OVERVIEW

Rocky Mountains’ time has come in terms of moving firmly into the role as North America’s shining star of expanding gas production. Between 1999 and 2005, Rockies dry gas output jumped almost 75% from 4.3 to 7.4 BCF/D. Coal bed methane (CBM) from basins east of the Continental Divide, such as Powder River and Raton, made important contributions to that growth. Of late, the focal point of supply growth has been west of the Continental Divide in such basins as Piceance and Green River. Looking ahead, the fate of U.S. gas production will rest heavily on the performance of the Rockies. PIRA’s Reference Case projects that the region’s output will be in a 9-10 BCF/D range by 2010 before climbing into the vicinity of 10-11 BCF/D by 2015. If so, the Rockies’ share of Lower 48 gas production would jump from ~14% to within striking distance of 25% (based on PIRA’s outlook for other supply areas). Yet, typical and innate characteristics of the Rockies’ reserves being targeted will weigh heavily on the pace of output expansion. In addition, the relative immaturity of the region mandates timely infrastructure additions, which require considerable capital investment and face regulatory hurdles and legal challenges.
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CONTENTS
A New Gas Production Forecast Similar to earlier studies, “Ready for Prime Time” analyzes and forecasts gas production by year for the listed individual basins through 2015. However, unlike previous studies, this study’s “bottom-up” vintage models deal effectively with the wide-ranging variety of specific plays within those basins and, therefore, is in a superior position to assess the innate characteristics of targeted reserves. Using LCI’s proprietary models, “Ready for Prime Time” forecasts gas output year-by-year and field-by-field by age of wells for fields of special interest.  By doing so, future gas
production scenarios will incorporate explicit decline curves that reflect the unique well characteristics and prospects of those key fields, giving the region’s current and future players the type of comprehensive analysis they will require. In the hot Piceance Basin, for example, vintage modeling singles out such established fields as Mamm Creek, Grand Valley, Parachute, and Rulison (a group responsible for three-quarters of the Basin’s current gas production). Vintage models are also employed for other key fields in Green River Basin (Jonah, Pinedale Anticline, Wamsutter,
Echo Springs, and Wild Rose), in Uintah (Greater Natural Buttes), in Wind River (Madden), in Denver-Jules (Wattenberg), as well as shallow CBM (Wyodak) versus deeper CBM (Big George) plays in the Powder River.
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A New Assessment of Production Constraints Be it drilling, gathering, gas processing or inter- and intrastate pipeline issues, many obstacles threaten to extend the timeline on infrastructure changes and reserve development, both of which would impede production growth. These obstacles come on top of numerous additional roadblocks producers must contend with when attempting to develop reserves: e.g., land access; air, water, and soil quality issues; and wildlife protection measures. In addition, ongoing environmental studies with respect to the impact from additional drilling of the Jonah field, as well as other legal challenges in general, are constraining growth. A new, “bottom-up” study of Rockies gas production prospects thus will incorporate an updated analysis of all such issues. Despite the challenges and ongoing difficulties to attract upper-end equipment and crews to the region, Rockies drilling activity continues to grow. Colorado is leading the latest Rockies advance, and the state remains a hotbed of drilling activity, especially with respect to fields within the Piceance Basin. Activity in Montana and North Dakota is also on a strong upswing. Wyoming gas production growth, however, remains relatively tepid, as has been the case since CBM from the Powder River Basin peaked in 2H03.
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A New Assessment of Pipeline Prospects Different gas supply scenarios raise the prospect of renewed pipeline-capacity constrains and thus potentially highly negative consequences on regional basis at key pricing points. “Ready for Prime Time” makes an in-depth infrastructure assessment focused on the timing and impact of specific pipeline projects (a pivotal part of our regional price evaluations). PIRA identifies potential constraints and the anticipated locations of new pipeline capacity. The up-trend behind gas exports out of the Rockies underscores regional production growth, which new pipeline capacity additions have facilitated. Throughput on the relatively newly minted Cheyenne Plains pipeline continues to approach capacity, but the relatively slow ascent in flows highlights problems at some producing basins (like PRB) and other infrastructure issues with respect to hot and cold producing areas within the Rockies.
Indeed, more pipeline capacity will be needed within some basins, and that has prompted a wave of proposals, in particular the two “super” pipeline projects, the KM/Sempra “Rockies Express” and El Paso’s competing “Continental Connector” (shown in the accompanying map). Looking forward, understanding which pipeline projects are likely to be built, and when, plays an essential role in the analysis of the Rockies. Potential constraints and likely locations of new pipeline capacity are identified and proposed
projects are evaluated in regards to their likelihood of success and start-up times.
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A New Assessment of Regional Basis Regional prices in the Rockies and San Juan will depend heavily on when and where new capacity is added vis-à-vis the size and timing of future production changes. As a result, regional prices and basis differentials for the Rockies (Opal), San Juan (El Paso non-Bondad), California (SoCal) and the Midwest (Chicago) through 2015 will be updated based on the findings of the study. In this process, we will re-visit such key evaluations as producer netbacks from Chicago versus California. In sum, “Ready for Prime Time: Future Rockies Supply and Western Basis” examines the driving forces behind the future pace of supply development as well as such issues as the interplay between intra-Rockies drilling efforts and supply expansion, the impact of LNG from new West Coast terminals, pipeline assets, new infrastructure investments and regional gas prices. By gaining new insights into these issues, subscribers will be in a position to make more timely and informed decisions related to the future financial performance of western U.S. gas assets, including trading and marketing activities, basis management, firm capacity commitments, acquisitions and divestitures, expansions, gas processing and electric power projects.
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DATA SOURCES Gas supply and demand data for “Ready for Prime Time” come from U.S. federal and state agencies, as well as agencies in Canada and Mexico. Transportation data generally comes from LCI’s Database Service, and gas production models reflect proprietary data developed by LCI. WHAT DO STUDY SUBSCRIBERS RECEIVE? Client of the study obtain a valuable set of services:
WORKSHOP. PIRA/LCI will host a workshop on May 9-10 in Houston to discuss the preliminary findings. During and after workshop, subscribers are encouraged to make suggestions concerning the content and findings. PIRA/LCI will contact companies during and/or after the workshop to elicit input. Three (3) participants from each Client organization will be invited to the workshop. Clients ordering the study after the workshop would receive a CD-ROM version of the presentation material. ONLINE PRESENTATION. About a month prior to the release of the final report, PIRA will host an online conference call (via WebEx) to discuss the final conclusions and findings of each regional study, including production forecasts and associated impacts on pipeline transportation and capacity, LNG demand, and regional flows and basis. REPORT. Clients will receive three (3) copies of the final report, which will spell out the findings of the analysis, a recap the workshop’s content, and a discussion of key uncertainties that impact the major findings. The report also will link the forecasts and alternative cases to PIRA’s overall North American gas market Reference Case.  DATABASE. Clients receive three (3) copies of a CD that will provide historical and forecast supply/demand and basis point pricing data through 2015. Where appropriate, gas production will be analyzed and forecast down to individual field levels along with volume flows on specific pipelines. All data will be accessible on Excel spreadsheets.
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FEES AND OPTIONS “Ready for Prime Time” — as well as any other study in The Changing Face of North American Gas Supply series — can be purchased on its own or in any combination of regions. Existing PIRA and LCI retainer clients receive a reduced price on all packages. In addition, companies that sign up for a study before its Charter Deadline will receive a discount on the fee. Fees for multiple regions are discounted further for all subscribers. Click here for detailed service pricing options. Please have a sales representative contact me to discuss the studies.