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Prospects good for N.M. oil, gas boom

FOR THE RECORD: This story should have said two wells drilled by WPX Energy Inc. have each produced 2 million cubic feet of natural gas and are expected ultimately to produce between 5 million and 6 million cubic feet each.

FARMINGTON — Preliminary results from Mancos shale wells in northwestern New Mexico are boosting industry excitement about a new oil and gas boom in the region.

Companies must learn a lot more about the shale formation before any gushers explode, but some of the 22 exploratory wells drilled to date have shown solid commercial potential for oil and gas production, according to industry executives who attended a conference this week in Farmington to discuss production potential in the Mancos play, a previously untapped section of the San Juan Basin.

WPX Energy Inc.’s director for the San Juan Region, Ken McQueen, said two horizontal wells that WPX drilled in a dry natural gas section of the Mancos are some of the company’s best wells anywhere. Oklahoma-based WPX is one of the nation’s 10 largest natural gas producers.

“These two wells are in the top 10 best wells drilled by WPX to date,” McQueen said. “They’re quite extraordinary for us.”

The wells, drilled in 2010, have produced 2 billion cubic feet of gas so far, and will ultimately produce between 5 and 6 billion cubic feet each, McQueen said. That’s substantially more than the 4 billion cubic feet needed for commercial viability.

“That makes for a very attractive target for WPX to pursue,” McQueen said.

(Merrion Oil & Gas)

(Merrion Oil & Gas)

Although the WPX wells are producing dry natural gas, companies are particularly upbeat about prospects for liquid natural gas, and for oil, in other sections of the Mancos, which is snuggled between soft sandstone layers in the San Juan Basin that producers have been exploiting for decades.

Three zones in N.M.

The sandstone layers contain mostly dry gas. The Mancos, however, is divided into three sections in New Mexico — the dry gas zone that WPX is exploring, a “wet” or liquid gas region, and an oil zone.

Until recently, those Mancos layers eluded producers because of the high cost of drilling into hard shale rock, and the difficulty of accurately pinpointing hard-to-reach pockets of hydrocarbons.

But modern drilling techniques are helping to crack the Mancos open. That includes three-dimensional imaging to pinpoint “sweet spots” for oil and gas before drilling begins, hydraulic fracturing — or fracking — whereby operators pump water and sand at high pressure into wells to bust up tough shale rock, and horizontal drilling to penetrate sideways into the shale to reach trapped oil and gas.

Given that those techniques have worked well for WPX in the dry-gas zone, industry executives are optimistic they will also succeed in the liquid regions.

“I’m bullish on the Mancos,” said T. Greg Merrion, president of Merrion Oil and Gas Corp. in Farmington, which is partnering with Bill Barrett Corp. of Denver to drill exploratory oil wells in the Mancos. “We’ve already seen a number of wells drilled that are economic.”

60 million barrels

Industry estimates place the Mancos oil reservoirs as high as 60 billion barrels, with 8 percent or more of that commercially recoverable, said Daniel Fine, senior analyst with the Center for Energy Policy at the New Mexico Institute for Mining and Technology in Socorro.

Eight companies have so far received permits to drill 45 wells in all three Mancos zones, with 22 now producing or ready to produce, Merrion said. Three companies are drilling in the oil section, the largest being Canada’s Encana Corp. with 12 oil wells to date.

Encana executives declined to discuss results at the conference. But Merrion compiled preliminary results for three Encana wells based on statistics from the New Mexico Oil Conservation Division, which logs monthly production by companies.

Based on those reports, Merrion estimates three of the Encana wells will ultimately produce between 184,000 and 207,000 barrels of oil each. That compares to 150,000 barrels needed for commercial viability.

“I’m ready to call (those) Encana wells economic,” Merrion said.

Encana is betting high on the Mancos, with $100 million already invested there and a similar amount planned this year, according to company executives.

But a lot more exploration must be done on the particular geology of the Mancos and the best drilling methods there compared to other shale formations before more companies move aggressively into the play, said BP America Vice President Darryl Willis.

“There’s a uniqueness (to each shale formation) that we need to understand,” Willis said. “Tens or even hundreds of wells are needed before we can develop an unconventional (shale) play.”

In addition, state regulatory authorities will have to develop new rules for horizontal drilling in the San Juan Basin, where those techniques have yet to take hold. In fact, given the prospect of a boom in the Mancos, the U.S. Bureau of Land Management is working on a new environmental analysis and management plans for groundwater, air quality and surface disturbance for when production escalates, said BLM District Manager Dave Evans.

“This is still really in the early stage for a shale play,” Merrion said. “But I think the future is very bright.”
— This article appeared on page A1 of the Albuquerque Journal


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