2 firms to drill San Juan Basin for gas, oil

Fracking behind new activity

ALBUQUERQUE Ė 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 Canadaís 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 todayís high oil prices, San Juan Basin operators almost exclusively produce natural gas, not crude.

Consequently, New Mexicoís 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.