WPX Energy postpones major gas drilling plan

Navajo Reservoir play not as promising as others

Durango Herald | Emery Cowan

February 29, 2012
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Technological advances that are fueling a natural-gas drilling boom across the country are contributing to a bust in the San Juan Basin, a place where many of the advances were pioneered.

Last week, WPX Energy, the newly independent exploration-and-production arm of Williams, announced it would postpone plans for a major horizontal drilling and hydraulic fracturing operation that was to begin this summer on the Middle Mesa, just north of Navajo Reservoir near the town of Allison.

Instead, the company will focus on more lucrative oil and gas plays in northeast Colorado, North Dakota and Pennsylvania, said Kelly Swan, spokesman with WPX.

Until the announcement, WPX was one of the only operators in the area going forward with gas drilling.

Most companies are waiting for natural-gas prices to climb, said Dave Mankiewicz, minerals manager for the Bureau of Land Management’s Farmington field office, which oversees the area of WPX’s proposed project.

Production in other natural-gas plays has flooded the market and depressed the price. The average price of natural gas in February was $2.50 per million British thermal units, down from about $3.80 mBtu at the same time last year.

Other energy companies have followed a path similar to WPX. From 2009 to 2012, the number of drilling rigs in the San Juan Basin declined from 57 to 35.

Though the company’s decision to put its drilling plans on pause represents a blow to the regional economy in terms of jobs and revenue, some say it is a needed break to consider the possibly sweeping environmental impacts of the project.

“This is unlike anything we’ve ever seen before,” said Jeremy Nichols, climate and energy program director at Wild Earth Guardians, one of the groups filing to appeal a preliminary approval the BLM granted the project in December.

Many involved say the project once again could put the San Juan Basin on the cutting edge of natural-gas development.

Untapped reserves

The project would target the previously undeveloped Mancos Shale formation, which lies 5,000 feet underground and stretches south from Durango to Chaco Culture National Historic Park and west from Dulce to Shiprock in New Mexico. Until recently, the natural gas it held wasn’t profitable to recover.

Like previous developments, the WPX project would use horizontal drilling and hydraulic fracturing to unlock gas in deep formations by breaking open the rock with millions of gallons of high-pressure, chemical-laced water.

The machinery to be used would be some of the most advanced in the industry, and it would allow the company to drill deeper, faster and more precisely.

Though drilling plans are on hold, Aztec Well Cos. is proceeding with its contract to build a multimillion-dollar custom-built drilling rig for the project that is expected to be complete in August. The machine runs on natural gas from the wells it drills and will move along tracks to drill multiple wells per location, minimizing the need to deconstruct and move the rig. Most of the operations are computerized, allowing them to proceed faster and more precisely than previous technologies, Swan said.

Purpose-built rigs are one of the newest technologies producers are using to streamline their operations and unlock more natural gas, said Jason Sandel, Aztec’s executive vice president.

The drill rig will employ about 30 people, Sandel said. Many of those positions will be filled with local employees, with salaries that start at about $40,000, he said.

How big a prize?

Data from the Energy Information Administration suggests that the Mancos Shale has a lot to offer. The administration estimates there are up to 21 trillion cubic feet of recoverable natural gas in the shale. Currently, the San Juan Basin in New Mexico produces 0.7 to 0.9 trillion cubic feet annually. The key will be how much of the shale gas companies can profitably extract.

“They may say the prize is so large, but that doesn’t necessarily equate to produceable gas,” said Gary Torres, field manager for the BLM Farmington field office. “Technology, prices and a lot of other things drive whether it becomes viable to produce.”

Performance data are scarce, and only a few test wells have been drilled in the formation, Mankiewicz said.

In December, the BLM approved the modification of a seasonal wildlife closure to allow the WPX rig to operate 365 days a year. The company also will need to gain BLM approval before it begins work on each well.

Approval questioned

But the federal agency’s methods weren’t adequate in the eyes of several environmental groups. At the beginning of this year, San Juan Citizens Alliance and Wild Earth Guardians submitted an appeal to the Interior Board of Land Appeals.

The groups argue that the BLM’s environmental impact statement doesn’t adequately assess the effects of the type of natural-gas development WPX is proposing.

“Shale gas is new and different, yet the BLM is treating it like any other form of oil and gas development,” said Nichols, of Wild Earth Guardians.

BLM officials maintain the drilling operations pose no risk to water sources, the surrounding ecosystem or air quality.

But the groups contend that shale gas requires fracking on a much larger scale than other types of drilling, which could result in more profound air- and water-quality impacts.

Emissions from such natural-gas and oil production, for example, most likely will spread across a much broader area than the drilling site, said Bruce Baizel, an attorney with the Oil and Gas Accountability Project in Durango. Statistics also show that one to two wells per one hundred drilled will contaminate water in some way, Baizel said.

There’s also a concern about how fracking horizontal wells will interact with existing wells in the area, said Mike Eisenfeld, New Mexico energy coordinator with San Juan Citizens Alliance.

In a broader sense, the environmental groups said their goal is to ensure rigorous standards are in place ahead of any future shale gas rush.

Tagged with: water, shale gas, oil and gas, new mexico, fracking, drilling, colorado

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