Encana Oil & Gas (USA) Inc. — the Denver-based U.S. unit of Canada's Encana Corp. — will move forward with drilling for oil in New Mexico's San Juan Basin, which could be among the nation's newest oil plays.
The San Juan oil play in New Mexico has similarities to Colorado's Niobrara oil play in that new horizontal drilling and hydraulic fracturing (fracking) techniques are producing oil from an area that's been well known historically for its natural gas production.
“We’re on the leading edge of developing it as an oil play,” Encana spokesman Doug Hock said Tuesday of the San Juan. “This is new, different. There is a resource there and we’re looking to see if we can create something. And based on our announcement today, we think we can go forward with commercial potential.”
Tuesday, as part of the company’s first quarter results announcement, Encana Corp. (NYSE: ECA), based in Calgary, Alberta, Canada, said its San Juan acreage is commercial, meaning the company believes it can profitably drill and produce in New Mexico San Juan Basin.
Encana, like many energy companies across the country, has stepped up its search for oil due to the comparatively low level of natural gas commodity prices.
On the Colorado side of the border, the San Juan Basin is well known for its ability to produce natural gas from underground coal seams.
In New Mexico, Encana has partnered with local companies that have worked in the area for years, Hock said. The partnerships have drilled several wells horizontal wells into the Mancos shale formation.
Encana spent about $100 million in the basin in 2012 and expects to spend about the same amount in 2013, Hock said.
Encana has 160,000 net acres of mineral rights in the basin and running two drilling rigs — with a third drilling rig expected to be moved into the area by the end of the year, the company said.
The last five wells Encana drilled in the San Juan area had initial, 30-day production rates of oil, gas and natural gas liquids (NGLs) ranging from the equivalent of 150 barrels of oil per day to 700 barrels of oil per day.
About 80 percent of the total production was oil, the company said. Wells have cost between $5 million and $6 million to drill.
Encana’s Jeff Wojahn, executive vice president and president of the U.S. division, said during a conference call with analysts that each well in the San Juan area may produce between 200,000 barrels and 700,000 barrels of oil over its lifetime.
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