After finally getting the long-awaited green light from the U.S. Bureau of Land Management last May and fending off a court challenge in September 2007, operators are gearing up for coalbed-methane action on the Atlantic Rim. At press time, a federal court denied yet another attempt to block drilling, clearing the way for CBM activity to continue through March 2008.

Anadarko E&P LP,Warren Resources Inc. and Double Eagle Petroleum Co. have begun drilling CBM wells in the Atlantic Rim on the eastern flank of the Washakie Basin in south-central Wyoming. This play, west of the Sierra Madre Range in the Medicine Bow National Forest, is expected to become a significant CBM play in the Rockies.

The play is about 55 miles long by five miles wide. Recoverable reserves are estimated to exceed 1.5 trillion cubic feet of gas. Development drilling is expected to last about 20 years with wells having a productive life span of 30 to 50 years.

Producers are eager to finally get access to the environmentally sensitive area, which has had several government- imposed delays since its discovery in 1999.

But, don’t look for a frenetic leasing pace. Only a handful of companies is involved as the area had been largely leased by the end of 1999, says Ken Gobble, president and chief operating officer of Warren E&P, a subsidiary of Warren Resources. Warren controls about 45% of the acreage.

The final BLM Record of Decision of the Atlantic Rim Environmental Impact Study was issued in May 2007. But in June, four coalitions of conservation groups each appealed the BLM’s approval of the Environmental Impact Statement.They requested a stay of drilling pending the Internal Board of Land Appeals’ ruling. On September 5, 2007, the IBLA denied the stay.

“The real work for Atlantic Rim starts now that the decision has been issued,” says Bruce Collins of the BLM’s Rawlins,Wyoming, field office.

REAL WORK

That work is substantial. The E&P companies plan to drill up to 1,800 CBM wells and 200 conventional wells in spacing as close as 80-acres per well.The development plan is in addition to 2,780 conventional wells previously approved by the BLM.

Another 10,190 wells are pending approval. Along with the drilling, the development would create 1,000 miles of pipeline and 1,000 miles of roads. The project area includes about 270,000 acres with about 173,000 acres federal, 14,060 acres owned by the state of Wyoming and 82,348 acres privately held.

Anadarko,Warren and Double Eagle are the majority owners in the Atlantic Rim area, and Anadarko and Double Eagle are the operators of all the existing units within the EIS boundary. Other interest owners are: Nance Petroleum of Billings, Montana; Redwine Resources Inc., Dallas; and Yates Petroleum Corp. based in Artesia, New Mexico.

“For quite some time, we have been looking forward to being able to develop this very prolific natural gas field that we discovered in 1999,” says Stephen Hollis, chief executive officer of Double Eagle, based in Denver. “If the wells produce as well as the 14 existing (pilot) wells have, we will increase our production significantly.”

Norman Swanton, chairman and CEO of Warren, says: “We are very pleased with this decision…Warren is therefore proceeding with its previously announced drilling plans in the Atlantic Rim.”

Those plans include a joint venture with Anadarko entered into in 2002. That agreement to explore and develop CBM in the Atlantic Rim includes an area of mutual interests covering about 211,000 acres where Anadarko would be the operator.

By year-end 2007, Anadarko was to have drilled about 40 production and four water-injector wells, and next it intends to build the needed infrastructure.

“In 2008, we will ramp up our activity and sustain that pace each year for the next five years or more,” says spokesman John Christiansen. “In addition, we will continue to work with the BLM in adapting and discovering new ways to preserve the environment in the area and complete reclamation work from areas impacted by our activities.”

ENVIRONMENTAL ISSUES

Environmentalists are concerned about methane seeps and disturbances to wildlife habitat, as this is a popular hunting area.They fear drilling will also disrupt one of the West’s largest breeding and nesting areas for sage grouse.

“There is no line drawn in the sand saying this is it, this is all we are going to do. Now is when the work (monitoring and mitigation) begins and continues,” says Collins.

Impacts to wildlife and the occurrence of methane springs will be monitored and dealt with based on ongoing collection of data, according to the BLM.

The BLM says it did not plan where each well, road and pipeline would go because it wants the flexibility to determine the best location with least impact for such facilities as the project proceeds.

Christiansen says the area is unique and Anadarko will work with the BLM and other agencies to ensure companies can produce energy and preserve the area’s natural features.

“As an example, we were recently recognized by the Wyoming Game & Fish Department for our participation in a third-party study on the local mule deer populations. That study indicated most of the deer in the area spend their summers outside of the Atlantic Rim, and when they are in the Atlantic Rim area, it’s during a time of restricted drilling activity,” Christiansen says. “We share the concerns when it comes to protecting the environment and wildlife, and we are committed to minimizing the impact of our operations in the area.”

DOUBLE EAGLE

Double Eagle has been working the Atlantic Rim since 1999 when it launched the play with a re-completion of an existing well in the Cow Creek Field in Almond coals. Today, the company holds more than 50,000 gross (30,000 net) acres in the project area.

As soon as operators received agency approval, Double Eagle was ready to move forward. Results from its pilots, particularly those in the center of the area, have been encouraging. Double Eagle’s main producing asset in Atlantic Rim is its 21,000-acre Catalina Unit, on which it operates 14 wells in a pilot at Cow Creek Field.

In 2002, the company drilled and fracture-stimulated most of its wells, each of which immediately began producing gas at rates of about 200,000 cubic feet a day. After 18 months, the wells reached a production plateau at average rates of about 450,000 cubic feet a day each. Today, the field produces about 5.5 million cubic feet (MMcf) a day.

After getting regulatory go-ahead last fall, Double Eagle said it would drill 33 wells in the Catalina Unit within a year (about 10 of those were to be producing by year-end 2007), with the remainder pumping in the first quarter of 2008.

Well costs are about $1 million apiece, and reserves are expected to be 1- to 1.2 billion cubic feet per well.

In 2007, Double Eagle spent about $40 million, including its operated drilling in the Catalina Project, which also includes the current CBM wells in the Cow Creek Field, and the Anadarko-operated Sun Dog Unit. Double Eagle also owns 20% interest in another 46 wells Anadarko E&P operates in the Doty Mountain Unit.

Infrastructure development in the remote area is in its infancy. For the past eight years, Double Eagle has had to generate its own electricity onsite. That changed late last summer when the power company finally hooked Cow Creek to the grid. Double Eagle had to lay its own 13-mile gas pipeline.

“I think we are off and running, and we’re finally going to find out if this will be a major field or not,” says Hollis. “Baker Energy Services, with whom we have contracted to perform operations for us in the Catalina Unit, has done a great job of hitting the ground running. We are working with them to reduce the time and costs for the Catalina Unit shallow coalbed wells. If the drilling scheduled for Catalina and Sun Dog is successful, Double Eagle could add as many as 30 net producing wells to the 39.5 net producing wells that it had a the end of 2006.”

Double Eagle plans to drill up to 268 CBM wells in the Catalina Unit during a five-year period. If successful, this would result in about 110 net new wells, representing an approximate 41% interest in each of the wells.

WARREN AND ANADARKO

Warren Resources has also been working the Atlantic Rim for years. In 1999, the New York-based company purchased a significant leasehold from original operators Stone & Wolf and Tower Columbia. Subsidiary Warren E&P Inc. has offices in Casper, Wyoming, and Long Beach, California.

Warren and Anadarko E&P agreed to a joint venture at Atlantic Rim in late 2002, giving each company 141,000 gross and 70,500 net acres. They have since drilled more than 120 wells in several pilot areas.

The oldest is the 21,000-acre Sun Dog pilot, just east of Double Eagle’s (Cow Creek) Catalina Unit, where the partners drilled 12 pilot wells with CBM rates steadily increasing to present levels of about 425,000 cubic feet per day per well. Warren and Anadarko expected to drill about 40 wells in Sun Dog by year-end 2007 and 75 by March 2008.

Doty Mountain, north of Sun Dog, has 46 producing wells on 80-acre spacing, 22 of which were drilled in 2006. The first group of wells is producing about 1.8 MMcf per day and 7,800 barrels of water. The second group was recently put on pump. Another pilot project, Blue Sky Unit, is a 24-well pod initially drilled on 160- acre spacing and recently infilled to 80 acres.

“Since September 18th, Warren has participated in drilling 10 gross (4.2 net) wells in the Sun Dog Unit,” says CEO Swanton. “The company anticipated investing $11 million for Atlantic Rim expenditures during the fourth quarter of 2007…representing drilling 41 gross (17.2 net) wells in the Sun Dog Unit. Warren will have an approximate working interest of 42%.”

Gobble says Warren is excited about the removal of impediments to drilling on the Atlantic Rim as about 60% to 65% of the company’s total assets are tied up in that area. In addition to the area of mutual interests Warren shares with Anadarko, Warren holds leases on another 40,000 gross acres.

Warren expects to accelerate drilling in 2008. Total company-wide production for Warren E&P, prior to the favorable ruling on the Atlantic Rim, was about 20 MMcf a day. Analysts expect the company can now double that.