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Thursday, August 11, 2011

Mancos Oil Drilling Possible in 2012

- Mancos Oil Drilling Possible in 2012

Thursday, August 11, 2011
Knight Ridder/Tribune Business News
by Chuck Slothower, The Daily Times, Farmington, N.M.

The San Juan Basin could see an uptick in Mancos Shale drilling as soon as 2012, an oil and gas industry official said Wednesday.

"We think we'll see a critical mass by next year," said Steve Dunn, drilling and production manager at Merrion Oil and Gas. "We'll see some drilling."

Dunn was touting the potential for an oil boom in the Mancos Shale, a geologic layer deposited about 100 million years ago in the San Juan Basin. His remarks came at Wednesday's San Juan Economic Development Service meeting.

Horizontal drilling and hydraulic fracturing have made it possible for drillers to reach previously unavailable oil and gas deposits deep within shale rock. Plays, as the booms are called, have overtaken the Bakken Shale in North Dakota, the Barnett Shale in Texas and elsewhere.

"We believe the Mancos is going to be the next big play," he said.

Drilling in the Mancos Shale would require 10 to 20 stages of fracturing per well, Dunn said. Once drillers gain experience, the wells could be completed for about $5 million each.

"It takes a lot of money to do it, but there's the potential to make a lot of money if you're successful," Dunn said.

The oil-rich area of the Mancos Shale is mostly south of Farmington, spanning 3,400 square miles in San Juan, Rio Arriba and Sandoval counties, he said.

Drillers increasingly are focusing on drilling for oil as natural gas prices stagnate. Oil, however, hasn't been immune from economic worries. Investors

have driven down the price of oil this week, to $81 on the New York Mercantile Exchange on Wednesday. Natural gas traded for $4.07 per MMBtu on the Henry Hub.

A few wells already have been drilled in the Mancos Shale. EnerVest saw disappointing results for two wells drilled near Lindrith, Dunn said. However, Williams Exploration and Production got promising results from wells drilled near Navajo Lake.

Williams has applied to build eight well pads on Middle Mesa that could host as many as 13 well bores per pad. The project calls for a purpose-built drilling rig that would operate year-round, a major investment for the company.

The Middle Mesa project is slated to begin in fall 2012, pending an environmental impact statement and approval by the U.S. Bureau of Land Management.

Merrion Oil and Gas has been in discussions with several large producers interested in exploring the Mancos Shale.

"I really think Merrion Oil and Gas and our partners will lead the way in this Mancos Shale play," said T. Greg Merrion, the company's president.

Dunn said the Mancos Shale could support 13,000 additional wells.

"Keep in mind, I'm talking about potential here," he said.

Mayor Tommy Roberts said tax incentives play a big role in encouraging oil an gas production. A federal tax credit for coal-bed methane production helped spur the drilling boom during the 1990s.

New tax incentives are a tough sell in an uncertain economy, he said.

"Our state legislators seem to be reluctant to pursue it in an environment where the governor is trying to eliminate tax incentives," he said.

Copyright (c) 2011, The Daily Times, Farmington, N.M.

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