BLM Defers Tres Rios Lease Sale

Pagosa Springs Sun | February 14, 2013

http://www.pagosasun.com/blm-defers-tres-rios-lease-sale/

Oil Could Ignite San Juan Revival

Albuquerque Journal | September 17, 2012

By Kevin Robinson-Avila / Journal Staff Writer on Mon, Sep 17, 2012

Copyright © 2012 Albuquerque Journal

The good times may soon return to the San Juan Basin in northwestern New Mexico, thanks to oil deposits buried in shale beds alongside the region’s abundant natural gas fields.

Two large companies, Canada’s Encana Corp. and Bill Barrett Corp. of Denver, have partnered with local producers in Farmington to dig wells in the Mancos Shale, a hard-rock layer rich in liquid fuels that rests between 5,000 feet and 12,000 feet below ground.

That layer is located amid dry natural gas reservoirs above and below it that have sustained the industry in the Four Corners area for decades. But with dry

natural gas prices at 10-year lows, and a market glut likely to keep it that way for the foreseeable future, producers are turning to oil and other liquid fuels trapped in the Mancos as a potential ticket to economic recovery.

“The Mancos oil play is the real deal,” said T. Greg Merrion, president of Farmington-based Merrion Oil and Gas Corp., which partnered with Bill Barrett to explore for oil. “We could be on the cusp of another energy boom here in the San Juan Basin.”

30 billion barrels

Merrion and Bill Barrett estimate up to 30 billion barrels of oil are trapped in the New Mexico portion of the Mancos Shale bed, which stretches into Colorado, Utah and Wyoming. They believe at least 5 percent, or about 1.5 billion barrels, can be economically recovered.

But that may be conservative.

“Encana Corp. estimates like twice that amount of oil is in the play, and they say up to 8 percent can be recovered,” Merrion said. “The numbers are not set in stone. The jury is still out.”

Encana’s USA Division created a special team in Denver solely dedicated to oil exploration in the play, said spokesman Doug Hock.

“We believe it’s a very prospective area,” Hock said. “We tend to be conservative, taking one step at a time, but we’re encouraged by the initial results of exploration. The fact that we put together a dedicated development team is a significant step for us.”

Efforts to extract oil mark a significant shift in the basin, which was hit hard by the recession, and by vast new shale gas plays in the Northeast, Midwest and South that have flooded the market and driven prices down. The price per 1,000 cubic feet of natural gas fell from about $6 in early 2008 to below $3 after the economy tanked, and has yet to climb back.

This rig, northwest of Farmington, is drilling into the Mancos Shale as part of Encana Corp.’s efforts to explore for commercial quantities of oil and liquid natural gas. Photo Credit – Courtesy Of Encana Corp.

Dry gas problem

Four Corners producers have particularly suffered because most natural gas there is dry. In contrast, gas in the oil-rich Permian Basin in southeastern New Mexico has high liquid content, allowing processors to extract fuels like propane to sell separately from dry natural gas, boosting income.

In addition, while the Oil Patch enjoys a boom in crude production thanks to today’s high oil prices, San Juan Basin operators almost exclusively produce natural gas, not crude.

Consequently, New Mexico’s natural gas output plummeted 18 percent from 2007 to 2011, reaching its lowest level in 20 years. About a dozen drilling rigs now operate in the San Juan area, down from about 40 before the recession.

“The basin just continues to suffer,” said Jason Sandel, executive vice president at Aztec Well Servicing in Farmington. “It’s really brutal up here.”

That could change if extraction of Mancos oil proves commercially viable.

The basin has produced crude in the past, starting early last century and gaining momentum in the 1950s. But it petered out because low oil prices made extraction less economical and drilling technology needed improvement to bust open hard-shale rock. Instead, companies focus on easier-to-crack sandstone beds to exploit natural gas.

But with oil prices now fluctuating from $80 to $100 a barrel, plus modern hydraulic fracturing and horizontal drilling technologies making it easier to permeate shale beds like the Mancos, oil extraction in the San Juan Basin appears more attractive.

Weighing the costs

The question is whether companies can extract enough crude and liquid gas from Mancos wells to make the high cost of drilling worth the investment, said Kurt Reinecke, Bill Barrett Corp.’s executive vice president for exploration.

The company will drill two exploratory wells this fall.

“We don’t know what the full cost of these wells will be yet,” Reinecke said. “It could be upwards of $6 million, so we’ll need more than that in oil to recover costs.”

Barrett partnered with Merrion to gain access to about 25,000 acres of mineral rights held by the latter. Merrion needed a company with deep pockets and experience.

“We bring acreage, they bring people, capital and expertise,” Merrion said.

Once Barrett begins drilling, it can reduce production costs by operating multiple wells on a single site with shared facilities. But the company will need total output of at least 250,000 or more barrels of oil and liquid gas equivalent from each well, or between 300 and 500 barrels of equivalent per day over the life of a well, to make it profitable, Reinecke said.

Initial results from Encana Corp. exploration indicate potentially good returns.

Encana drilled seven wells so far this year, and plans at least four more by December, Hock said. The first well produced an average of 438 barrels of oil equivalent per day in its first 30 days of operation.

Encana has partnered with Dugan Production Corp. in Farmington, which controls 174,000 net acres of mineral rights in the Mancos.

“Encana is starting to drill its eighth well now,” said Dugan owner Tom Dugan. “The first ones look fairly good.” Encana’s initial success could encourage more companies to explore for oil.

“There’s lots of talk about other folks planning to drill test wells,” said Merrion Investment Manager George Sharpe. “I expect some bigger operators will start testing their positions and switch some of their active rigs from gas to oil.”

Results ‘mixed’ for Encana Corp. drilling

By Chuck Slothower cslothower@daily-times.com

Updated:   11/08/2012 12:24:21 PM MST

FARMINGTON — Encana Corp. has drilled five wells in the San Juan Basin and hopes to complete a planned eight wells by the end of the year, the company said in an investor release last week.

The oil and gas firm is still trying to figure out the potential for oil production in the Gallup formation, a geologic layer in the basin.

“Our results are mixed at this point, but that’s not unexpected,” said Doug Hock, a Denver-based Encana spokesman. “That’s the purpose of an exploration play: to see what you’ve got.”

Encana, based in Calgary, Canada, is the most active player in the early exploration for oil in the south San Juan Basin. The company has partnered with Farmington’s Dugan Production Corp. and Robert L. Bayless Producer, LLC, to exploit their lease positions in the basin.

“It is going very well,” said Jeff Wojahn, Encana’s executive vice president, in a conference call with investors Wednesday. “We’re still learning every day.”

Encana continues to “appraise the land” in the basin, he said.

Also, Bill Barrett Corp. has announced plans to drill two Mancos Shale wells in partnership with Merrion Oil & Gas Co by the end of the year. The Denver-based producer will release its third quarter results Wednesday.

The major producers are searching for oil in what has traditionally been a natural gas-producing basin. With natural gas prices remaining depressed, many drillers are scrambling to find more valuable oil.

“There’s a lot of competition,” Hock said. “We’re not the only company trying to shift to oil and liquids.”

Encana will be able to make the transition to focusing on oil, he said. “We feel pretty confident that we can turn that corner.”

In June, Encana disclosed its first Mancos Shale well, Lybrook H36, yielded a 30-day initial production rate of about 440 barrels of oil per day.

Encana’s San Juan Basin wells are horizontal wells requiring hydraulic fracturing. The wells are costing $4.3 million each. The U.S. Environmental Protection Agency is studying the effects of fracking, as the technique is also known.

Hock said additional federal regulation isn’t necessary.

“Regulation is best left to the state level,” he said. “They’re in a much better position to regulate than the federal government.”

On the Good Times leasing unit, Encana’s wells are within sight of several older wells. Dugan Production shut some of its older vertical wells nearby to protect them from sand believed to be coming in from Encana fracturing operations.

“There’s a lot of vertical control in that area and because of that, we have a relatively lower risk profile maybe than in some of the other plays in our portfolio,” Wojahn said.

Encana Corp. has gotten office space in Farmington on east Main Street.

Drilling in existing basins like the San Juan carries certain advantages, Hock said. Among them: existing infrastructure and an oil and gas industry workforce.

“This is a community that’s familiar with oil and gas,” Hock said.

Barrett Corp. drilling plans pushed back

By Chuck Slothower cslothower@daily-times.com

Updated:   11/01/2012 10:28:37 PM MDT

FARMINGTON — Bill Barrett Corp.’s plans to drill two wells in the San Juan Basin may be pushed to early 2013.The Denver company plans to drill the wells “in the coming months,” said Chief Operating Officer Scot Woodall in an investor conference call Thursday.

A Barrett spokeswoman said the date for initial drilling of the wells may be closer to the end of 2012 or early 2013. Barrett is partnering with Merrion Oil & Gas Co. to explore for oil in the basin. Merrion has leasing rights in the area.

Drilling may not occur until early next year because of delays in obtaining drilling permits. Surveys for threatened and endangered species and cultural sites took longer than Barrett expected, said Steve Dunn, Merrion’s drilling and production manager.

Barrett has completed a three-dimensional seismic survey and intends to target the Tocito-Gallup-Niobrara formation, a geologic layer approximately 6,500 feet underground. The company has approximately 36,800 net acres in the prospect.

One well is slated for Jicarilla Apache land. The other will be near Dzilth-Na-O-Dith-Hle, a small Navajo village along U.S. Highway 550. The drilling rig will be visible from the highway, Dunn said.

Like many oil and gas producers, Barrett is trying to shift from natural gas to oil because of a wide gap in the commodities’ prices. Barrett’s oil production was up 80 percent during the third quarter compared to a year earlier, the company said in an investor release Wednesday.

Barrett posted a loss of $52.6 million during the quarter, due in part to low natural gas prices and two unsuccessful exploration wells in the Paradox Basin of Utah and Colorado. The company earned $20.6 million during the same period a year earlier.

Barrett is following Encana Corp.’s lead into the San Juan Basin oil play. Encana, based in Canada, has completed five wells, and plans to have eight done by the end of the year. An Encana spokesman recently described the preliminary results as “mixed.”

It is unclear who will drill Barrett’s wells in the basin. The Barrett spokeswoman, Jennifer Martin, said she did not know who the drilling contractor would be.

Aztec Well Servicing is drilling the Encana wells, and is the only local drilling contractor with top-drive rigs. But Aztec and Barrett do not have a deal in place for the two wells, said Jason Sandel, Aztec’s executive vice president.

Barrett could potentially bring in a driller from outside the basin, an expensive proposition.

Local business and civic officials hope a boom in San Juan Basin oil could bring jobs to the area and improve the economy. However, the search for oil in the Mancos Shale and related formations remains in an early phase.

“I’m cautiously optimistic at this point,” said Dunn. “I’ve seen encouraging results, but nothing that would be a slam-dunk at this time.”

Across the nation, about two-thirds of drilling rigs are searching for oil. That has reversed within the past three years, when most rigs were drilling for natural gas, Dunn said.

“The economics are best in oil, and that’s where everybody’s going,” Dunn said.

2 firms to drill San Juan Basin for gas, oil Fracking behind new activity

Article published Sep 17, 2012

Fracking behind new activity


The Associated Press

ALBUQUERQUE – Two large energy companies have teamed up with local producers in the San Juan Basin in northwestern New Mexico to drill wells for liquid natural gas and oil.

The Albuquerque Journal reported that Canada’s Encana Corp. and Bill Barrett Corp., of Denver, are working with local partners to explore the Mancos Shale, a hard-rock layer rich in liquid fuels that rests between 5,000 feet and 12,000 feet below ground.

That layer is located amid natural-gas reservoirs above and below it that have sustained the industry in the Four Corners for decades. Producers are turning to oil and other liquid fuels trapped in the Mancos as a potential ticket to economic recovery after natural-gas prices have suffered from 10-year lows.

Bill Barrett Corp. and a local partner estimate up to 30 billion barrels of oil are trapped in the New Mexico portion of the Mancos Shale bed, which stretches into Colorado, Utah and Wyoming. They believe at least 5 percent, or about 1.5 billion barrels, can be economically recovered.

Efforts to extract oil mark a significant shift in the basin, which was hit hard by the recession, and by vast new shale gas plays elsewhere that have flooded the market and driven prices down. The price per 1,000 cubic feet of natural gas fell from about $6 in early 2008 to below $3 after the economy tanked, and it has yet to climb back.

Four Corners producers have particularly suffered because most natural gas there is in gas form. In contrast, liquid gas in the oil-rich Permian Basin in southeastern New Mexico, allows processors to extract fuels such as propane to sell separately from natural gas, boosting income.

In addition, while the oil patch enjoys a boom in crude production because of today’s high oil prices, San Juan Basin operators almost exclusively produce natural gas, not crude.

Consequently, New Mexico’s natural-gas output plummeted 18 percent from 2007 to 2011, reaching its lowest level in 20 years. About a dozen drilling rigs now operate in the San Juan area, down from about 40 before the recession.

The basin has produced crude oil in the past, starting early last century and gaining momentum in the 1950s. But production decreased because low oil prices made extraction less economical, and drilling technology needed improvement to bust open hard-shale rock. Instead, companies focus on easier-to-crack sandstone beds to exploit natural gas.

But with oil prices now fluctuating from $80 to $100 a barrel, plus modern hydraulic fracturing and horizontal drilling technologies making it easier to permeate shale beds like the Mancos, oil extraction in the San Juan Basin appears more attractive.

Bill Barrett Corp. will drill two exploratory wells this fall.

Initial results from Encana Corp. exploration indicate potentially good returns. The company said it drilled seven wells so far this year and plans at least four more by December.

Merrion Oil & Gas Co. announces Mancos Shale partnership

By Chuck Slothower cslothower@daily-times.com

Updated:   07/26/2012 10:48:04 PM MDT

FARMINGTON — Merrion Oil & Gas Co. announced this week that it has formed a partnership with Bill Barrett Corp. of Denver to test the potential for oil production in the Mancos Shale.

Merrion, a Farmington-based independent producer, had previously said it was partnering with a major company to explore the Mancos Shale. But Merrion had declined to identify its partner until Tuesday.

Barrett plans to drill two horizontal wells on Merrion acreage beginning this fall, assuming that all necessary permits are timely secured, Merrion Oil & Gas announced.

Geologists believe the Mancos Shale is rich in oil across a swath of the south San Juan Basin. Targeting the shale requires expensive horizontal wells and multistage hydraulic fracturing to free the oil. Horizontal wells cost several million dollars, while a traditional vertical well can be drilled into the Mancos Shale for less than $1 million.

Unlike in other shale plays, most acreage in the San Juan Basin is covered by existing leases after decades of natural gas production here. That gives the local independent companies that hold the leases a substantial bargaining chip.

“We have an acreage position, which is very difficult to come by in the San Juan Basin,” said George Sharpe, investments manager for Merrion Oil & Gas. “What they bring to the partnership is capital and expertise.”

Merrion has 25,000 acres available to drill, Sharpe said. The company has 19 employees.

Small independent companies do not have the resources to experiment with high-tech horizontal drilling. Larger companies such as Barrett do.

“There’s a learning curve that is expensive, and they’ve got the capital to sustain that, and they’ve got the drilling expertise of having completed similar wells in other basins,” Sharpe said. “They’re a great company. They’re very innovative.”

According to the deal, Barrett must drill two wells on Merrion’s acreage by the end of the year. The company may opt to drill more wells.

The first wells are set to be drilled in September near Huerfano, Sharpe said.

Merrion and Barrett are not the only companies exploring the Mancos Shale. Encana Corp., based in Canada, is partnering with Dugan Production Corp. to drill 12 wells targeting Mancos Shale oil.

The first well, Lybrook H36, yielded a 30-day initial production rate of about 440 barrels of oil per day, Encana disclosed to investors last month. Located about 50 miles south of Bloomfield in Sandoval County, the well was drilled to a lateral length of 4,100 feet and at a cost of $4.3 million.

“Those initial results were very promising and are certainly producing economical rates,” Sharpe said.

Encana has a 174,000 net-acre position in the basin, the company said.

Drillers throughout the nation are pursuing oil production while backing away from natural gas projects. Prices are driving the switch, industry officials say.

After dipping below $2 per thousand cubic feet in April for the first time in a decade, natural gas has somewhat recovered, settling at $3.13 on Thursday, according to the Henry Hub spot price.

Oil remains far more valuable, trading at $89.35 per barrel Thursday on the New York Mercantile Exchange.

Additional companies also are rumored to be pursuing partnerships targeting Mancos Shale oil.

Barrett in its most recent investor release touted its exploration in the Uinta Basin in Utah. The company also is exploring several basins in Colorado.

“I have emphasized the importance of execution in 2012 and our team is delivering,” chief executive Fred Barrett said.

Bill Barrett Corp. is traded on the New York Stock Exchange under the symbol “BBG.” Its stock closed at $19.66 per share Thursday.

While Mancos Shale exploration is in its early stages, the presence of oil holds out the hope of a major boom like that seen in the Bakken Shale of North Dakota.

“I’ll believe it when I see it, but that’s the hope — that it’ll rejuvenate the basin,” Sharpe said.

In North Dakota towns where the boom is happening, it’s impossible to rent a hotel room because they’ve been purchased by energy companies, Sharpe said.

“It’s not necessarily good to be that overwhelmed by success,” he said. “But it’d be nice to get a little bit of that.”

Landowners unite to deal with drilling companies

March 29, 2012 9:49 pm

Pittsburgh Post Gazette

By Sean D. Hamill / Pittsburgh Post-Gazette

The temperature was in single digits, even colder with the 50-mph wind gusts that created near-whiteout conditions at times with falling and fallen snow in Loretto by 7 p.m. Wednesday.

In short, it was a good night to stay home.

Even so, about 500 people from the surrounding area of Cambria County braved the local roads to come to a community meeting at Our Lady of Loretto Community Hall. Why go through all of this? What could be so important?

“Well, some of them might become rich from the Marcellus Shale,” said Raymond Seymour, a high school history teacher who made his way to the meeting.

Those who came out were all members, or prospective members, of the Loretto Landowners Group, which collectively represents about 35,000 acres in Cambria County.

The group, like many others that have sprung up in the Marcellus Shale natural gas boom of the last four years in Pennsylvania and New York, is organized to negotiate collectively with gas companies for the right to drill for the natural gas underneath their property.

These groups, whether they’re in Tioga County, N.Y., or Tioga County, Pa., have one basic principle.

“We have to stick together. It’s the strength-in-numbers strategy,” the Loretto group’s lead organizer, Lee Wyland, told his members at the beginning of the two-hour-long meeting. “If we don’t, they will pick us apart one-by-one — there’s no doubt about it.”

“They” are the landmen working on behalf of the now dozens of gas companies trying to snap up mineral rights in the region. Many of the landmen work for companies that merely lease the land and then sell the leases back to gas companies. They’re seeking to secure deals on more industry-friendly terms, with less in upfront fees and royalties than the landowners groups would like.

And that, the groups say, is exactly the point.
Read more: http://www.post-gazette.com/stories/local/marcellusshale/landowners-unite-to-deal-with-drilling-companies-213172/#ixzz29lvDQOfR

 

Leasing with caution

Bureau of Land Management’s fast-tracking lease parcels unnecessary

 Article Last Updated: Thursday, September 13, 2012 10:12pm

If there is one thing that public-land managers and the gas and oil industry should know by now about operating in La Plata County, it is that engaging the community is crucial to fostering goodwill and support for any drilling plans. It is curious, then, why the Bureau of Land Management appears to be doing just the opposite in its plans to lease more than 12,000 acres for drilling west and south of Hesperus.

 The land was nominated for leasing by an undisclosed company late this spring, and the BLM has completed a draft environmental assessment that supports the proposed lease. That is, on the surface, potentially well and good. However, a deeper look reveals some questions left unanswered in the agency’s hurry.

First, the parcels in question were among a group that was deferred from being leased when a similar effort was made in 2008. The reason the BLM – which until recently was managed jointly with the U.S. Forest Service – gave was that the agency was updating its resource management plan for the region and any new leases should reflect the protocol laid out in the new plan. That is sound logic – the existing plan was written in 1991 and is long overdue for an update. And had the agency completed its update since the leases were deferred, there would be consistency in the BLM’s decision-making. But it has not; the plan revision is still in the works, and, as such, the leases are governed by an out-of-date prescription that does not necessarily consider all sorts of important variables that are affected by gas and oil development: cumulative air quality, where the requisite water for development will be acquired, how wastewater will be handled and impacts on county roads, to name a few. Those questions were present in 2008, and they are no less so now. An updated plan surely will answer many of them, but without it, the agency is using old information to inform critical decisions about new projects.

It should follow, then, that the BLM’s decision to offer the leases after having previously deferred them would come with a thorough public input process wherein the neighbors most likely to be affected by the leases were actively engaged, where comment was sought and considered, and all involved had the opportunity to weigh in and have questions answered. That does not appear to have been the case.

Instead, the environmental assessment of proposed leases was released with minimal notice – including to many who had submitted scoping comments – and a minimal comment period of 30 days. That comment period closes Monday, and requests for extending it have been denied.

How unfortunate. The BLM’s mission is “to sustain the health, diversity and productivity of public lands for the use and enjoyment of present and future generations.” In doing so, it should proceed with the care and caution needed to ensure that health, diversity and productivity. Limiting dialogue with and input from the public hardly is the best approach to fulfilling that mission or instilling confidence in its commitment to being a good neighbor.

It is difficult to see the harm in slowing the process a bit, encouraging input and sharing the reasoning for offering these previously deferred leases. That is what informs good process – and good outcomes – for all parties.

http://durangoherald.com/article/20120913/OPINION01/120919771/Leasing-with-caution– 

Residents ponder the future of Lot 46

Posted: Saturday, Sep 8th, 2012
BY: Lauren Krizansky, Courier staff writer

DEL NORTE — Rio Grande County citizens aren’t sure what to believe about potential oil and gas drilling on San Francisco Creek, but authorities are doing their best to explain the possibilities.

READ MORE