RPT-ANALYSIS-Prices slow development in big Colorado gas reserve
(Repeats story that originally ran Monday evening)
* Piceance Basin may foreshadow other gas play pullbacks
* Rig numbers falling quickly among number of operators
* Oxy CFO sees basin as big store of low-risk gas reserves
SAN FRANCISCO, Nov 25 (Reuters) - After half a century of efforts to unlock the full potential of a big natural gas reserve in western Colorado, many companies are reeling in spending there because they just can't make it pay off right now.
With enough natural gas beneath it to meet the state of Colorado's needs for dozens of years, the Piceance Basin area is well regarded in the industry for gas that is relatively easy to extract and ship to many Western U.S. users.
It's been nearly 40 years since the U.S. government set off the first of two nuclear bombs in the area in an effort to free up natural gas, under the later-abandoned Project Plowshare. More conventional extraction has since prevailed, and nobody doubts the Piceance will remain a big source of energy.
But it's been hit by a pair of financial bombs: dirt-cheap natural gas, particularly in the Rocky Mountains, forcing drillers to move rigs away in search of better pricing, and tight credit that has made others cut back across the board.
The Piceance troubles offer a glimpse of what will happen to other once-hot natural gas plays and the companies that have invested in them if energy prices continue to fall.
In September, Occidental Petroleum Corp (OXY.N) bought out the Piceance stake of partner Plains Exploration & Production Co (PXP.N), and Oxy Chief Financial Officer Stephen Chazen told Reuters his company was curtailing efforts there, even though it valued the asset as a big store of "low-risk" gas reserves.
Los Angeles-based Oxy would pull out enough gas to fill its existing pipeline capacity to California, but its 2009 drilling in Piceance would be "significantly less" than the combination of six rigs Plains had there in August and Oxy's deployment.
"If you get long-term leases, it doesn't really make any difference whether you get at it next year, or the year after that," Chazen said in a phone interview.
TOO CHEAP
Natural gas prices in the region have been running about $3 under the benchmark of less than $7 per million British thermal units <0#NG-US>, making them among the country's cheapest and well below the break-even level.
Citing the weak prices in the Rockies, Chevron Corp (CVX.N) said last week it would stick with just two rigs in the Piceance, dropping a planned expansion to six. [ID:nN20425487] Continued...
