DJ's PYR article which Check mentioned
Dow Jones Newswires -- October 5, 2000
PYR Energy Corp Sees California As The Place To Be
By CHRISTINA CHEDDAR
Of DOW JONES NEWSWIRES
NEW YORK -- Jed Clampett's clan thought California was the place to be after striking it rich on oil. Now PYR Energy Corp. (PYR) is hoping it's the place to make a bundle in natural gas.
"We are aggressively pursuing natural gas in California," said PYR President Scott Singdahlsen in an interview with Dow Jones Newswires. "The California gas market is very much tied into the electrical system."
The Golden State's hardy appetite for electrons captured attention across the nation as higher electricity consumption - which was fueled by a larger population and a vibrant economy - and several heat waves led to power shortages this past summer.
So Singdahlsen, a former Chevron Corp. (CHV) geologist, is betting that the state's growing demand for electricity will in turn ratchet up demand for natural gas, and create an opportunity for PYR, a Denver-based exploration company.
Currently, all of the new electricity generation that has received licensing from California regulators is gas-fired. And although some of the new power plants will replace older, less efficient natural gas plants, natural gas will continue to be a significant fuel for the state because it is clean burning, said Claudia Chandler, a spokeswoman for the California Energy Commission.
In fact, California gas consumption rose to 6.4 billion cubic feet per day in 2000, from 6.1 billion cubic feet per day in 1999, according to data collected by the CEC. Even with the effect of the more efficient plants that are coming on line offsetting the state's rising demand, consumption is projected to remain at more than 6 billion cubic feet per day in 2005, Chandler said.
Still, in the mature fields of California, exploration companies haven't focused much on natural gas, because they believe the risks outweigh the rewards. Only about 15% of the gas California uses is produced within the state, Chandler said. And that number has been declining.
And PYR, which has yet to earn a profit, needs results soon to fund further exploration. Right now the company estimates it has enough cash for another 12 months of operation.
New Site About To Start Up
After three years of trying, PYR and its partner, Berkley Petroleum Corp. (T.BKP), may realize their dream in December as production begins on a discovery in the East Lost Hills section of the San Joaquin Basin.
The well, at 19,600 feet deep, is expected to produce 15 million cubic feet of natural gas per day. According to PYR, it will be the deepest production well in the state.
Still, digging more than three miles into the earth for natural gas is a risky undertaking. Natural gas reserves at this level are at higher pressures and temperatures than shallower reserves, so the risk of a blowout is greater.
PYR already experienced a blowout in November 1998 at East Lost Hills - perhaps one of the biggest ever. High volumes of gas, liquid hydrocarbons and water flamed for two weeks. After several attempts, the flow was stopped in late May 1999.
Among other risks, deep wells also are expensive, costing about $10 million to drill, said Redwood Securities Group's Herbert Hart, the sole industry analyst who follows PYR.
For these reasons, PYR is one of only a fairly small number of companies trying to exploit California's natural gas reserves.
Still Awaiting First Profits
PYR owns a 10.6% working stake in the East Lost Hills well, a stake it estimates will turn into revenue of $200,000 per month, based on assumptions about spot prices for gas and hydrocarbons that are below current prices.
With production nearing, PYR expects to have positive cash flow by late 2001 or early 2002, Singdahlsen said, and two other sites are being drilled.
As a result of a $9.5 million equity placement it completed in August, PYR has enough cash on hand to satisfy its drilling costs for the next 12 months. By that time, if all goes as planned, the company will be able to fund other projects, at least in part, from its incoming revenue.
Hart expects PYR will seek partners for future wells on the East Lost Hills site in order to continue to spread the risk.
"There is so much more upside in this stock," said Hart, who rates PYR a speculative strong buy with a 12-month price target of $10. PYR shares closed Wednesday at $5.13.
For every trillion cubic feet of natural gas reserves, Hart sees $5 a share in asset value based on a discounted price for natural gas of $2.50 to $2.60 per million British thermal units.
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com |
