Tayvis Dunnahoe
Exploration Editor
Despite numerous false starts, the Mancos shale in northwest New Mexico has potential to compete with some Permian assets to its south. The Gallup sandstone has maintained productivity in recent years in northern New Mexico.
Generally, the Gallup formation is "sandwiched" by the Mancos shale, which has been developed since 2010 but recent gas discoveries and continuing oil development could prove up more exploration in the region.
"Mancos exploration has taken a hit during the downturn," New Mexico Oil & Gas Assocation Deputy Director Patrick Padilla told OGJ. With a rebound in oil price, cost differentials between Mancos and Permian acreage to the south could make the basin more competitive, he said.
Recent discoveries
In August, BP PLC reported that its BU 602 Com 1H well in San Juan County, NM, recorded a 30-day initial production rate of 12.9 MMcfd of natural gas. The well was drilled with a 10,000-ft lateral in the Northeast Blanco Unit (OGJ Online, Aug. 7, 2017). BP PLC acquired its Mancos shale acreage from Devon Energy Corp. in 2015 (OGJ Online, Dec. 18, 2015).
WPX Energy Inc. produces oil in the southern end of the San Juan basin from the Gallup sanstone. The basin produced 30.1 million boe/d in this year's second quarter, up 20% from the same period last year. The operator has completed 11 Gallup oil wells this year. WPX is running 1 rig in the Gullup play and plans to spend $160 million to drill and complete about 40 new oil wells in 2017.
Legacy play
The San Juan basin has been drilled since the early 1940s. Along with Gallup, the Tocito and Mesa Verde are known to produce oil and gas. Encana Oil & Gas (USA) Inc. and WPX are the two primary oil producers in the San Juan basin. Hilcorp Energy Co. acquired ConocoPhillips's San Juan acreage for $3 billion in April (OGJ Online, Apr. 13, 2017), joining BP as the basin's biggest gas developers.
In 2011, Encana introduced horizontal drilling in the basin and the Mancos shale has been slated for development since that time.
Comparable resource play
Like the Permian basin to the south, San Juan offers stacked-play opporunities. "So far, productive Mancos oil horizons have been found at 5,000-6,000 ft in the San Juan basin, which is shallower than most unconventional Permian resources." Padilla said.
Well costs and services are on par with the more productive Permian, but the acreage is generally less expensive. "San Juan basin acreage is about 96% leased," Padilla said. Just before the oil price decline, "there were big plans for a multiple of transportation projects in the region, but the price crash killed many of these," he said.
New Mexico acreage has generated $13.5 billion in investments in the last 18 months with $3 billion attributed to the San Juan basin. The majority of the funds were applied to Permian operations.
While the Permian basin is by far superior since the beginning of unconventional development, San Juan basin's stacked-play opportunities combined with oil and gas potential in the Mancos shale may level the playing field when oil prices begin to edge up.
