FARMINGTON — Encana Corp. on Tuesday announced positive results from its San Juan Basin oil exploration, saying the effort had "reached commerciality" with production expected to exceed 1,700 barrels of oil equivalent per day.

The Canadian company, which has been the most aggressive firm in testing the potential of San Juan Basin oil, said it may add a rig by year's end to the two now operating in the basin.

Encana said it is working to add to its 166,000-acre position in the basin.

The publicly traded company gave the update in a quarterly report released Tuesday.

Encana drilled 13 San Juan Basin wells in 2012, and the company plans to continue drilling about one well per month, said Doug Hock, an Encana spokesman.

Encana said the last five wells completed have initial 30-day production rates of 150 to 700 barrels of oil equivalent per day, producing 80 percent oil.

Well costs are $5 million to $6 million per well, the company said. The type of wells Encana has drilled require horizontal drilling and multiple stages of hydraulic fracturing.

Like other companies, Encana is pursuing oil while natural gas prices remain depressed.

"Our strategy is really to start to develop our oil and liquids portfolio," Hock said.

Encana expects to spend about $100 million in the basin in 2013, about the same as last year.

Encana is partnering with local independent oil and gas companies that have long-established leases in the basin, including Dugan Production Corp., Robert L. Bayless Producer and McElvain Energy Inc.

"It's certainly helping us," said Tom Dugan, founder and president of Dugan Production. "We're happy with our arrangement."

To date, Encana has drilled 17 wells on Dugan leases, one with Bayless and one with McElvain, Dugan said. Some of the wells are awaiting completion.

Aztec Well Servicing is Encana's drilling contractor in the basin and could benefit if Encana adds a third rig.

"We enjoy a strong relationship with Encana, and if they look at expanding their drilling we'd feel very fortunate to be considered for that opportunity," said Jason Sandel, Aztec Well's executive vice president.

Encana's positive results came just over two weeks after Farmington's Merrion Oil and Gas announced that its corporate partner, Bill Barrett Corp. of Denver, had ended a deal to explore for San Juan Basin oil. No wells were drilled under that agreement.

Encana's announcement could provide hope that there is some substance to the potential for significant oil development in the basin. Historically, the San Juan Basin has produced mostly natural gas, and falling prices for the commodity has dimmed the local economy.

In March, San Juan College hosted a major conference on the potential for an oil shale play in the basin.

"It's fairly encouraging to hear them come out and actually state (the results)," said John Byrom, president and CEO of D.J. Simmons Inc., a Farmington company that is not directly involved in Encana's work. "I think some people were nervous about what (Encana was) actually seeing."

Byrom added: "It's positive for the outlook of the basin. ... I'd rather see rigs standing up than laying down, that's for sure."

Chuck Slothower can be reached at cslothower@daily-times.com; 505-564-4638 . Follow him on Twitter @DTChuck.