Oil & Gas News

Higher natural gas prices lead to increased production in the San Juan Basin

San Juan Basin, natural gas production

Story By Hannah Grover | NM Political Report | A recent uptick in natural gas prices has made it more profitable to drill in the San Juan Basin, leading to one well in northwestern Rio Arriba County producing more gas than any well has produced in the last half-century of San Juan Basin extraction.

The well, known as Rosa Unit #647H, is located northeast of Navajo Lake and produced 24.9 million equivalent cubic feet per day during a 30-day production period.

LOGOS, a Farmington-based company, purchased the well in question from WPX in 2017 amid low gas prices that led larger companies to pull out of the basin. WPX was not the only company to pull out of the basin. BP, ConocoPhillips, and others also exited the San Juan, selling their assets to smaller companies like LOGOS.

Jay Paul McWilliams, the CEO of LOGOS, said the company initially planned to begin extraction at the site near Navajo Dam within six months of purchasing. But gas prices continued to decline and running a drilling rig is expensive.

Those factors began to change in 2021 and 2022 as gas prices skyrocketed. This led companies like LOGOS to increase production.

McWilliams said Rosa Unit #647H was initially drilled by WPX in 2010. He said at the time there were great wells, but not great gas prices.

Gas prices began to increase in 2021, leading LOGOS to begin developing assets like Rosa Unit #647H that it had acquired from WPX.

In the announcement, McWilliams called the record production an indication that the Mancos Shale—a geological area that has been the recent target of extraction in the San Juan Basin—could be profitable.

“The record-breaking performance of the Rosa Unit #647H further increases our confidence in the economic viability of developing hundreds of Mancos Shale locations within LOGOS’ Rosa Unit, which we strive to responsibly pursue with extended laterals from fewer surface locations,” he said in the announcement. “We believe the Mancos Shale may become one of the leading natural gas shale plays in the U.S.”

At the same time, McWilliams told NM Political Report that he does not anticipate the production statistics to lure back the bigger companies that left the San Juan Basin.

This is because much of the basin is already leased. LOGOS is the primary owner of leases in the Rosa Unit and owns more than 50,000 acres of leased land for extraction. But other companies also have a foothold in the Rosa Unit, including Hilcorp.

Additionally, McWilliams said the basin’s characteristics are different from the Permian Basin in southeast New Mexico. The San Juan Basin cannot support a high density of wells.

While he does not anticipate major companies like ConocoPhillips or WPX to return to the basin, McWilliams said the operators that hold leases in the Rosa Unit may increase their operations.

“It’s going to cause more activity,” he said.

Natural gas prices

Production curves tend to lag behind price curves and LOGOS is coming up against declining prices once again.

One market that LOGOS sells to is the California market. Over the winter, California saw high prices of natural gas even while nationwide the price declined, Bloomberg reported in February. While California has been pushing new laws restricting natural gas, the majority of Californians still rely on it to heat their homes and this winter was particularly cold. This was one of the factors that led to higher prices of natural gas in California.

Very little natural gas is actually produced in California, which means the state has to import 90 percent of its natural gas.

McWilliams said over the winter LOGOS sent a lot of natural gas to California through pipelines.

Natural gas is also used to produce electricity, especially as coal-fired power plants shutter.

LOGOS sees promise in that sector as well.

Gas prices have declined again this year. But, going into summer, demand for natural gas in the electricity sector will likely increase. This is because electricity consumption increases in the summer due to the need for air conditioning.

The U.S. Energy Information Administration projected that the summer natural gas consumption in the electric generation sector this year will be the second most on record. This is because of the closure of coal-fired power plants, according to the EIA.

Natural gas prices declined last week as the inventory of stored natural gas increased. This increase in natural gas storage supplies is due in part to weak demand and high production.

Oklahoma and Texas Mineral Buyers, oil and gasSan Juan Basin operators hope to target the electric generation sector in the future by presenting their products as more environmentally friendly than gas from other basins.

McWilliams said LOGOS has focused mainly on meeting the state’s new methane rule requirements this year.

At the same time, the San Juan Basin has an image problem when it comes to methane. In 2016, the basin received global attention after NASA discovered a methane hotspot over the region. While some of the methane emissions do come from naturally occurring seeps, the hotspot is largely attributed to fossil fuel extraction including oil, gas, and coal.

Horizontal vs vertical wells

One reason that wells are performing better than in the past has to do with the type of methods and technology used to extract fossil fuels.

More than 40,000 wells have been drilled in the basin and, for the most part, they have been vertical wells.

That began to change in the late 2000s and early 2010s when hydraulic fracturing and horizontal drilling became more common.

Rosa Unit #647H is a horizontal well drilled at a depth of about 7,000 feet. It has a lateral of nearly 13,000 feet, allowing it to access natural gas far away from the wellhead.

McWilliams said that “good plays get better and better with new technology.”

He said LOGOS is trying to use the latest and greatest technology to develop wells.

Horizontal drilling is not exactly new. The first horizontal well was drilled more than 50 years ago. Hydraulic fracturing, or fracking, also dates back more than 50 years.

But these techniques did not become commonplace in combination with each other until the 2000s.

Horizontal drilling allows operators to access more of the geological formation that contains the gas. And hydraulic fracturing creates new fractures in the rocks and expands existing ones to increase the flow of gas.

The rise in hydraulic fracturing and horizontal drilling has caused increased concerns from environmental communities nationwide, including concerns about fracking leading to groundwater contamination and the secretive nature of chemicals used in fracking. The rise of hydraulic fracturing has also led to concerns about how the companies dispose of the produced water, a byproduct from oil and gas production that often includes retained fracking fluids.

These concerns led to the Federal Bureau of Land Management undertaking a revised resource management plan for the Mancos-Gallup shale. Much of the attention that the revised plan received focused on an area surrounding Chaco Culture National Historical Park. The original resource management plan was released in 2003 and did not consider the impacts of increased horizontal drilling and hydraulic fracturing.

Interior Secretary Deb Haaland, last week, officially withdrew minerals including oil and gas from leasing within a 10-mile radius of Chaco Culture National Historical Park.

Environmental and Indigenous advocacy groups are now calling for a phase-out of fossil fuel production, especially in the Greater Chaco region which encompasses much of the San Juan Basin.

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