FARMINGTON — Encana Corporation announced earlier this month a new company strategy and vision, with much of that strategy being focused on the San Juan Basin where it plans to invest hundreds of millions of dollars in new oil and gas production beginning in 2014.
The announcement has prompted a flurry of speculation among those in the local oil and gas industry that the increased drilling will begin immediately after the first of the year.
In a Nov. 5 news release, the Calgary-based Encana outlined key points of its strategy, the first of which states that it will "focus its capital investment on five oil and liquids-rich resource plays in North America."
The release goes on to state that Encana will "invest approximately 75 percent of its 2014 capital into five high return oil and liquids-rich plays: the Montney, Duvernay, DJ Basin, San Juan Basin and Tuscaloosa Marine Shale."
In dollar amounts, this translates to 350 million to 400 million dollars in capital that Encana plans to invest in the San Juan Basin in 2014, said Encana spokesman Doug Hock.
"We will run two to four rigs in the area where oil and liquids are," said Hock. "Our strategy is to develop oil and natural gas liquids plays in the Mancos Shale over the course of 2014."
Hock said that to date, Encana has drilled some 20 wells in the Basin at a rate of approximately one well a month, and the increased production plans are a result of the positive drilling performance already seen in the basin, as well as economic conditions that make drilling in this area beneficial to the company.
WPX Energy has also announced its intention to drill more oil wells in the Gallup Sandstone in 2014.
"We have 15 Gallup Sandstone wells this year, and our plan is to drill 37 next year," said WPX spokeswoman Susan Alvillar. "We're very pleased, and it's going to keep us very busy."
WPX is currently using one drilling rig from Aztec Well Service. Alvillar didn't confirm whether more rigs will be sought from the company to drill the additional wells.
"We do plan to keep using the rig continuously through the first of the year," she said.
State Rep. James Strickler, R-Farmington, who also owns a small oil and gas production company welcomed the news. Encana is currently drilling six wells on some of Strickler's leases.
"There will be a lot of leasing, and it will help our economy, as well," Strickler said. "This area's lost 4,000 jobs since 2008, so I think this is a really positive development."
An increase in production means good news not only for the local economy, but also for companies that provide services to drilling operations, like Miller & Sons Trucking in Farmington. The company conducts crane work and location set-ups for well sites, as well as hauling, trucking and pump unit work.
Company owner Tim Miller said that by the end of November he will have added four additional employees and is planning on buying more trucks as a result of the announcements of increased drilling in the basin.
Miller was already in the process of expanding before Encana's announcement, and now is slowly increasing the rate of that expansion with the hope that the new energy production will be sustainable.
"For right now, I've spent $300,000 on equipment, but I'm playing it by ear because I don't know what the future's going to bring," said Miller. "What scares me is if something happens to the gas industry."
Aztec Well Service Executive Vice President Jason Sandel said the reports coming from Encana and WPX are cause for optimism, but added that limits to a future boom -- including equipment and infrastructure availability, sustainability and the amount of time it takes for the Bureau of Land Management to issue permits -- call for pragmatic caution.
"It's great news that operating companies are promising to have more projects in the community, but there are many hurdles that still remain as relates to the future of a boom inside the community," he said.
In addition to possible limits to existing infrastructure, Sandel said he has heard from local operators that October's government shut-down delayed drilling plans significantly.
"The BLM permitting process is a huge sticking point, partly in light of the recent government shutdown," he said. "For that time, permits weren't being processed, and until operators have the approved permits in hand, they have to sit and wait."
Dave Evans, Farmington BLM office district manager, acknowledged that the government shut-down did delay permitting for a short time.
"The shut-down was impactful because it was three weeks that people could have been working, but I think we've caught up now," he said.
Even without the shut-down delay, Evans acknowledged that "APDs," permits to drill, and right-of-way applications take some time to process because they have to be approved at the Washington, D.C.-level. For this and other logistical reasons, BLM officials speculate that the new drilling planned for 2014 will take a while to ramp up.
"Even if they have a place to drill, they have to have roads and pipelines, and sometimes they have to work through the various state and BIA jurisdictions," said Gary Torres, Farmington BLM office Field Manager.
"Especially down south, it's much more of a checkerboard situation, and logistically it can be difficult to line up," Evans added.
In addition, Evans said his office has had to eliminate 15 positions due to sequestration and budget cuts.
"It's always a challenge, but BLM is very committed to being able to process these permits," he said.
Because a typical drilling permit takes 60 to 90 days to be approved, Evans encourages operators to "bundle" drilling projects as much as possible to better streamline the permitting process.
Strickler said how much the local economy will benefit from increased drilling will depend on BLM finding ways to move more quickly in granting permits and right-of-way approvals.
"BLM will make or break us out here and it really affects us locally," he said. "This economy depends on them doing their job, and they just need to move faster. Drilling hundreds of wells takes hundreds of permits, and they really need to help."
Despite these and other challenges to a possible oil and gas boom in the near future, most in the industry see the Encana and WPX announcements as very positive developments.
"I have great hope for 2014 being the year of building and reinvesting, and 2015 being the year we will see the dividends," said Sandel.