Anadarko Petroleum says the crown jewel of its 2000 merger with Union Pacific Resources, an 8 million acre slice of the gas-prone U.S. Rocky Mountains, is just too much territory for one company to explore in a timely fashion.
So the big exploration and production independent is now looking for partners with deep pockets to contribute both money and time to help explore the so-called UPR strip.
“We want to take a much more pro-active step … using other people’s money, along with our own, to leverage our mineral fee acreage and get some things done,” Jim Fuchs, who manages Anadarko’s U.S. western region, said in an Oct. 21 interview with Petroleum News.
The UPR strip dates back to President Abraham Lincoln’s administration, which granted railroads, including Union Pacific Railroad, both land and mineral rights to encourage investment in a trans-continental railway.
Acreage that makes up the land grant lies in a checkerboard strip almost 700 miles long and 40 miles wide, based on 20 miles on both sides of the original rail tracks. The strip passes through southern Wyoming and portions of Northeast Colorado and Utah.
Coal to fuel locomotives and timber to build track were the big attractions back in the middle 1800s. “At the time, oil and gas really wasn’t a thought in anybody’s mind,” Fuchs said.
Anadarko inherited rights to strip
Through its merger with UPR, Anadarko inherited the strip’s oil and gas rights in perpetuity.
Although the strip’s resource potential is difficult to calculate, the area is thought to contain natural gas reserves in the trillions of cubic feet. And the acreage happens to be located in the heart of natural gas exploration and development in the western states.
“Where we have new risky (exploration) ideas that we like, we’re going to leverage ourselves and get someone else to share the risk,” Fuchs said.
Since the merger, Anadarko has pumped an estimated $400 million to $500 million into the strip. Over the past four years, the company has steadily increased the number of development wells while expanding into coalbed methane and enhanced oil recovery projects in the region, both on and off the strip.
“We know there are a lot of reserves to be found out there,” Fuchs said of the strip. “And these are reserves that … with better economics, meaning the higher (commodity) prices we are seeing today and the lowering of well costs, we can get a lot more out of the land grant.”
Looking for deals of 'significant' size
Anadarko, which has done a few smaller deals in the past involving the land grant, is now looking “to do some deals of more significant size that could be meaningful to Anadarko,” Fuchs said.
“We don’t want to do tiny little deals because we don’t think we have the resources maybe to service people that want a half-section here and a section there,” he added. “Twenty or $30 million is not enough. It would have to be a significant percentage of what our budget is, meaning I’d like to get it where we are getting another $100 million or more (annually) from other companies.”
In terms of capital spending, Anadarko’s investment in the Rockies overall and in the land grant has increased over the last several years. For the Rockies overall, the company said it expects to spend just under $300 million in 2004 compared to about $250 million in 2003. Roughly one-third of this year’s total budget is earmarked for the strip.
Fuchs said the Rockies provide Anadarko daily with close to 400 million cubic feet of natural gas equivalent, with more than half of the total volume coming from the strip. About 15 percent of the company’s total production comes from the Rockies.
“If you look at our projections, we think we’re going to be growing production in this area at a modest rate,” Fuchs said.
In addition to oil and gas rights, Anadarko also owns extensive hard-rock mineral rights on the strip and has both royalty and working-interest ownership in several active mining operations, including coal and trona, a mineral.
Since the merger with UPR, Anadarko also has expanded its Rockies position, largely through acquisitions.
In fact, Anadarko’s 2004 Western states program is highlighted by an extensive EOR project involving CO2 injection at the Monell unit and Salt Creek oil field in Wyoming. In preparation for the EOR projects, the company built 158 miles of CO2 pipeline.
Moreover, development drilling was accelerated in 2004 to include coalbed methane wells in the County Line and Atlantic Rim fields, shallow gas wells in the Copper Ridge field, oil wells in Elk basin, and multiple conventional drilling projects throughout the Green River basin of southwest Wyoming.
Anadarko also treats natural gas at the company operated Brady gas sweetening facility, which is one of the largest in the Green River basin. Additionally, the company operates treating and processing plants at Salt Creek and Elk Basin fields, and has an interest in three plants in the Overthrust area at Whitney Canyon, Anschutz Ranch and Painter.
