For decades dating from the 1960s to the mid-1990s, operators in western Wyoming's Pinedale Anticline wrestled with the problem of which technology to apply to uncork the anticline's huge natural gas production and reserve potential. One operator in the 1970s actually considered nuclear stimulation as a way to shake loose the anticline's treasure-trove of tight-sands gas. But it wasn't until major drilling began in the late 1990s in the Jonah Field, at the southern end of the Pinedale, that a few operators began to see how this jigsaw puzzle might be solved. Following their success, other operators, savvy in both directional drilling and tight-sands completion technologies, paraded to the Pinedale. Their focus: anywhere between 10 trillion cubic feet equivalent (Tcfe) and 25 trillion of remaining gas resource in place-depending on which Rockies rockhound one believes. Whatever the true reserve picture, no one doubts that since production at Pinedale only began in earnest in 2000, the bulk of the production and reserve upside at Pinedale is ahead of operators, not behind them. Indeed, the 8,800- to 14,200-foot Lance Pool may be just the tip of the geologic iceberg on the anticline. Still untapped is the 19,500-foot Rock Springs formation. What's more, there's consensus that well production at Pinedale is likely to continue for the next 40 years. Seasoned and savvy No stranger to the Pinedale Anticline, Questar Corp., the Salt Lake City-based diversified energy giant, drilled its first well there in 1963. Sure enough, it was a producer. But like so many of the early wells drilled on the anticline, its output wasn't significant enough to justify building a pipeline. "Everybody recognized this was a large anticline that held large volumes of gas; the only problem was figuring out what technology would allow wells there to produce in significant volumes," explains Jay B. Neese, vice president of Questar Exploration and Production Co. in Denver. Ultimately, as the 20th century neared a close, some operators working the Jonah Field came up with the solution: take the same multi-stage frac technology that was then so successfully being employed by producers to tap the Lance formation at Jonah and apply it to the Pinedale. The first independent to use this technology on the entire Lance formation at Pinedale was Ultra Petroleum in 1997 under a farm-out from Questar. "When we exercised a preferential right to buy back additional interest in that acreage in 1999 and took over as operator, there had been only six wells drilled on our block since the 1960s-three by us; three by Ultra," says Neese. "Since then, we've completed 97 more productive Pinedale wells on what is now an 18,000-gross-acre block, up from 14,200 gross acres in 1999." Spending an average $5 million to directionally drill and complete wells with multi-stage fracs, the company has grown its gross daily production at Pinedale to a 2004 peak of 254 million cubic feet equivalent from a prior-year high of 210 million. Similarly, it expects proved net reserves at Pinedale to grow to about 730 billion cubic feet equivalent (Bcfe) by the close of 2004 from 443 billion at year-end 2003. These wells have high initial production rates of between 8- and 15 million cubic feet per day. In fact, the company gets-in just the first year of a Pinedale well's output-about one-sixth of the total gas that well is going to produce during its 40-year life. "The primary productive interval for us today is the 8,800- to 14,200-foot Lance Pool, which is composed of the Lance formation and the upper part of the Mesaverde interval," says Paul Matheny, Denver-based Rocky Mountain regional manager for Questar. "By comparison, in the first few years of development at Pinedale, we only drilled to the Lance." Brightening Questar's outlook further at Pinedale is a recent move by the Wyoming Oil and Gas Commission which allows the company to drill its Lance Pool wells on 20-acre spacing rather than 40-acre spacing. "This ultimately means higher production and reserve levels for us," says Neese. The company's reserves per well on 40-acre spacing were averaging 8 Bcfe and that a second well drilled on 20-acre spacing means an average 6 Bcfe of incremental reserves. Questar, which still has 367 proved, probable and possible reserve locations to drill at Pinedale on 20-acre spacing, got even more good news recently. The Bureau of Land Management (BLM), in coordination with the state of Wyoming and the Wyoming Game and Fish Department, gave the company the green light to begin drilling year-round, on a phased-in basis, beginning this winter. Due to restrictions designed to protect the wintering mule deer, the company had previously only been allowed to drill on its Pinedale acreage between May 1 and November 15. This winter, it will be allowed to have two rigs running on a single pad and, starting next winter, two rigs running on each of three pads. "This step means we can fully develop our 20-acre Lance Pool locations in nine years versus the 18 years it would take with seasonal drilling," says Neese. "That translates into accelerated gas production and increased royalty income for the federal government and higher royalty and tax payments to the state." Multiple wells being drilled from single pads also create more environmentally friendly operations, stresses Matheny. "We'll now be able to develop our acreage with only one-third the surface disturbance allowed under the environmental impact statement. This is important, given the region's sage-grouse, pronghorn and mule-deer habitat." Another environmental benefit, Matheny points out, is that production equipment can be consolidated onto these multi-well pads, thereby reducing the emissions created in the process of extracting water vapor from the produced gas stream. The company is also spending about $25 million to construct two pipelines that will take all the condensate and water produced on its Pinedale acreage well away from the region. "That's going to eliminate up to 25,500 tanker-truck trips per year." On the exploration front, Questar is planning to take a peek at Pinedale's deeper, untapped horizons. "Currently, we're drilling a 19,500-foot wildcat on the northern part of our acreage to test the entire Rock Springs formation," says Matheny. "We hope this formation will yield the same results in the coming years that the Lance formation did in the late 1990s." Shifting focus In 1997, Houston's Ultra Petroleum Corp. was the first independent to apply multi-stage frac technology from its experience in the Jonah Field to wells in the Pinedale Anticline. But, Michael D. Watford, the company's chairman, president and chief executive officer, had other things on his mind when he was brought on board in 1999. "We owed more money than we had, our G&A expenses exceeded revenue and investors were upset," he explains. "So we had to fix the company first, meaning we had to shrink it before we could begin growing it again." By mid-2000, after it sold some Pinedale farm-out properties back to Questar, Ultra was ready to move forward, this time armed with a 75-square-mile 3-D seismic survey of the anticline. Fortuitously, that was also about the same time the BLM approved downspacing in Jonah Field, from 80 acres to 40 acres. "We started drilling wells again in the Jonah Field to the Lance formation, then took those skills to the anticline and began growing there as well, initially targeting the same Cretaceous-age formation," says Watford. And grown the company has. Ultra, which controls more than 168,000 gross acres in and around Jonah Field and the Pinedale Anticline-where it is the largest leaseholder-has drilled some 200 wells in the two areas since 2000. The result: its annual production has ramped up from an initial 4.6 Bcfe-almost all from Jonah Field-to 28.9 Bcfe by year-end 2003, with the majority of that growth coming from Pinedale. For 2004, the company expects combined annual production from Jonah and Pinedale to exceed 40 Bcfe-90% of that from the anticline. Growth in proved reserves in the two plays reveals the same pattern. At year-end 1999, its reserves totaled only 44 Bcfe-all of that underlying Jonah Field. By year-end 2003, its Wyoming gas reserve base soared to nearly 1.1 Tcfe-virtually all that growth from the anticline. "Overall, I think Pinedale is going to prove to be one of the most significant domestic gas discoveries in the past 50 years," says Watford. "There's the potential of witnessing an aggregate 20- to 25 Tcfe produced here during the next 40 years. For Ultra's part, we see reserve upside in the 4- to 5-Tcfe range." To achieve that upside, Ultra has a lot going for it, not the least of which is 600 undrilled Pinedale locations, each with an estimated average 7 Bcfe of recoverable reserves based on 40-acre spacing. Since 2000, the company has averaged, on 40-acre spacing, reserves of 10 Bcfe per well. "We're in the process, however, of evaluating a pilot 20-acre-spacing program that we now have going on at Pinedale," says Watford. "If we should go down to that spacing-or beyond that to 10-acre spacing-it's going to result in a large increase in our production and reserves over time." What Ultra also has going for it, in terms of putting teeth into its growth strategy at Pinedale, is the ability to fund stepped-up drilling there, to deeper horizons such as the Mesaverde. Its overall corporate cash flow has grown from about $24 million in 2002 to a Wall Street estimate of $185 million for 2004; concurrently, its overall capital budget has increased from $62 million to $190 million. For 2005, it plans capital spending of $250 million, $230 million of which is earmarked for participation in the drilling of 100 Pinedale wells, up from 78 wells in 2004, 63 in 2003 and 26 in 2002. "The driver for all this growth is the economics of the play," explains Watford. "For an average 10-Bcfe well in 2003, which then cost $4.1 million to drill and complete, the average rate of return (ROR) based on $3 gas was 53%. Today, we're getting $5 for our gas and the average ROR exceeds 100%." No small part of this result is close attention to controlling operating costs and having higher flow rates from wells based on better multi-stage frac technology. Watford notes that lease operating expenses at Pinedale are only 15 cents per thousand cubic feet equivalent; overall corporate G&A, 16 cents per thousand. "What affects an operator's ability to grow in this business is the cash flow he needs to reinvest each year just to keep production flat," says Watford. "We're at the point where it's taking only 15% of our annual cash flow to keep output even." WASTE NOT, WANT NOT In the drilling, fracturing and production of Pinedale's tight-sands gas formations, a significant amount of contaminated water is brought to the surface that can't be injected back into the ground or released into the environment. During the past three years, New Orleans-based Newpark Resources, which handles drilling fluids, environmental services and drill-site preparation for the industry throughout North America, has dealt with that issue at Pinedale in fairly simple fashion. "We began as a commercially permitted evaporation facility in the region, to which producers like Questar and Ultra Petroleum would truck from their drill site the wastewater produced with their gas," explains Jim Cole, Newpark chairman and chief executive officer. This past fall, however, Newpark introduced to Pinedale a patented new and mobile wastewater-treatment technology, designed to allow the beneficial reuse of produced water on the anticline and in the Jonah Field. There's a series of reactors within this mobile water-treatment unit that reduces the total dissolved solids in the produced water to below 500 parts per million-which meets the stringent guidelines established by the Colorado River Basin Authority, says Cole. "In effect, this technology separates the good water from the bad in a wastewater-production stream, making 95% of the treated water available for beneficial reuse, whether for irrigation, livestock or drilling." The specific benefits of this technology to producers in the region are several, says Tom Ballantine, Newpark president and chief operating officer. "Since operators are responsible for the water produced in their operations, making that water reusable minimizes a company's long-term liability under the Resource Conservation and Recovery Act." Secondly, "this technology allows us to give back to producers usable water for their drilling operations-so they don't have to buy additional water or be saddled with the costs of transporting it or drilling water wells." Thirdly, it's more expensive to transport wastewater in the Pinedale than to dispose of it. "Now, with this mobile water-treatment unit, we have a technology that can be brought close to drill sites as operators move from one location to the next." Down the road, Cole sees application of this mobile wastewater-treatment technology in other parts of the Rockies where producers are involved in major coalbed-methane (CBM) plays. "A lot of CBM wells are shut-in today because of major water-contamination issues. Processing water for reuse in those plays could have significant positive implications for the industry."