New Mexico Raton basin coalbed methane development resumes

Raton basin coalbed methane development is reviving in the Vermejo Park Ranch area, in northeast New Mexico. A PennzEnergy Co. and Sonat Exploration Co. joint venture recently announced a project in a 700,000-acre area, mostly in Colfax Co., N.M. (Fig. 1) [135,778 bytes].

According to the joint venture, this acreage position represents the largest leasehold in the Raton basin.

The last few years have also seen a pick-up in coalbed methane activity in the Colorado portion of the Raton basin (OGJ, Nov. 11, 1996, p. 101).

Past activity

Pennzoil Exploration & Production Co. initiated drilling in the Vermejo Park Ranch area in 1989. A Gas Research Institute (GRI) report indicated Pennzoil drilled 30 wells before deciding, in 1992, to temporarily abandon the project because of low gas prices and lack of pipeline infrastructure.

GRI describes the coals in the Raton basin of southeasten Colorado and northeastern New Mexico as being in the upper Cretaceous Vermejo formation and the upper Cretaceous to Paleocene Raton formation. The Trinidad Sandstone immediately underlies the Vermejo and can be charged with methane generated from Vermejo coalbeds.

The Pennzoil wells were reported to be completed in both the Raton (960-1,740 ft) and Vermejo (1,470-2,500 ft) coals. Initial potentials from newly completed wells varied widely and ranged from 12 to 195 Mcfd with 14-83 bw/d.

In early 1990, 15 of the wells were producing 693 Mcfd and 2,224 bw/d, according to a commercial production data base.

Proposed development

In the new project, the PennzEnergy and Sonat Exploration joint venture expects to drill a minimum of 35 wells in 1999, followed by 80 wells in 2000 and 150 wells/year until reaching a maximum of about 600 wells.

The joint venture estimates gas reserves in the coal beds exceed 1 tcf.

To accommodate near-term gas sales, Sonat Exploration has agreed to construct, at its own expense during 1999, a gathering line north from Vermejo Park Ranch to interconnect with a Colorado Interstate Gas Co. (CIG) regional transportation pipeline.

Longer-term plans call for Sonat Exploration to arrange for transportation in a newly constructed natural-gas pipeline that will connect to the national pipeline grid.

Announcing the project, PennzEnergy president and chief executive officer Stephen D. Chesebro said, "This transaction involving our fee mineral acreage in the Raton basin allows us to commercialize a significant nonproducing asset to generate long-term reserve and production growth. We can accelerate development drilling on acreage holding the potential to significantly increase our reserves, while minimizing our capital exposure and reducing geologic and technical risk."

Chesebro said Vermejo Park Ranch, a long-lived asset, will significantly increase the gas component of PennzEnergy's total production and reserve base.

He emphasized that the development project would leave a "minimal footprint" in this scenic area.

Joint-venture terms

According to the joint-venture terms, Sonat Exploration will pay up to $10 million in cash and fund a substantial development program to earn a 36-year lease covering part of PennzEnergy's mineral interest in Vermejo Park Ranch and adjacent holdings.

PennzEnergy will initially participate with a 25% working interest in the venture and will increase its working interest incrementally to 50% as the project reaches defined milestones. In addition to its working interest, PennzEnergy will retain a 25% royalty in its lease to Sonat Exploration.

Closing of the transaction is subject to certain preferential rights held by the landowner.

Sonat Exploration has an option to discontinue participation in the joint venture beyond Sept. 1, 2000. Sonat Exploration's interest in the project, however, including any related improvements made, would be assigned to PennzEnergy at no cost.