EXCLUSIVE REPORTS
From the September 17, 2004 print edition

Experienced energy exec on the hunt again
Cathy Proctor
Denver Business Journal

Galaxy Energy Corp., a Denver-based oil and gas startup whose founders sport an impressive résumé, hopes to turn the corner from being a fledgling company to a going concern.

Galaxy, traded on the Over The Counter Bulletin Board under the symbol GAXI, was founded in 2002 by Mark A. Bruner and his son, Mark E. Bruner. The elder Bruner has founded and sold a number of companies, including Pennaco Energy, which sold to Marathon Oil Co. for $500 million in 2001.

Since then, Galaxy has raised millions of dollars and begun searching for natural gas on thousands of acres in Wyoming, Montana and Texas.

Earlier this year, Galaxy launched an aggressive drilling program in the western part of Wyoming's booming Powder River Basin with some wells already producing natural gas, company officials say.

But the company is still in startup stages, or as Greg McMichael, a Denver-based oil and gas analyst for A.G. Edwards, noted dryly: "It's a company without revenues."

The company's wells haven't been online long enough to meet SEC rules regarding reporting of production, reserves or revenue, said Chief Operating Officer Cecil Gritz, who runs the company's six-person Denver headquarters.

But Galaxy's plan holds promise, McMichael said.

Much of the activity in Powder River Basin, where natural gas is pulled from coal seams, is concentrated on the eastern side of the basin. Galaxy's interests are on the western side.

"Over where they are, it's a little less explored," McMichael said. "The coals are there, it's just a question of how commercial they will be. There's a fair amount of promise where they're operating."

In 2003 and early 2004, the company raised more than $22 million. Last month, it announced it had raised another $15 million in new debt, with another $5 million available subject to the approval of shareholders.

The money will be spent drilling more than 100 new wells in the Powder River Basin, as well as hooking completed wells to pipelines to start shipping gas, the company said.

"We plan to hook in about 180 coal-bed methane wells," said Mark A. Bruner, who acts as chairman of Galaxy's advisory committee. His son is president and CEO of Galaxy.

"We're very optimistic about these wells being hooked in between now and the end of the year," said the senior Bruner, who lives in Switzerland, in a cell-phone interview as he headed to Canada to talk to investors about Galaxy.

"By the end of January, we expect to have all of them producing -- that's 20 to 40 million cubic feet per day out of these wells -- and we think we're being very conservative about those estimates."

The company hasn't filed audited estimates of reserves or production because wells haven't been online long enough to build up several months of production records, Gritz said.

The company's goal is to produce 1 million cubic feet of natural gas a day by the end of the year, and 10 million cubic feet a day by the end of 2005, according to officials.

To do that, Galaxy is concentrating on the Powder River Basin, a natural gas field that sprawls across the Wyoming-Montana state line. Considered an "unconventional" natural gas play because the gas is pumped from underground coal seams, the basin is hailed as one of the largest natural gas resources in the United States.

"We're going to be very aggressive about trying to build a coal-bed methane company in the Powder River Basin; it's the No. 1 coal-bed methane basin in the U.S.," Mark A. Bruner said.

While Galaxy searches for investors, it's hired Continental Industries LLC, based in Casper and with 30 employees, to handle the drilling and permitting side of the business. More than half of Continental's business comes from Galaxy, Continental CEO Ken Daraie said.

"Mark Bruner Sr. had a vision of what he wanted to do and I shared that," Daraie said. "He had a vision that he can have a viable, profitable venture in the Wyoming Powder River Basin; what Galaxy lacked was an implementation tool. They researched and found us, and I felt like we could do it and set out to get it done.

"They saw in us a chance to team up with a company that was already here, had a team in place and [could] skip that portion of the learning curve. We started in February 2004 and we'll have production by the end of the year. That's fast considering all the hurdles one has to jump through these days -- the political and environmental and permits, all without lawsuits and litigation," Daraie said.

Getting permits in a timely fashion has been an issue for many operators working on federal lands in the Powder River Basin.

But Galaxy decided to avoid that by focusing on leases held by private individuals or the state of Wyoming, company officials said. "Most of our land is fee leases, which has a lot less red tape associated with it," Mark A. Bruner said.

The company also has focused on drilling deeper into the coal seams in areas that don't yet have a network of pipelines built to carry the natural gas out of the area and to market, he said. "We decided to concentrate in areas where other companies weren't involved yet."

"Mark Bruner Sr. has made a lot of money in the past," said Mike Jacks, a partner in Shemano Group Inc., the San Francisco-based banking company that played matchmaker between Galaxy and the investment community in the last round of financing.

"They have a good strategy and the area has the potential to be quite lucrative," Jacks said. "The bottom line is they have a management team that's been there and done it before."

© 2004 American City Business Journals Inc.