The oil and gas industry was pressing its quest to gain access to land for exploration, drilling, and possibly production on several fronts in recent weeks.
A proposal to swap contested leases off California for credits toward leases and lease rentals in the Gulf of Mexico drew some support and some expressions of wariness from industry.
The industry encountered roadblocks to operations in areas of Utah and New Mexico. Michigan banned drilling of new directional wells from its shoreline to bottomhole locations under four of the Great Lakes.
California-gulf swap
A Denver company that holds federal leases in the Santa Barbara Channel supported legislation that would give companies credits toward Gulf of Mexico interests if they gave up their leases off California (OGJ, Mar. 4, 2002, p. 38). Others had reservations about the proposal.
Eleven operators hold 40 leases, some issued more than 20 years ago, and have not developed them because of environmental concerns. Delta Petroleum Corp., Denver, supported the compromise proposed by Sens. Barbara Boxer and Dianne Feinstein (D-Calif.) and John Breaux and Mary Landrieu (D-La.), said Roger Parker, president and chief executive officer.
"Upon consent of the leaseholders," Delta said, "The proposed legislation would require the Secretary of the Interior to re-acquire all of the subject leases in exchange for credits that can be used to pay lease bonus credits in the central and western Gulf of Mexico lease sales and to make royalty payments.
"As proposed, the lease bonus credits would be in an amount equal to the sum of the total amount that was paid to the federal government by the current lease holders and their predecessors for lease bonuses and rentals and the total amount spent by them for exploration costs and related expenses."
Delta said the total amount claimed by all lessees as damages in litigation they filed against the federal government is the same $1.9 billion to $3 billion that Sen. Landrieu mentioned in a recent statement. Delta said its share is 12% of the total to be paid to all leaseholders.
Other industry sources expressed reluctance to embrace the proposal. They said it would make a mockery of the leasing process and give opponents a precedent on which to attempt to block any legally granted lease.
Utah seismic survey
The White House is bracing for what could be a protracted battle with environmental groups and some agency officials who object to industry plans to expand drilling near Arches National Park in Utah.
An official with the Department of the Interior's Board of Land Appeals halted a seismic survey, even though the Bureau of Land Management earlier approved a permit for the Dome Plateau area. Environmentalists said the BLM's Moab, Utah, office should have required an environmental impact statement.
The Southern Utah Wilderness Alliance (SUWA) claimed the initial exploration involves using "enormous" seismic trucks that will hurt a fragile, unique ecosystem. The US Geological Survey also raised objections.
BLM officials are working now to appeal the decision. BLM said the company holding the permit, seismic contractor Western GECO-a joint venture of Baker Hughes Inc. and Schlumberger Ltd.-is losing as much as $45,000/day during the delay. However, USGS warned in earlier comments on the permit that Western GECO's thumper trucks may destroy surface bacteria that retard desert soil erosion.
Environmental groups said that if BLM successfully appeals the decision by the Interior Appeals board, they will lobby Congress to pass a drilling ban for the region, along the Colorado River on the southwest side of the Uncompahgre uplift.
Environmental groups were searching for nests of the Mexican spotted owl, a threatened species, and the USGS said traffic could destroy a thin crust of bacteria that retards soil erosion and weed growth and could take 300 years to regenerate.
New Mexico Orogrande
Federal officials are still weighing development options 41/2 years after a New Mexico company made the first commercial gas discovery in the Orogrande basin.
Harvey E. Yates Co. (HEYCO), Roswell, NM, drilled the Bennett Ranch Unit 1Y well in August 1997, later testing gas at the rate of 4.4 MMcfd from about 4,500 ft (OGJ, Aug. 17, 1998, p. 45).
The discovery well is on federal land in an area referred to as Otero Mesa, 40 miles east-northeast of El Paso, but gas deposits are believed to range over large areas in the Orogrande basin. After HEYCO's discovery, other companies and individuals nominated almost 400 sq miles in New Mexico for federal leasing. No more leases have been granted, and the BLM has not identified those who nominated.
Orogrande potential is likened to the 19 tcf of gas equivalent that has been produced from pre-Leonardian formations in Eddy, Lea, Chaves, and Roosevelt counties, an area of similar size and geology in the New Mexico portion of the Permian Basin.
Many are convinced of the potential even though 67 wells have been drilled in Otero County and some found large structures breached by salt water.
HEYCO proposed to drill four delineation wells, build a gas pipeline, and run a 3D seismic survey. This much activity would have required preparation of an environmental impact statement. The partners opted to acquire the seismic, which confirmed HEYCO's view of the geology.
HEYCO obtained BLM permission to drill four more wells yet not to produce hydrocarbons, but it has not drilled.
BLM then prepared a Resource Management Plan Amendment covering Sierra and Otero counties, published in late 2000. In it the BLM placed no surface occupancy restrictions on large areas, including most tracts adjacent to the discovery well. At best this would sour project economics by requiring more expensive directional drilling. HEYCO objected to that plan as too restrictive to even allow for drilling.
Recently the BLM proposed that no more than 5% of the surface of any lease be disturbed at one time. For instance, on a common 40 acre tract 2 acres is insufficient for operations.
Nondevelopment interests, mainly the New Mexico Wilderness Alliance, have argued that drilling and roads will spoil the view, ruin potential habitat for the endangered aplomado falcon, and damage the Chihuahuan desert. HEYCO argued that the country needs the gas and that the company is entitled to make a profit.
On Feb. 28 the BLM Resources Advisory Council recommended that HEYCO and nondevelopment interests to negotiate an acceptable alternative. No meeting was scheduled at this writing on Mar. 7.
It seems clear that the protracted proceeding probably had significant monetary consequences for HEYCO and partners. The company has seen no return for the risk capital spent on drilling the discovery well. It missed a window of high prices for gas bound for California. Without the notoriety, it might have leased large areas as permitted by the original regulations.
Further, the southern boundary of HEYCO's Bennett Ranch Federal Unit is the Texas state line at Hudspeth County. The University of Texas System drew bids for every tract it offered at two lease sales since the HEYCO discovery, and some drilling has occurred.
Meanwhile, a New Mexico legislator introduced a bill that would designate state funds to construct a gas-fired power plant in Otero County. HEYCO said it had not developed sufficient reserves to support sales to such a plant or any other market but would consider all end-uses if allowed to develop the field.
Great Lakes shoreline
Michigan last month banned the drilling of new wells from shoreline pads to tap hydrocarbon reservoirs beneath the lakes.
The new law allows production to continue at existing directional wells that bottom under the lakes. Michigan, which has coasts on Lakes Superior, Michigan, Huron, and Erie, is the only state that has allowed operators to angle wells from shore.
By the time Michigan banned such drilling in 1996, operators had drilled 12 wells, half of which produced, in Manistee, Alpena, and Bay counties. A state agency study in the late 1990s found little risk of damage from drilling, and rules then allowed drillsites no closer to shore than 1,500 ft.
Michael Barratt of Newstar Energy USA, East Lansing, Mich., estimated that no more than 30 suitable locations remain for drilling from shore, Michigan Oil & Gas News reported.
The Michigan Department of Natural Resources considered lifting the ban last year before the legislature acted.
