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Company hopes to celebrate Christmas gas strike
The Denver Business Journal - November 10, 2006
by Cathy Proctor
Denver Business Journal
Double Eagle Petroleum Co., a small Wyoming oil and gas company with Denver offices, hopes to strike it big in northeastern Utah with a project that could be one of the larger natural gas fields in the Rockies.
It's the lead company on a $12.5 million effort, to date, to drill a super-deep well on the northern slope of the Uinta Mountains about 30 miles south of Evanston, Wyo. It's a wildcat well, probing more than 15,000 feet under the earth for a rich cache of oil and natural gas. A wildcat well explores for oil and gas in new territory.
Major oil companies such as Gulf Oil, Chevron and Amoco have pursued the project, called Christmas Meadows, for more than 30 years. But its location -- in the midst of national forest land, surrounded by snow-capped peaks and rugged backcountry -- has raised environmental issues and staggering delays through the decades.
The big companies quit their pursuit of a drilling permit, the required certificate to drill into the rock, after years of effort. But where they failed, Double Eagle has succeeded.
On Sept. 9, the tungsten carbide drill bit of Rig No. 233 owned by Unit Drilling Co. of Tulsa, Okla., started digging into the earth.
The possible prize: as much as 2 trillion to 3 trillion cubic feet of natural gas buried below an underground dome shape that appears on seismic studies. If true, it would be a significant find for the booming Rocky Mountain oil and gas industry, equivalent to about 10 percent of the 22 trillion cubic feet of natural gas Americans consume every year.
Double Eagle (NASDAQ: DBLE) has retained a 25 percent stake in the project, meaning the proven reserves it has on the books could jump more than 10 times from 49 billion cubic feet at the end of 2005 to around 500 trillion cubic feet -- if the wildcat hits rocks rich in natural gas.
"It's a true shot at an elephant," said company CEO Steve Hollis, who has worked on Christmas Meadows for Double Eagle since the late 1980s. Double Eagle gradually has built its stake in the project since grabbing a piece in 1984.
Double Eagle's partners include Denver's Basic Science Earth Systems Inc. (OTCBB: BSIC), which has a 2 percent stake.
"We like the prospect," said David Flake, chief financial officer of Basic Science Earth Systems. "We like the upside potential that there is in this. If it hits, it will be a huge well for Basic Earth."
A high reward carries a high risk, however.
"We would give this well a 5 percent chance of success," wrote KeyBanc Capital Markets analysts in an Oct. 13 report initiating coverage of Double Eagle. The report also noted KeyBanc expected to seek business with Double Eagle in the next three months.
"However, if successful, this could be a 'company maker' type of play," the report said.
Many people are watching Double Eagle's progress.
Drilling started Sept. 9 and by Nov. 8 had reached more than 6,000 feet deep. Hollis said he expects to hit the maximum depth of 15,750 feet around Christmas.
"I just can't wait to see what's down there after 30 years of wondering," Hollis said.
"There are 30 geophysicists that have worked on this project over the years, and all 30 came up with similar maps of it," he said. "They've all been waiting their whole career for this thing to get drilled. They're saying 'go get it.'
"It is a high-risk venture, you can't guarantee anything, but at least it's getting done."
The problem through the years has been Christmas Meadow's location: in the rugged Wasatch-Cache National Forest. The U.S. Forest Service manages the surface; the federal Bureau of Land Management owns the underground minerals.
To any oil and gas executive, that means federal bureaucracy, worries about wildlife and the environment -- and delays.
Gulf Oil identified the area in the 1970s as a good prospect for finding natural gas. In 1982, Amoco -- now part of international oil giant BP -- started work to test the area, but dropped out four years later when it couldn't get a drilling permit.
Chevron marked its own well site in 1989, but also dropped the project five years later when it, too, failed to land a drilling permit.
Hollis credits Double Eagle's success in getting a drilling permit to perseverance and the fact that Double Eagle, with a market cap of around $200 million, is too small to get much attention from environmental groups.
"It took a long time and it's frustrating when it takes a long time," Hollis said of the permitting process. "But there's no species of animal there that's unique to the world or anything like that up there. It's just a slog your way through the bureaucracy."
If the well comes up dry, Hollis said, his company has brought in enough partners to cope with the financial losses. The company also has some solid fall-back projects already under way, he said.
Double Eagle reported third-quarter earnings Nov. 8 of $341,000, or 4 cents per share, down 65 percent from third quarter 2005 results of $975,000, or 11 cents per share. Revenues dropped 15 percent for the quarter to $4.5 million from $5.2 million in the third quarter of 2005.
The company blamed the results on lower production and lower prices compared to the year-ago period.
But even if Christmas Meadows hits the natural gas pocket many think lies under the well, Double Eagle and its partners likely would be bought out by someone with deeper pockets, Hollis said.
"I expect if we hit at Christmas Meadows, someone will take us out pretty quick," he said. "This is just what the majors are looking for."
CATHY PROCTOR | 303-837-3521 cproctor@bizjournals.com |
