New Mexico's San Juan Shale May Be Poised for Next Boom

Shale could be the next big thing
By Kurt Madar - kmadar times
11/02/2011

FARMINGTON — Steve Dunn believes the Mancos Shale oil boom will happen.

Dunn, drilling and production manager for Merrion Oil and Gas, told city councilors on Tuesday that the company is in the middle of negotiations to start drilling for oil in San Juan Basin shale.

"We would have some sort of results by next summer," Dunn said. "Right now, there are a lot of companies kicking the tires. If results are positive, it will happen. The company we are working with won't be the only one drilling."

Dunn did not name the company Merrion is negotiating with to begin its drilling project.

The issue is so important to city leaders, and potentially to city coffers, that when Dunn handed out a piece of shale Tuesday, city officials all took a moment to hold it and City Manager Rob Mayes gave the sample a little kiss.

Horizontal drilling and hydraulic fracturing have changed the type of rock that oil and gas companies can profitably drill. Because of these changes, huge amounts of oil once thought unreachable in San Juan Basin's Mancos Shale deposits now are within reach.

"This is the source rock for oil and gas," Dunn said. "The new techniques that make drilling in shale possible have changed everything, they are revolutionizing the business."

In the past, because shale is such a tight formation, extraction companies had to drill into sandstone and limestone. With the new technologies, companies can start tapping shale formations for both natural gas and oil.

That's something already happening in places like Texas and South Dakota.

Extraction companies have increasingly focused on shale-based oil deposits as the price of natural gas drops, but extracting oil from shale in the San Juan Basin has yet to prove lucrative.

The basin isn't short on oil reserves.

"I would estimate that the basin has about 30 billion barrels of oil in the Mancos formation," Dunn said. "It's hard to conceive. To give you an idea, in the last 90 years, the basin has produced 300 million barrels. We figure that about 1.5 billion barrels are recoverable."

While councilors and city officials were excited about the potential boost to Farmington's economy, they also questioned how it might work.

"Any idea what is truly economically recoverable?" Councilor Jason Sandel asked.

Dunn didn't know.

"Because it's oil, if things do go well, it could ramp up very quickly," Dunn said. "One of the problems will be getting it out of the community. There is a lack of infrastructure."

Sandel was also worried about the city getting left behind in what could potentially be a black rush.

"How is it we, as a community, can be plugged in, can be active partners?" Sandel asked. "What I would like to see is for the Council to provide direction to the city manager to reach to these various organizations. This has already happened elsewhere and placed tremendous stress on towns and cities near where operations were taking place. Housing became a huge problem."

When councilors asked how much economic growth might come from a possible boom, Dunn was cautiously optimistic.

"The bad news is that there are still a lot of unknowns," he said. "Ninety-five percent of acreage is held by production. Companies will have to buy their way in here. But if the news is good, Katy, bar the door."

Never heard of it, but Merrion is one of the oldest and most conservative production companies in the region. It's usually not wrong to follow their lead.