Over 10 years ago, in 2008, the natural gas-heavy San Juan, centered around the town of Farmington, was the hot oil and gas play where New Mexico was concerned. A decade later, and the Permian is the hottest play not just in the U.S., but really worldwide, and it’s the San Juan Basin that is considered to be the fully mature, perhaps dying area.
The San Juan Basin is a geologic structural basin located near the Four Corners region of the Southwestern United States. The basin covers 7,500 square miles and resides in northwestern New Mexico, southwestern Colorado, and parts of Utah and Arizona.
The San Juan structural basin is primarily in New Mexico and the southeast corner of the Colorado Plateau.
San Juan Overview
The San Juan Basin is primarily a natural gas production area from both conventional and unconventional tight sands, coal bed methane (CBM), and shale formations, although crude oil production in the region has been gaining momentum.
The San Juan is one of the oldest producing areas in the United States. The first documented oil play in the San Juan Basin occurred in 1911 on the Chaco Slope. The well was drilled to a depth of 100 m and produced only 12 barrels of oil per day. The first documented gas play occurred ten years later in the Central Basin Platform. The well was 300 m deep and resulted in a gas pipeline to carry and market gas to nearby cities. The following years resulted in many oil and gas discoveries that subsequently spiked interest in San Juan resources. The 1930s brought upon the first pipeline to transport gas outside of the basin. The 1980s brought upon the discovery of the coal-bed methane resources, resulting in a drilling spike during the 1980s and 1990s, thanks in large part to Federal tax credits. Overall, there are currently more than 40,000 oil and gas wells (active and non-active) in the San Juan Basin.
The flood of Marcellus gas supplies to market over the past few years led producers in the San Juan Basin away from the gassier part of the play and towards the oil-rich Mancos Shale portion located in the southern end of the basin. In addition to the Mancos, the San Juan Basin is also home to the gassier Lewis Shale formation.
Counties
New Mexico: McKinley, Rio Arriba, San Juan, Sandoval
Colorado: Archuleta, LaPlata, Montezuma
Recent Transactions
In 2016, ConocoPhillips sold its stake in the region, which consisted of about 10,000 wells, contributing nearly 75 percent of Colorado’s entire natural gas production, for $3 billion to Hilcorp San Juan LP.
Two years later, Williams Partners LP sold its stake in the San Juan Basin, which spans La Plata County and northern New Mexico, to Harvest Midstream for $1.123 billion.
And perhaps the biggest shift came in August 2018 when BP American Production Co. announced it intends to pull out of the San Juan Basin, marking the end of an era of one of the longest-standing economic mainstays in La Plata County.
Continuing the trend, in late 2018 Encana sold its 182,000 acre San Juan position for $480 million, or about $2,500 per acre to a privately-held company based in Denver called DJR Energy, LLC.
There is nothing unprecedented or even unusual about this pattern – it is in fact typical of the kind of asset-churning cycle oil and gas producing basins go through as they become fully mature. In the case of the San Juan, no one should assume that just because these acquiring producers are privately-owned that means they are somehow insubstantial or under-capitalized. Hilcorp is in fact one of the most active operating companies in the entire industry.
Back To the San Juan – Notes from DUG Rockies Conference
Along with other operators, DJR Energy is bringing activity back into the San Juan Basin, said Jack Rosenthal, vice president of geoscience for DJR. The company has 350,000 net acres in the basin that it acquired from Elm Ridge and Encana.
“We have the capacity and geologic potential to expand the Mancos core area,” he told the audience.
The company is targeting the Mancos in the San Juan, which is the early stages of development. DJR will bring on one rig in the second half of 2019, Rosenthal said.
Meanwhile, San Juan Resources’ Jerry McHugh Jr. said the basin has 24,000 active wells and is being revitalized by new entrants.
How Big is the Mancos Shale?
The United States Geological Survey (USGS) released a report in 2016 increasing the estimate of technically recoverable natural gas in the Mancos Shale deposit from 1.6 trillion cubic feet of natural gas to 66.3 trillion, a forty-fold jump, up from just 1.6 trillion estimated 13 years earlier.
New Developments
The BLM oversees much of the public land in the San Juan Basin, where private oil and gas companies have been drilling for more than 60 years. The advent of fracking – injecting water into the ground under high pressure to fracture rock, allowing gas or oil to escape more easily – has increased that drilling, leading the BLM back in 2003 to envision almost 10,000 new wells in the area through the mid-2020s.
Just this month, the 10th circuit panel found the BLM has shirked its duty to conduct environmental assessments for nearly 4,000 wells.
Oil and gas companies that want to drill in sensitive areas must consider not just the environmental and archaeological impact of each well, but also the cumulative impact of wells in the area, a 10th Circuit panel ruled Tuesday – finding that for hundreds of wells drilled in the past 15 years, that didn’t happen.
The BLM must now conduct a proper analysis of the environmental assessments rendered by the court.
Compiled and Published by GIB KNIGHT
Gib Knight is a private oil and gas investor and consultant, providing clients advanced analytics and building innovative visual business intelligence solutions to visualize the results, across a broad spectrum of regulatory filings and production data in Oklahoma and Texas. He is the founder of OklahomaMinerals.com, an online resource designed for mineral owners in Oklahoma.
Sources:
Oil and Gas in NM – A Tale of Two Basins– Forbes
San Juan Basin Overview – Natural Gas Intel
DUG Rockies: Bullish On The Bakken; San Juan Reinvigorated – Hart Energy
Encana completes sale of San Juan asset – World Oil
Assessment of continuous (unconventional) oil and gas resources in the Late Cretaceous Mancos Shale of the Piceance Basin, Uinta-Piceance Province, Colorado and Utah, 2016– USGS
Feds Must Take Fresh Look at Four Corners Fracking Permits Courthousenews.com
