Williams keeps money in Western Slope pipleline
denverpost.com
By Mark Jaffe
The Denver Post
Posted: 07/12/2009 01:00:00 AM MDT
While the Texas, Louisiana and Northeast natural-gas shale plays may be capturing the imagination of investors and the dollars of companies, Williams Companies Inc. is continuing to invest in Colorado.
Williams, Colorado's largest natural-gas producer, is spending $410 million on a new plant and pipeline on the Western Slope.
The Tulsa-based company also is waging a campaign to show the financial community — enamored with shale gas — that it can produce Piceance gas at competitive prices.
"We can make money in the Piceance, even with low prices for natural gas," said Alan Harrison, Williams vice president for the Piceance Basin.
An oversupply of natural gas — federal data show storage is 20 percent over the five-year average — and a weak economy have led to a plunge in gas prices.
The New York Mercantile Exchange price on Friday, $3.37 for a thousand cubic feet, is about a quarter of the peak price of $13.57 last July.
The result has been a sharp drop in drilling rigs nationwide. Colorado saw a 62 percent drop since last November to 45 rigs on July 2, according to a survey by Baker Hughes Inc., an oil-field services company.
Williams has eight rigs operating, compared with 25 at the end of last year.
The Rockies "are challenged relative to other areas since the wells do not give up as much gas in the first to third years as shale plays," said Ray Deacon, an analyst with Pritchard Capital Partnership LLC.
Nevertheless, Williams is completing a $350 million natural-gas processing plant in Rio Blanco County, with the capacity to extract 30,000 barrels a day of gas products, such as propane.
Williams also began construction this spring of a $60 million pipeline connecting the Piceance to Western markets.
These investments come on top of earlier ones, such as the company's own gathering and collection system and a land holding of 200,000 net acres.
In 2008, Williams produced 258 trillion cubic feet of Colorado natural gas — 17 percent more than the next largest producer, BP American Production Co., according to a Rocky Mountain Oil Journal survey.
And the gas that is coming out of Colorado — contrary to analyses by investment banks and consultants — is competitively priced, Williams executives said at a financial conference in May.
Williams took issue with calculations by the investment bank Credit Suisse and the consulting firm Wood Mackenzie.
Credit Suisse, for example, estimated the break-even price, with a 10 percent return, for Piceance gas was $7.95 for 10 therms (a measure of heat) compared with $3.92 forTexas shale.
Williams, using the same structure as Credit Suisse, calculated the break-even cost at $4.70 for its prime valley well fields.
"We provided our analysis to dispel the perception that the Piceance is a 'high cost' basin," Harrison said.
The company's size, efficiency and prime locations all help to cut costs, he said.
"Williams, with its extensive high-quality holdings and infrastructure, is in a position to be a lower-cost producer," said Ward Polzin, a managing director at energy investment bank Tudor, Pickering, Holt & Co.
To be sure, Williams has also made an entry into the shale plays, with a $74 million deal in June to drill in Pennsylvania's Marcellus Shale and an April $102 million joint-venture in a natural-gas gathering system in Marcellus Shale.
Still, the Piceance offers a "a sweet spot" for Williams, Ralph Hill, the company's senior vice president for exploration, told analysts in May.
"Rockies production, in our mind, is peaked for now," Hill said. "It will come back at some point."
Mark Jaffe: 303-954-1912 or mjaffe@denverpost.com |
