Natural gas driller has hopes for Idaho

BOISE -- Idaho could join the list of natural gas-producing states by the end of the year.

Its entry into the hydrocarbon league stems from Bridge Resources, a Calgary, Alberta, Canada-based firm that began an exploratory drilling program in Payette County early last year.

Although Idaho has no history of commercial oil or gas production, the company spent about $12 million completing 11 wells. Seven of them hit commercial quantities of gas, including two located on state endowment lands.

The company is now working to secure right-of-way for a pipeline that would connect the gas field to an interstate gas pipeline located about 10 miles away.

It's also seeking approval to pursue hydraulic fracturing at four of the seven wells. The procedure injects liquid down the wells under high pressure to try and improve gas flows from the underground reservoir into the wells.

Bridge Resources released updated reserve estimates three weeks ago that pegged the Payette field's proven reserves at 2.5 billion cubic feet, worth about $10 million. Adding in probable reserves would double that to 5.1 billion cubic feet.

Contingent resources, which represent potential gas supplies outside the reach of the existing wells, are estimated at 23 billion to 58 billion cubic feet, worth about $80 million to $200 million.

It's unclear how much Idaho stands to receive from the discovery. Neither the Department of Lands or the company could provide an estimate. Tony Stewart, vice president for Bridge Resources, said it depends on a number of factors, including how many wells end up being drilled on state lands.

The state will earn a 12.5 percent royalty on any production from wells located on endowment lands. It also charges a 2 percent production tax, regardless of where the well is located, but some of that revenue would go to public schools and local governments.

Stewart said Bridge Resources hopes to move into production by the second half of this year. If successful, the company would drill more wells in 2012 and ramp up production.

Eric Wilson, minerals program manager for the Department of Lands, said the company has indicated it might drill another 40 to 80 wells.

By some reports, other companies are also showing interest in the region. Wilson said nobody has contacted the state yet, but he's "heard rumors." Stewart said he was aware of a couple of other firms that might start exploratory programs.

Paying for the necessary regulatory oversight and permit review is a problem. Wilson said the drilling permit fee is $100, but it costs about $2,800 to do each review. Given the recent nature of the gas find, the Legislature didn't appropriate any money to cover those costs.

That prompted the first meeting of the Oil and Gas Conservation Board in 20 or 30 years. On Tuesday, the board approved a 0.5 percent production levy to pay for future regulatory activities.

The board -- made up of the governor, secretary of state, attorney general, state controller and superintendent of public instruction -- also adopted a memorandum of understanding that would have Bridge Resources pay for any necessary regulatory review up front. The company would be reimbursed after the production levy starts generating revenue.

"We'll have to come back next (legislative) session with some code changes," said Department of Lands Director George Bacon. "In the meantime, this memorandum with Bridge will cover the costs for us and for them."

(Source: http://www.standard.net/topics/business/2011/02/16/natural-gas-driller-has-hopes-idaho)