Coulee is indeed a ravine or a gultch. Grand Coulee was a large one on the Columbia River in Washington State where the Grand Coulee Dam was placed--and about which Woody Guthrie wrote at least one song.

"Fiery and snuffy" are lightning and thunder.

The whole thing makes some kind of sense as a night herding song. During the great cattle drives, two cowboys would slowly ride around the herd all night (one in each direction) to guard against rustlers and coyotes. To keep from spooking the somewhat nervous cattle, each cowboy would sing continuosly but quietly. And because that's what they knew, the cowboys would make up songs about being cowboys: "I ride an old paint, I lead an old dan, I'm goin' to Montana to throw the houlihan" and so forth.

I'm finding two versions of the third verse: is it "Old Bill Jones had two daughters and a song; One went to Denver and the other went wrong." or "Old Bill Jones had a daughter and a son; one went ..."?