It is unpredictable, unfamiliar and “topographically challenging.” The Mancos Shale play could lead this community into an oil boom or it could end up being a bust.
The Canadian-based Encana has invested $100 million in this region trying to determine the profitability and dependability of the “half-oil, half-gas play,” according to Jeff Balmer, asset manager of the San Juan Basin for Encana.
Balmer was a guest speaker during the San Juan Basin Energy Conference on March 18-19 at San Juan College. The focus of the conference was discussion about shale oil and gas and how it pertains to the potential of the Mancos Shale.
“Encana is dedicated to the Mancos Shale,” Balmer said, characterizing it as an “emerging play” that was not only timely, but also interesting for Encanca – an international company with 4,000 employees.
“As the play continues to grow, Encana will have a larger presence in the San Juan Basin,” Balmer said. “We’re drilling as we speak.”
Encana in 2012 drilled 10 wells in the Mancos Shale with a focus on the El Vado and Tocito regions. The company has proceeded with mixed results based on the area’s complex terrain and reservoir base. The wells will not flow without fracturing, and the company continues to experiment with the fracturing process that will work in the Mancos Shale’s “hybrid play.”
“They’re not really understood by anybody right now,” Balmer said of the type of wells needed to drill in the gas reservoir that consists of “dozens and dozens” of small oil pools.
The geologists and other oil and gas specialists don’t really know the correct spacing for wells and the product that will be obtained. “What fits in one area (of the Mancos) doesn’t fit in another area,” Balmer explained, even the paraffins from Farmington to Lybrook are different.
Another issue with the Mancos is the regulatory nature of the area at both the federal and state levels, because the rules are not quite established for horizontal drilling in New Mexico, and the BLM is trying to determine the possible impact of the shale play.
Balmer would like to see the government set up a test area in the Mancos and not apply any regulations to it until the oil and gas companies can figure out what type of frack to use, the appropriate spacing, etc. “We’re trying to figure it out,” he said.
Encana and WPX are the two companies in the Mancos who are researching the region, according to Balmer, who said he wishes some other companies would get involved.
The play might just be too risky, because even Encana will not promise to fully develop the Mancos. “If we think we can make money out here and have a good play, we certainly will give it a shot,” Balmer said.
There are several factors at issue with the Mancos – one of the most prevalent is the cost of gas and oil per barrel as opposed to the cost of developing the shale play.
“There are shale plays on every continent,” said James LeJeune, vice president Chevron Business Development and president of Chevron Middle East North Africa Inc.
Worldwide there are 500 billion barrels of shale oil and 6,600 trillion cubic feet of shale gas, but according to LeJeune “not every country can or chooses to develop shale resources,” because they can’t build a supportive framework.
“You have to actually find a sweet spot, and then we have to develop the infrastructure,” LeJeune said.
That is one of the benefits to developing the Mancos Shale – the infrastructure exists, according to Balmer. An oil and gas vendor community exists in San Juan County, and Encana can truck the product off site.
Other issues at play in developing a shale play have to do with the fracturing process, which involves the use and disposal of water, LeJeune said.
Encana uses nitrogen to fracture the rock formations and make the oil and gas flow. “It can be a little bit more expensive, but it really reduces the water use for these fracks,” Balmer said, adding that nitrogen also reduces the environmental impact on the land.
LeJeune pointed out that shale gas is the cleanest burning fossil fuel available, and it could be embraced as the energy of tomorrow. He called this the “Golden Age of Gas,” saying just how golden it will be depends on the “time and return on the investment of developing it.”
Encana, for now, plans to wait on and invest in the Mancos Play, according to Balmer, who said “None of the areas we’ve drilled in are we giving up on.”