Two Dallas area independents joined to explore and develop coalbed methane and conventional formations in the southern San Juan basin in west-central New Mexico.
Drilling has started in the first phase of the three-phase project, said Magnum Hunter Resources Inc., Irving, Tex., and private CDX Gas LLC, Dallas (OGJ Online, Sept. 23, 2003). They will emphasize the Upper and Lower Menefee coals of the Cretaceous Mesaverde Group, lower in the geologic section than the Cretaceous Fruitland coals widely exploited in the northern part of the basin.
Acreage and operations
Magnum Hunter and affiliates were exercising options on 554,000 acres in McKinley, Sandoval, and San Juan counties plus 922,000 mineral acres in lightly explored, nonproducing Bernalillo, Catron, Cibola, and Socorro counties.
CDX contributed 14,000 mineral acres in the Southeast Cabrito Project, Rio Puerco Project, and Zed Project, and the joint venture acquired 8,000 acres of state leases. All the acreage is in a 6 million acre area of mutual interest.
Magnum Hunter got 7.5 million acres of options with its 2002 acquisition of Prize Energy Corp. Formerly controlled by Santa Fe Pacific Railroad and related coal companies, that land has 3-4 years remaining to exercise options.
Phase I, to cost $3 million and be complete by Feb. 15, 2004, calls for drilling 25 stratigraphic and core test wells as deep as 3,500 ft. Phase II, to cost $3 million and be complete by July 1, 2004, contains 25 more wells.
The $5 million Phase III involves several vertical and horizontal pilot projects.
Magnum Hunter owns mineral leases on 75% of all acreage within 18 miles of Hospah and South Hospah fields, in McKinley County, which produce oil from Hospah sands of the Cretaceous Mancos shale at 1,100-2,300 ft. The joint venture plans to explore for oil and gas in Hospah, Cretaceous Dakota sandstone, and Jurassic Entrada sandstone on this southern part of the Chaco shelf.
Magnum Hunter, which will manage all production, is working with another company on gas pipeline logistics.
Exercising the lease options cost only a few thousand dollars. Leases have 50-year primary terms, low royalty rates, and no delay rentals.
Menefee potential
A joint exploration team with geoscientists and engineers will pick the first 50 locations and, from that data, sites for pilots.
The first 50 wells will help determine Menefee coal density and thickness, gas content, and recovery factor.
Few southern wells have penetrated Menefee, but combined thicknesses average 90 ft in parts of McKinley and San Juan counties. This is thicker than Raton, Powder River, Piceance, Forest City, and Green River basin coals, Magnum Hunter said. Menefee, based on limited existing data, compares favorably with the other coals as to density and gas recovery factor, the company said.
CDX overview
CDX, focused on technology development, employs 250 in North America, where it hopes to double its 10-rig fleet by yearend 2004.
It uses a proprietary, patented horizontal drilling and completion system known as Z-pinnate with purpose-built rigs to exploit coalbed methane.
Formed in 1991, CDX has Appalachian low permeability projects with U.S. Steel Corp. and Penn Virginia Corp. (OGJ Online, Aug. 7, 2002). It has operations in six states, Alberta, and British Columbia, and is near closing a San Juan basin deal with another operator. It will commit two rigs to the Magnum Hunter project initially.
CDX has drilled more than 100 Z-pinnate wells, claimed 85-90% gas recovery from some coal seams, and developed a patented process to keep from bringing coal seam waters to the surface.
It has drilled organic shales in the Illinois basin and has been approached about applying its technology to oil sands in Canada and tight dolomites.