Company banks on gas rebound

Williams keeping its Piceance Basin stake

PARACHUTE — The most active company drilling for natural gas in the Piceance Basin is sticking to its plans to keep 10 rigs working there.

Just when Williams Energy will ramp up again is far from clear, however, said Ralph Hill, president for exploration and production.

Hill spoke Wednesday to more than 200 Williams Energy employees in western Colorado as part of a long-planned swing through company offices in the Intermountain West and elsewhere.

“The landscape has changed” for energy companies in the United States since the trip was first planned last fall, Hill said.

Since then, credit markets have tightened and demand for natural gas has fallen, as have prices, he said.

Williams, however, is keeping its Piceance Basin holdings in anticipation of an economic resurgence, and it plans to spend $500 million to $600 million in western Colorado in 2009, he said.

Williams has $3 billion in liquidity, which will finance the company’s drilling plans for the immediate future, as well as other capital improvements in the Piceance, he said.

Keeping its stake in western Colorado and “living within our means” will position Williams for growth when the time comes, he said.

“Energy prices will rise again,” most immediately as a function of the massive lay-down of drill rigs across the region, Hill said.

About 25 percent of the nation’s natural gas comes from wells drilled in the past year, he said, and 40 percent to 50 percent from wells drilled in the past three years.

Prices will climb as the excess supply is used up, with little new drilling under way. The trend toward lower prices could reverse itself by the fourth quarter this year, said Hill, who has headed Williams’ exploration and production efforts for a decade.

The one factor that could speed the recovery of the energy industry is a jump in demand, but that’s difficult to forecast, he said.

Williams will continue working to reverse the so-called “basis differential,” which refers to the lower prices fetched by natural gas drilled in the Rockies because of the difficulties of getting it to lucrative markets.

“We’ve always been very proactive in subscribing for transport,” meaning Williams has reserved space in new pipelines for its gas, he said.

New pipelines could boost the price for Rockies gas by reducing or eliminating “gas-on-gas competition” for pipeline space that drives down prices, he said.

Williams has more than 8,000 new locations remaining to be drilled in the Piceance, he said.

That will translate into far more wells because each location can accommodate up to 22 wells, thanks to the directional drilling abilities that companies now can bring to bear.

Last year, a record year, Williams drilled between 600 and 650 wells, Hill said.

An industry rule of thumb is that it takes 50 people to operate a rig. That doesn’t include people needed for fracturing or completion processes.


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