Making Galaxy shine


Galaxy Energy chief executive Marc Bruner began acquiring coalbed methane prospects in the Rocky Mountains at a time when conventional natural gas projects were being hit by low prices and expired leases.

Bruner, a third generation gas man, enlisted his father to put together a package of acreage that they hoped would ripen to provide returns when the gas market recovered.

Bruner's father, also named Marc, had experience with CBM through his work as co-founder of Pennaco Energy and Ultra Petroleum and became an advisor for his son's fledgling company following the 2001 sale of Pennaco to Marathon Oil for $500 million.

Bruner Sr, along with land man Lou Oswalt, selected a few inexpensive properties for Denver-based Galaxy in the Powder River basin in Wyoming and Montana.

"We only had a couple of million dollars to start with, so we took a chance on new coalbed methane completion technologies and the eventual recovery of gas prices," the Galaxy chief says.

Bruner, who had worked as an investment banker and analyst for Swiss consulting firm Resource Venture Management, took on the task of raising capital to fund exploration and development projects on the properties his father and Oswalt had chosen.

Since Galaxy's launch in 2002, Bruner has managed to raise $37 million, which will finance the drilling of several CBM wells at a cost of about $100,000 to $150,000 each.

The company celebrated its first output in mid-November when 23 of its Wyoming wells began producing gas following a lengthy de-watering phase.

One month later, Galaxy was producing about 550,000 cubic feet of natural gas per day, with output expected to ramp up quickly as more wells are completed.

The company's chief operating officer, Cecil Gritz, expects to be producing 10 million cubic feet per day by the end of 2005.

Galaxy now holds about 90,000 net acres in Wyoming and Montana and owns a majority interest in 180 wells in various stages of completion. The company hopes to eventually amass up to 300,000 acres in the Powder River mainly through partnerships and farm-in deals, which require little or no start-up money.

"Part of our strategy is an acquisition strategy. We prefer no cash up front farm-in deals. However, if we need to make some acquisitions for stock or cash, we will be able to do it. The goal is to double or triple our acreage position by the end of 2005," Bruner says.

"One of the things we love about coalbed methane is the leverage," he adds. "As you find these coal seams and drill point A and B, you're fairly confident with what point C is going to do. It becomes more of a manufacturing operation than an exploration and production operation."

Galaxy has gone to great lengths to ensure that its "manufacturing" programme continues uninterrupted by environmental lawsuits and related permitting delays that have plagued some companies in the Rockies.

Communities are often sensitive to the potential impact of CBM operations, which require the drilling of several wells in close proximity to one another.

Galaxy, meanwhile, is able to produce peacefully near an artists' commune at Wyoming's Ucross Ranch because it commissioned the artists to create papier-mache boulders to disguise production equipment, thereby reducing the visual pollution associated with drilling.

"We want to be the poster child for environmentally sound drilling. The exceptions we have made at Ucross, including the lowprofile wellheads and papier mache boulders costs us a little extra money, but our economics are still fairly good and it creates goodwill," Bruner says.

Galaxy has also made an effort to create goodwill with the owners of private properties on which it operates by striking participation deals. "We've gone directly to those who own the land and the minerals and we've asked them to participate with us. So they're going to be getting a piece of our operations. We feel that the landowners are happier with what we do as a result and also because they have a hand in all the environmental issues," Bruner says.

Galaxy is counting on success in the North American CBM scene, but its reach is not limited to the Powder River. Once the company gets its US programme running on all cylinders, it plans to start up CBM operations on properties it has purchased in Europe.

The company has a concession agreement in Romania covering more than 21,000 acres for a 30-year term. It has also secured a nearly 150,000-acre exploration permit in Germany.

"Right now our focus is on the Powder River. We don't want to spread ourselves too thin, so we'll wait to focus more on our properties in Europe as soon as we have the free cash flow," Bruner says, adding that he expects to drill two test wells in Romania in the second quarter of 2005.

"We have found that the engineers in Romania are highly educated and competent, but companies currently operating there, like Toreador Resources, have had to bring in crews out of Germany and western Europe to do the actual drilling, which makes operating there a lot more expensive," Bruner says.

"But there are big reserves there and the people are looking forward to having their own production instead of having to import Russian gas," he adds.