A project to extract oil from underneath Carlsbad is moving beyond the acquisition of the needed mineral rights as a timeline for drilling to begin is being developed.
Artesia-based Santo Petroleum was approved by the City Council in August 2017, to go door to door throughout the city and approach residents to offer five-year leases of their mineral rights.
Santo President Hanson Yates said the company obtained about 3,000 leases in the last year, covering the “vast majority” of the planned leasing area.
“Santo is well down the path of its planned lease acquisition activity,” Yates said. “We are nearing the end of the lease acquisition phase of the project. If landowners have been contacted by a Santo representative about a lease, now is the time to finalize that process.”
When signing a lease, owners were offered a signing bonus up front, and a percentage of the subsequent revenue, should the wells prove productive.
Yates did not specify how much was offered in the initial bonuses, but that it varies based on the location and tract size.
“Santo has not published a specific timeline for drilling development due to the complexity of readying such a large number of leases and tracts to drill,” Yates said. “However, we are making good progress toward that goal.”
The two biggest leases were with the City of Carlsbad and Carlsbad Municipal Schools.
“Our company has developed a good working relationship with the Carlsbad government, and we believe the city is taking a thoughtful, forward-thinking yet cautious approach to the growth it is experiencing from oil and gas activity in the Delaware Basin,” Yates said.
A challenge, he said, was identify the mineral rights owners who are often different from surface owners.
“We have found that the vast majority of mineral rights to city tracts are not owned by the surface owner,” Yates said. “However, many of the mineral owners reside in Carlsbad.”
The city leased about 175 acres, and was paid about $824,000, said Carlsbad City Administrator Mike Hernandez.
Carlsbad Municipal Schools received about $148,000 for 149 acres, said Superintendent Dr. Greg Rodriguez.
The project will contribute, Yates said, to an “overall stronger economy” for the people of Carlsbad.
The company plans to drill wells up to two miles deep outside Carlsbad city limits, he said, and then drill horizontally up to two miles into Carlsbad to access potential crude.
Hernandez said the wells will be much deeper than the city’s water table, and the project will have little effect on activities on the surface.
Carlsbad’s ground water supply is about 300 to 500 feet deep, he said, sitting much higher than the wells.
“We’ve had our experts prove to us that it is safe,” he said. “There’s no worries. It’s so deep, and so far beneath our water table. There’s no concern.”
The only concerns, Hernandez said, came from residents who were approached by Santo personnel and worried the offer may have been a scam. He said he’s fielded “a few dozen” of such calls.
“We get calls once in a while,” Hernandez said. “Most people, once they understand it’s a legitimate company, they seem good with it. When residents are approached, they wonder if it is real. Once I reassure them, they sign off.”
The project is just another sign that the oil and gas industry in the Permian Basin is booming, Hernandez said, to the benefit of Carlsbad and the surrounding region.
He said the royalties will help fund many city projects.
“It just fits in with everything that’s going here,” Hernandez said. “The royalties will be a huge benefit in the long term. They said it could pump millions into the city. (Santo) is investing a lot of time and money. I would assume they’re pretty confident.”
Rodriguez was not as confident that CMS will see a large return from the royalties.
He said the main reason he signed the deal was to get the upfront bonus.
That money means more can be spent on school supplies and other needs of the students, Rodriguez said.
“The royalty is anything substantial,” he said. “It’s a small amount. We’re not anticipating anything quick. It could take them years to start producing.”
But Rodriguez was certain that the project will cause no disturbance to any district-owned structures on the surface.
He said similar deals were enacted at rural school districts in West Texas, to no detriment.
“We knew there was no impact to the surface ground,” he said. “We know there are small school districts that have done this.”
He wasn’t certain about how the project will impact the city, but happy with the initial bonus.
“We don’t have an opinion about how a private company uses its profits, but this was a no-brainer,” Rodriguez said. “Anytime we can maximize resources for our district, we will do that. That way we can help our students and instructors.
“We made the decision in providing the best resources for our students.”
Adrian Hedden can be reached at 575-628-5516, firstname.lastname@example.org or @AdrianHedden on Twitter.
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