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Low oil prices remain a factor in San Juan Basin

FARMINGTON — Ten months after oil prices dropped south of $50 a barrel, drilling in the San Juan Basin is still down. Oil prices topped $60 a barrel in May, the first time since December that prices were that high.

But despite the tenuous good news, area oil and gas companies are cautious or waiting on the sidelines altogether until prices stabilize. Many area industry leaders have said that prices would have to rise above the $65 or $70 mark to profitably drill new wells.

At the annual San Juan Basin Energy Conference in Farmington in March, Richard Muncrief, WPX Energy president and CEO, said his company viewed prices around $55 to $60 a barrel as the range where production in the Mancos play would start to be profitable again.

In related news, Oil prices around $60 as demand balances glut

WPX currently is operating two drilling rigs in Lybrook thanks to favorable hedges the company made by locking in prices for their product at $95 per barrel on the futures market and taking advantage of rapidly advancing technology. Among those advances are creation of a gathering system — possible because of the company’s extensive holdings in the area — and quick spud-to-release times when drilling. WPX also asked its vendors to take a 20 percent cut for services rendered in February.

Canada-based Encana Corp., which originally had plans for drilling in the basin, canceled drilling operations when oil prices plummeted last fall. Encana spokesman Jay Averill said the company has not yet made any plans to resume drilling operations in the San Juan Basin.

“Right now we are not drilling any wells in the San Juan,” Averill said in an email. “Through 2015 we have focused our investment to four plays, the Permian and Eagle Ford (basins) in Texas and the Montney and Duvernay (basins) in Canada. We have not yet determined plans for 2016 in regards to the San Juan (Basin).”

Averill said that while the company does not have a precise dollar amount at which increased drilling would resume, Encana’s supply costs for the San Juan Basin range between $35 to $65 per barrel of oil equivalent to get the product to market.

BP Lower 48 CEO David Lawler said any uptick in natural gas production will rely more on innovation than taking leads solely from market numbers. Natural gas prices have been low since 2008.

“While the price of oil and gas can have an impact on our plans, BP’s approach is to find and develop innovative ways to use technologies that can make us competitive at a wide range of price environments,” Lawler said in an email.

BP’s Lower 48 business will begin drilling testing wells in the San Juan Basin this summer, according to BP spokeswoman Lisa Houghton. “BP operates on both the New Mexico and Colorado sides of the San Juan Basin,” Houghton said in an email. “We began a new drilling program in Colorado in April.

“We have plans for several appraisal wells testing horizontal technology in multiple formations within our existing acreage position.”

Those testing wells will help BP determine its future plans, she said.

Wally Drangmeister, New Mexico Oil & Gas Association spokesman, said some activity in the basin is better than none.

“It’s somewhat encouraging to see that we have some development activity,” Drangmeister said. “Price is certainly a part of it. The cost of doing business is first.”

More companies would be willing to increase operations if the time it takes to apply for and receive an APD, or application for a permit to drill, was reliably reduced, he said.

WPX’s new drilling activity in the basin is a credit to the company’s ability to be more efficient as well as its sizable acreage.

“They are certainly in a good position to be close to the point where they can make money,” Drangmeister said. “It comes down to price, where it will land. That’s the unknown.”

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621 and jfenton@daily-times.com . Follow him @fentondt on Twitter.

This article was written by James Fenton from The Daily Times, Farmington, N.M. and was legally licensed through the NewsCred publisher network.

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