gathering and distribution lines near Hays, Kan. Lower oil prices dampened cash flow from those properties.
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