Interest in Barrett Resources demonstrates the value of Rocky Mountain gas to US supply.
Raised eyebrows and quizzical frowns met Shell Oil Co.'s US $2.2 billion offer for Denver, Colo.-based Barrett Resources Corp., but the potential for a major Rocky Mountain contribution to US energy supplies provides some enlightenment.
Shell underscored that interest by raising its bid to $2.4 billion, and Williams Cos. added an exclamation point with the $2.7 billion offer that Barrett accepted. Kerr-McGee Corp. confirmed the attraction of Rockies gas with its $1.7 billion for HS Resources Inc.
Barrett is not a huge company, but it's a good company with an outstanding reputation, a top-notch property inventory, a quality 5-year drilling program and a focus on natural gas growth in the Rockies.
It looks at North American supply moving from 19 Tcf (52 Bcf/d) in 2001 to 26 Bcf (72 Bcf/d) in 2015, and demand climbing from 23 Tcf (62 Bcf/d) to 32 Tcf (87 Bcf/d) in the same period. Barrett sees that the Rocky Mountain region has 300 Tcf in remaining proven and potential gas reserves, and it has operations on top of some of the higher-quality reserves.
Growth areas are the Piceance Basin of western Colorado, the Uinta Basin in Utah and the Green River, Hanna, Wind River and Powder River basins of Wyoming. That's every major gas area in the Rockies except the San Juan Basin.
Rocky Mountain coalbed methane targets alone include 314 Tcf of gas in place in the Green River Basin, 99 Tcf in the Piceance Basin, 84 Tcf in the San Juan Basin, 39 Tcf in the Powder River Basin, 15 Tcf in the Hanna Basin, 10 Tcf each in the Uinta and Raton basins, 6 Tcf in the Wind River Basin, 3 Tcf in the Big Horn Basin and 2 Tcf in the Denver Basin.
Barrett is active in the Green River, Powder River, Hanna and Raton coalbed methane plays.
It plans 1,100 wells this year at a cost of $218 million. That includes 800 wells in the Powder River Basin coalbeds, 100 in the Piceance Basin conventional gas play and 100 in the Raton Basin coalbeds.
It raised reserve estimates 53% in the first quarter this year.
Among conventional gas plays, Barrett can keep four rigs running full time for 5 years developing 613 Bcfe of net proved reserves it owns in the Piceance Basin. In that area, it has barely tested the deeper zones in its Rulison field, where the Rulison Deep No. 1 well in 1994 flared at 5 MMcf/d to 20 MMcf/d after a gas kick from the Mancos "B" zone.
The company discovered Cave Gulch field along the Owl Creek Thrust in the Wind River Basin several years ago. It was the best new discovery in the Rockies in more than a decade. It is running seismic on the East Madden and Owl Creek areas to the west and east along the thrust.
Those plays represent the kinds of targets still available in the Rocky Mountains, and large companies are looking closely at the area.
For example, Anadarko Petroleum doubled its capital expenditure budget for the Rockies this year to $131 million, including coalbed methane work in the Powder River and Uinta basins.
Marathon Oil Co. bought coalbed methane-centered Pennaco for $2.50/Mcfe in reserves, according to Simmons & Co. International. In 2000 and early this year, AEC Oil & Gas of Calgary, Alberta, added 1.2 Tcf in Rocky Mountain probable gas reserves with two purchases.
Barrett may not be big enough to serve as a dominating anchor in the Rockies. With about 307 MMcf/d for the year, it ranked 14th among US independents. Shell and Williams may be looking for more acquisition candidates. Among other companies with strong roots in the Rockies are the three largest independents - Anadarko Petroleum, Burlington Resources and Devon Energy - and EOG Resources, the fifth largest independent.
Perhaps the two most likely targets are Tom Brown Inc. and Evergreen Resources. Tom Brown has complementary operations to Barrett in the Piceance and Wind River basins, and the purchase of Evergreen, with Barrett's properties, would nearly lock up the Colorado side of the Raton Basin coalbed methane play.
Similar purchases may be in the works. The nine largest integrated companies have some $60 billion in cash, free cash flow and incremental debt capacity for 2001. And "the independent E&P sector theoretically presents the best set of 'off-the-rack' investment opportunities for the big guys to use up cash," Simmons said in a research report titled "Royal Dutch Shell's Play for Barrett Resources."
It's clear more companies are focusing attention on the Rocky Mountains for quick access to an existing infrastructure that can serve the US thirst for natural gas.

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