The Pinedale Field in Wyoming is generally unknown to most investors, yet it remains one of the most prolific and economic natural gas plays in North America. Several operators continue to develop this field despite the general industry bias towards oil and liquid development.

TUTORIAL: Commodity Investing 101

Pinedale Field
The Pinedale Field is located in Wyoming and is approximately 90-square miles in size. The field produces from the Upper Cretaceous Lance formation at depths ranging from 12,000 to 14,000 feet.

The Pinedale Field is currently producing approximately 1.2 billion cubic feet per day of natural gas from thousands of wells. The field is estimated to have original gas in place of 58.7 Tcf, with about 65% of this recoverable.

The field is one of the most economic plays in North America, and according to data from Morgan Stanley (NYSE:MS), the average well drilled at the Pinedale Field will earn a 10% pretax rate of return with prices as low as $2.22 per MMBtu.

The Players
Ultra Petroleum
(NYSE:UPL) can arguably be called the king of the Pinedale Field, and first got involved in the field in 1997. The company estimates that it has 10.7 Tcfe of resources at this field and these resources can be developed at a low cost of $1.26 per Mcfe. This estimate is based on 2,900 future wells developed at a cost of $13.5 billion.

Ultra Petroleum's original 2011 capital budget of $1.1 billion called for the drilling of 229 gross wells in the Pinedale. The company just increased its capital budget by $250 million and is directing some of this capital towards more drilling at the Pinedale Field.

QEP Resources (NYSE:QEP) is also involved with the Pinedale Field and reported 1.35 Tcfe of proved reserves here at the end of 2010.

QEP Resources reported average net production of approximately 196 million cubic feet of natural gas equivalents per day in the second quarter of 2011 and is on track to complete between 95 and 100 wells in 2011. The company is operating four rigs and will add another two rigs in early 2012.

Other companies prefer to put capital into other plays in the onshore area. Rosetta Resources (NASDAQ:ROSE) acquired a small position in the Pinedale Field in late 2008, only to divest the properties at the end of 2010.

Other Wyoming Plays
Anyone that thinks Wyoming doesn't have any new natural gas plays to discover should take a look at the Moneta Divide project being developed by EnCana (NYSE:ECA), Noble Energy (NYSE:NBL) and Conoco Phillips (NYSE:COP). The development plan, which has not yet been approved, calls for 4,200 natural gas wells over a 15-year period. The field has produced historically from shallow zones, but these new wells will be targeting tight gas formations at a greater depth.

The Bottom Line
Ultra Petroleum, QEP Resource and other exploration and production companies are continuing to develop the substantial natural gas resources in the Pinedale Field, despite the industry frenzy towards oil and liquids. This attention to returns, regardless of the commodity involved, is characteristic of a solid operator and is the proper long-term strategy. (For additional reading, take a look at What Determines Oil Prices?)

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