Many operators have been cutting programs in Colorado, disheartened by poor wellhead prices and new, stiffer state regulations. In July, Colorado’s rig count stood at 44, down sharply from 110 a year prior.

And yet, one company is sticking with the Centennial State. “We’re back in the Piceance in a big way,” said Fred Barrett, chairman and chief executive of Bill Barrett Corp., speaking at EnerCom Inc.’s 2009 Oil & Gas Conference.

“Our Gibson Gulch area is doing extremely well in terms of performance and efficiencies,” he said.

Denver-based Barrett has a long history in the Piceance, one of the Rocky Mountain tight-gas powerhouses. The overall trend from Grand Valley to Gibson Gulch currently produces 1.3 billion cubic feet (Bcf) per day, and has made more than 2.5 trillion cubic feet (Tcf) cumulative.

Last year, Barrett drilled 135 wells and succeeded in establishing 10-acre density on its 17,200-acre Gibson Gulch property. The downspacing has boosted the company’s inventory to 1,300 drilling locations.

During the past two to three years, Barrett has been steadily improving average estimated ultimate recovery (EUR) per well, and driving costs downward at Gibson Gulch.

Currently, 7,400-foot Gibson Gulch wells average EURs of 1.2 Bcf equivalent from the Williams Fork formation, and cost $1.8 million. At the current Rockies three-year strip price of $5.50 per thousand cubic feet, with adjustment for high-BTU gas, wells in the play earn 31% rates of return.

“As we monitor actual costs coming in through the third and fourth quarters, we’ll be down in the $1.7-million range, which will get us closer to a 40% rate of return,” predicted Barrett.

Due to its recent strong results, the company has expanded its 2009 Colorado drilling program to about 110 wells from a previously announced 80 wells. Barrett will run three operated rigs in the Piceance for the balance of the year. The operator has successfully navigated Colorado’s new oil and gas rules, and has permits in hand for all its 2009 drilling. Work is already in progress on 2010 permits.

Currently, Barrett’s net Piceance production is 95 million a day. “We have a lot of running room: a 10- to 15-year inventory of 1,300 low-risk, high-quality locations,” said Barrett. The company’s proved, probable and possible (3P) resources at Gibson Gulch are 1.1 Tcfe.

Barrett is also excited about its new acquisition at Cottonwood Gulch. During the second quarter of 2009, it bought a 90% working interest in 40,300 gross undeveloped acres on the former Naval Oil Shale Reserve #1. Purchase price was $60 million.

Cottonwood Gulch lies directly on trend with prolific Rulison Field, and a structural element connects Rulison with the Cottonwood Gulch area.

The acquisition nearly triples Barrett’s Piceance position, in terms of both acreage and 3P resources. On a scenario of 60% development on 10-acre spacing, the company could net 2 to 3 Tcf equivalent.

“We also like this area from a regulatory standpoint because it’s one of the few areas where a record of decision for a resource management plan and an environmental impact statement have been finalized.”

The Roan Plateau Resource Management Plan is in effect on the Cottonwood Gulch properties, and development of the acreage position is being coordinated with the U.S. Department of Interior and Bureau of Land Management (BLM).

The fly in the ointment is a lawsuit filed by environmental groups against the BLM that challenges the leasing and development of the area.

Barrett is working to resolve the lawsuit, and is willing to undertake further environmental work to satisfy lingering concerns, said Barrett. The company hopes to begin drilling in 2010.

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