CMS Energy and Pennaco Energy Form Joint Venture for Coal Bed Methane Development

CMS Energy Corporation and Pennaco Energy have signed a definitive agreement to form a joint venture to develop and produce coal bed methane in northeastern Wyoming and southeastern Montana. The joint venture will involve virtually all of Pennaco's 492,000 net acre leasehold position, with CMS Energy acquiring a 50% working interest for $28.0 million. The partnership will split operations on a 50-50 basis and will utilize CMS Energy's gas pipeline unit for gathering, compression, and transportation services. The joint venture will allow both companies to capitalize on the high potential of the Powder River Basin resource base.

Key Takeaways:

• CMS Energy will acquire a 50% working interest in Pennaco's 492,000 net acre leasehold position in the Powder River Basin for $28.0 million.
• The joint venture will develop the acreage for coal bed methane and provide for gathering, compression, and transportation of the methane gas produced by the two companies in the Basin.
• CMS Energy's gas pipeline unit, CMS Gas Transmission and Storage, will provide gathering, compression, and transportation services to the joint venture.
• The partnership will split operations on a 50-50 basis, with both companies working together to develop the Powder River Basin resource base.
• Bradley W. Fischer, president and chief executive officer of CMS Oil and Gas Company, stated that the transaction with Pennaco has key roles for several CMS Energy businesses, including exploration and production, gas transmission, and gas marketing.
• Paul M. Rady, Pennaco president and chief executive officer, stated that the transaction with CMS Energy strategically aligns Pennaco with an outstanding oil and gas producer and transporter.
• CMS Oil & Gas Co. is among America's 30 largest independent oil and gas companies in production and reserves, with proven reserves of 152 million net equivalent barrels at year-end 1997.
• Pennaco is a recently-formed exploration and production company headquartered in Denver, Colorado, with a primary asset of its 492,000 net acre leasehold position in the Powder River Basin.
• CMS Energy Corporation is a $5 billion (sales) international energy company operating throughout the U.S. and in 21 countries around the world.

Statistics:

• 492,000 net acre leasehold position in the Powder River Basin
• $28.0 million payment for 50% working interest
• 50-50 operations and profit-sharing agreement
• 152 million net equivalent barrels of proven reserves (year-end 1997)
• $5 billion in sales (CMS Energy Corporation)
• $10 billion in assets (CMS Energy Corporation)
• 492,000 net acres dedicated to CMS Gas Transmission and Storage for gathering, compression, and transportation

Sources:

• CMS Energy Corporation press release, October 26
• CMS Energy Corporation website, http://www.cmsenergy.com/
• CMS Energy Corporation 1997 Annual Report (no date)