Operators targeting mature natural gas plays in South Texas have never enjoyed such high returns for their production. In the past year the wellhead price has risen from $1.80 per thousand cubic feet (Mcf) to a record-breaking $4 and more, dramatically improving the economics of drilling and deal-making. Smaller players that were battered by low oil prices 18 months ago are now confident enough to move from balance-sheet repair to drilling. Large players such as Apache, Louis Dreyfus Natural Gas, Conoco and Coastal have been buying properties to enhance their positions. "If you normally multiply a 10-billion-cubic-foot (Bcf) prospect by $2 per Mcf, and now you can multiple it by $4, that makes a huge impact," says Scott Cone, cofounder of Tri-C Resources, Houston. "You can drill deals today that were tight two years ago. With $4 gas, if one of your wildcats works, that carries several other wells you drill that may not work out. Now you can afford to drill smaller prospects-but nobody wants to drill that size prospect and then see prices drop back to $2." Privately held Tri-C recently sold its South Texas production-its 10th asset sale in 15 years. The exploration specialist always sells soon after proving up reserves, then uses the proceeds to start exploring again on its retained prospects. Tri-C focuses on 10- to 15-Bcf targets in the Frio in Matagorda County, where it shot more 3-D last summer. It expects to drill 10 wells there this year. At press time, Tri-C made a gas discovery in the Yegua Trend in Liberty County that it believes will be 20 Bcf. It owns 85%. Following the round of 3-D that was shot three or four years ago, operators have already drilled up most of the grade-A prospects in South Texas. Now they are reworking that data to drill what was left behind. Producers have enjoyed strong oil and gas prices for only six or seven months, so many are still gun-shy, Cone points out. "But, if rigs are not running, it's due to lack of domestic onshore prospects, not due to lack of capital." Edge Petroleum plans six Frio tests on the O'Connor Ranch in Goliad County (partnering with Texaco), and its House prospect in Duval County. Workovers and recompletions also remain a favored strategy. At the Guerra #2 in Hidalgo County, it opened an uphole zone and boosted output about 500% to 4 million cubic feet equivalent (MMcfe) per day. Also happy with South Texas is John Eads, partner of Sierra Mineral Development LC. The Houston company has drilled six development wells and boosted production to 18 million cubic feet per day. Four more wells are planned this year. Coastal Oil & Gas Corp., soon to merge into El Paso Corp., is drilling a 19,400-foot wildcat in Hidalgo County, the deepest test yet in the county. Last September the company added to its almost 1-trillion-cubic-foot Jeffress Field, just north of the Rio Grande. In January, it acquired another 10,650 net acres and associated gathering lines. The biggest player in the Lobo Trend, Conoco, keeps about 10 rigs running and its gross production is now up to 650 MMcf per day. The company's South Texas business unit says it has 900 drilling locations left on its acreage. Drilling and completion costs are less than $5 per barrel of oil equivalent, with the wells paying out quickly because one-half of the reserves produce right away, followed by a long, gradual decline curve. Conoco is drilling about 150 wells per year in the play and using the cash flow to fund other big plays offshore or abroad. Many operators are trying to generate new drilling ideas or pick up additional acreage in strategic areas. In June, Apache Corp. paid $320 million to purchase Collins & Ware Inc.'s assets in the Permian Basin and South Texas. The largest part of the South Texas package was the Stratton-Agua Dulce Field south of Corpus Christi, which Collins & Ware acquired from Union Pacific Resources in January 1999. During the short time it owned these properties it performed numerous workovers. Production peaked at 60 MMcf per day, but then the company slowed its program last winter. Apache is well known for using its tremendous cash flow to boost old fields it acquires. Also in June, Louis Dreyfus purchased the remaining assets of Costilla Energy, which was in Chapter 11. The deal included many South Texas and upper Texas coast properties in or near LD's core areas.