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San Juan Basin on verge of collapse

An oil-field worker prepares to climb a drilling rig in the San Juan Basin in northwestern New Mexico. (Albuquerque Journal File)

Copyright © 2020 Albuquerque Journal

With natural gas prices plummeting alongside oil prices, industry leaders say producers in the San Juan Basin in northwestern New Mexico could soon be forced to shut thousands of wells.

Wholesale prices had already fallen to about $1.90 per 1,000 cubic feet, or Mcf, of natural gas in January – its lowest level since March 2016 – because of a moderately warm winter and market oversupply. But the coronavirus and a price war between Russia and the Organization of Petroleum Exporting Countries have pushed prices down to about $1.60 per Mcf.

That translates into less than $1 per Mcf for producers on New Mexico’s side of the basin, given the additional costs to get product to market, said George Sharpe, investment manager with Merrion Oil and Gas Corp. in Farmington.

About 80% of the 26,000-plus gas wells now pumping on New Mexico’s side are marginal, producing less than 90 Mcf per day. It costs more to run them than shut them down, Sharpe said.

“They’re all targets for being shut in, and maybe even plugged up, depending on how long the crisis continues,” Sharpe said.

Longtime industry expert Daniel Fine said that without government assistance, San Juan producers have maybe 18 months of continued operations if the crisis lasts through the year.

“The situation there is dire,” Fine said. “Either there’s a change in prices or they’re looking at shutting down.”

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