Energy, Energy Service, Natural Gas & Oil Sectors: Well Plugging

» lcha - Well Plugging

By NELSON ANTOSH
Copyright 2001 Houston Chronicle

An increasing number of natural gas wells are being plugged, now that the price of natural gas is down.

Tetra Technologies, the largest company doing these jobs on land and one of the two largest offshore, Tuesday revised upward its earnings projections for the year as a result.

There was a plateau in activity from October to March, when gas prices were extremely high, in what is a growth business in the long term, Chief Executive Officer Geoffrey Hertel said.

At $8 to $10 per thousand cubic feet, few companies wanted to permanently kill a well, even if the output was so small it wasn't much of a moneymaker, he said. When the price fell back between $4.50 and $5, there was a fairly substantial increase in well plugging.

Currently, natural gas sells for around $2.40 on the New York Mercantile Exchange, and the upturn in well abandonment is "dramatic," said Hertel. This is true for the Gulf of Mexico and also for the higher number of land wells.

"As the price of gas began to fall, requests for bids escalated," he said in a written statement.

The Woodlands-based company raised its earnings estimate for the year to between $1.55 and $1.88 per share, up from the earlier forecast of $1.30 to $1.70 per share. Its stock gained $1.60 to close Tuesday at $24.41.

Well abandonment and decommissioning is expected to be a $93 to $110 million business for Tetra this year, compared with $60 million last year and around $39 million in 1999. This is up from April, when it looked to do $80 million to $95 million.

The federal Minerals Management Service and states like Texas and Louisiana are increasing the pressure to plug wells, according to Hertel.

Plugging a well on land basically involves pumping concrete into the hole, but offshore and in inland waters it is more complicated because platforms and pipelines must be removed.

Tetra will have to add people and equipment to keep up with the well-plugging demand, Hertel predicted.

Meanwhile, its well testing and services division is doing better than originally forecast, while profitability of its fluids division is unchanged. Well plugging accounts for about 30 percent of the company's revenues.

Lcha commentary

The plugging situation was totally predictable. Enjoy the cheap NG while you can. It won't last long. Once again, our no crisis-no problem attitude has put a comprehensive energy policy on the back burner.

-- posted by lcha