Encana Corp. plans to pour $250 million to $450 million into drilling oil wells on New Mexico’s side of the San Juan Basin next year, the company says.
The Canadian company has aggressively pursued San Juan Basin oil, drilling about 30 wells to date. The drilling is concentrated near Huerfano, N.M., southeast of Farmington.
“Our strategy really is to shift our portfolio more towards oil, so we’re really focusing on areas where we can do that, and the San Juan’s one of those,” said Doug Hock, a Denver-based spokesman for the company.
Encana plans to operate two to four drilling rigs in the area in 2014, according to a company presentation. The wells cost $4 million to $5 million each and have shown initial production rates of 400 to 500 barrels per day.
The San Juan historically has been one of the nation’s most productive natural-gas basins, but with prices low for that commodity and high for oil, drillers are finding oil in some previously overlooked areas.
Improved techniques for horizontal drilling and hydraulic fracturing, or “fracking,” have made such drilling possible.
Encana’s activities have been a boon to some Farmington-area companies. Encana forged deals with local production companies, most notably Dugan Production Corp., that held decades-old leases in the area. Aztec Well Servicing Co. has benefited as Encana’s drilling contractor.
Other companies, including WPX Energy and Bill Barrett Corp., have dipped a toe in the emerging oil play, but Encana has been by far the most aggressive.
The booming oil activity south of the border stands in contrast to slowly proceeding development in the Colorado portion of the San Juan Basin.
The geology of the basin is thought to be more oily in the south, while the northern end of the basin in Colorado leans more heavily toward natural gas. At current prices, oil is far more valuable than natural gas, and drilling activity appears to be following the more oily geology.
La Plata County has approved only 37 applications to drill this year, on pace to fall well short of 2012’s total of 71. The vast majority were for conventional coal-bed methane wells.
A few wells in La Plata County are searching for oil. Swift Energy Co. permitted two wells in the spring. The first well, south of Hesperus, is exploring for oil in the Niobrara formation. The second permit is for a nearby well that has not yet been drilled.
Swift has leased more than 70,000 acres in the area.
Huntington Energy has permitted three wells in La Plata County targeting the Mancos formation. The Oklahoma City-based company did not return a call seeking comment.
For the moment, the oil boom remains confined to New Mexico’s portion of the basin. La Plata County oil production fell 4.6 percent in 2012 to 34,412 barrels.
With the Huntington and Swift explorations still in early phases, La Plata County still could see more oil production.
“If we find oil, it’s obviously at a different price point, and we could see some more activity,” said Christi Zeller, executive director of the La Plata County Energy Council, an industry trade group.
The oil exploration comes against a backdrop of falling production in La Plata County for natural gas, the basin’s traditional product. Natural-gas production fell 5.7 percent in 2012 to 393 billion cubic feet.
“We’re sort of poised and ready,” Zeller said. “We’re still getting permits out, but we’re not drilling them.”