Encana Corp. announced Monday it has reached an agreement to sell its San Juan Basin assets, located in northern New Mexico, for $480 million to Denver-based DJR Energy.
DJR Energy currently operates 800 vertical oil wells mostly in the south rim of the San Juan Basin, in San Juan County, New Mexico. The basin’s south rim is a recently exploited area for oil production targeting the Mancos shale formation, said Jeff King, DJR chief financial officer.
The purchase of Encana assets will add 90 horizontal oil wells that use hydraulic fracturing to DJR’s existing operation, King said. Horizontal wells that use fracking, he said, are much more productive than older vertical wells.
Encana’s assets in the San Juan Basin include about 182,000 net acres. In 2017, the assets delivered average production of about 5,400 barrels of oil equivalent per day.
New wells that will be drilled in the San Juan Basin, King said, will all be horizontal wells that use fracking, which shoots water mixed with chemicals deep underground to fracture rock formations to make oil wells more productive.
DJR is a private exploration and production oil and natural gas company formed in April 2017 by Dave Lehman, a former executive with Exxon Mobil Corp.
King said DJR has 12 employees in its Denver headquarters and about 40 employees in its Aztec field office.
DJR will likely add Encana’s nine employees operating in the San Juan Basin to its field staff, King said.
The sale is subject to the satisfaction of normal closing conditions and customary closing adjustments. The transaction is expected to close in the fourth quarter of 2018.
The largest companies operating in the San Juan Basin, most focused on natural gas production, have moved out in recent years.
ConocoPhillips sold its stake in the region for $3 billion to Hilcorp San Juan LP in 2016. And in August, Williams Partners, a pipeline and natural gas processing firm, sold its assets to Harvest Midstream Co. for $1.125 billion.
In addition, BP is contemplating pulling out of the San Juan Basin natural gas and oil field.
In an August letter sent to employees, Dave Lawler, BP’s chief executive officer of its U.S. Lower 48 Onshore business, announced plans to sell assets in the San Juan Basin, as well as the Anadarko Basin in Oklahoma and Texas, and the Arkoma Basin in Oklahoma.
In 2017, BP accounted for more than half of the total natural gas production in La Plata County and 75 percent of new drilling permits. That year, BP produced more than 162 million cubic feet of natural gas.
The next highest operators were the Southern Ute Indian Tribe’s Red Willow Production Co. at 52 million cubic feet and XTO Energy at 14 million cubic feet.
BP has also made significant investments to modernize and update its equipment in the field and has tested new technologies in its San Juan Basin operations. It also planned to move its offices to downtown Durango.
In August, Brett Clanton, a spokesman for BP, said there are no immediate changes to the company’s operations in La Plata County.
“All of those pending permits, plans to move the office – all that is business as usual,” Clanton said in August.
The San Juan Basin is a natural gas and oil field that spans northern New Mexico and Southwest Colorado.
Discovered in the early 1920s, the San Juan Basin is one of the oldest producing areas in the U.S., but the field didn’t flourish until the 1990s. Now, there are more than 30,000, mostly natural gas, wells in the basin.
But production has waned since the mid-2000s, largely attributed to lower global natural gas prices from increased production. Natural gas is produced as a byproduct in oil wells that use hydraulic fracturing.