Gas companies poking around county

Phillips, KLT interested in Routt methane reserves

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— Phillips Petroleum executives are thinking seriously about doubling down on their bet on coal bed methane gas in west Routt County. Whether they'll push ahead with their bid to find commercial volumes of natural gas in the Woodley Spring pilot project, or fold their hand and walk away from a $3 million investment, has yet to be decided.

In the meantime, the company is going through the Routt County planning process, seeking permits to add nine new wells to hedge its bets. They would be in addition to the four now pumping water out of coal deposits north of Hayden.

All of the wells, current and new, are proposed for land owned by Mike Flanders. Each new well represents another $600,000 on the table.

"No decision has been made to build the new wells," said Jon Schultz, a business development manager for Phillips in Denver. "We might cut our losses now. We're right in the middle of evaluating."

If the new wells are drilled, anywhere from nine to 25 employees could be involved in the drilling project.

Schultz said there is definitely a connection between current high prices for natural gas, and Phillips' investment in gas exploration in Routt County.

However, the industry is cyclical and as new production comes on line to meet the demand, prices typically head back down, he said. Even if the pilot tested favorable, it would probably be another two years before the wells actually went into production, Schultz said. By that time, the natural gas industry could be in a different cycle, he said.

Phillips Petroleum isn't the only company exploring for coal bed methane gas in Routt County.

KLT Gas Inc. of Kansas City, Mo., is drilling 14 wells that comprise the Breeze Wells project, about 10-and-a-half miles east of Craig, just across the Moffat County line in Routt County. The Breeze wells are being drilled on land owned by Harold Earle and Bill Barnes. The wells are arrayed in a pattern southwest of Basin Reservoir, which is being used as the repository for water being pumped out of the coal beds.

Schultz said Phillips is going ahead with the local permitting process to drill more pilot wells because it wants to have them in place should it opt to go forward with new wells. To delay would mean drilling could not begin until after next winter. In addition to a permit from Routt County, Phillips needs permits from the state of Colorado in some cases, and the federal government in other cases; the mineral rights that cover the methane gas deposits are "severed" from the surface rights, Schultz explained.

Natural gas, or methane, is commonly found in conjunction with coal seams in the Rocky Mountain west. The gas is molecularly bonded with the coal, Schultz said. The coal seams are like aquifers and hold a great deal of water that keeps the bond intact. Not until the coal seams are "de-watered" and the pressure relieved is the gas released.

The four wells operating at Woodley Spring are pumping water, but Schultz said there has yet been no indication if that process will lead to the discovery of sufficient methane gas to warrant going into production.

Phillips geologists believe there's a high degree of probability that there is a commercial volume of natural gas in the coal seams near Woodley Spring on the Dry Fork of the Elkhead River. However, there's no guarantee, and it could take up to two years to know for certain.

The new wells, if Phillips decides to go ahead with them, would be intended to speed up the proving process, Schultz said.

"We felt like we need more well to de-water it faster," Schultz said. "We have not proven the pilot."

Schultz declined to comment on how much sign of gas, if any, the company is finding, saying "it's quite confidential."

Coal bed methane gas production has raised concerns about potential threats to the environment and to groundwater that people depend on for domestic use. The Bureau of Land Management is studying those issues in association with methane production in the San Juan Basin of southern Colorado.

Phillips environmental specialist J. Stephen de Albuquerque told the Routt County Board of Commissioners that his company is testing springs, creeks and ponds within a mile of their pilot project north of Hayden to monitor any effects. He said the problems associated with gas production in the San Juan Basin are related to the peculiar geology of the coal bed in that region. The area around Woodley Spring doesn't have the problematic coal outcroppings evident in the San Juan Basin, he said.

Closer to home, the Garfield County commissioners went on record late last year opposing a plan advanced by the Colorado Oil and Gas Commission to increase the permissible density of gas wells to one every 20 acres.

Schultz said the first four wells at Woodley Spring were each built on 160 acres of land, which equates to four per section of land. He said that while his company might seek greater density in order to prove a pilot program, but that isn't the same thing as seeking higher density in the actual production phase of natural gas.

Schultz said his company's economic model for coal-based methane indicates well densities greater than four per section of land are not desirable. He doubted if Phillips Petroleum would go forward with production should it determine that was necessary.

If the Woodley Spring pilot someday yields commercial volumes of natural gas, it won't be piped into a six-inch gas line that parallels the Yampa River and delivers natural gas to Steamboat Springs, Schultz said. That line simply isn't big enough. Instead, underground lines would be built to one of two lines running north-south one 20 miles away, and the second, 40 miles away. In either case the pipeline construction wouldn't be visible to motorists on U.S. 40, he said.

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