NAGEEZI — Oil produced from wells in the rolling hills near Chaco Canyon could buoy San Juan County's sagging economy if more companies discover the area's potential, according to representatives of a company that is expanding its operations here.
WPX Energy, operating from an office in Aztec, is drilling wells that are producing the shale oil that has become a singular hope for a resurgence of the county's energy sector. Oil prices remain consistently high, while natural gas, which is bountiful in the San Juan Basin, is marginally profitable now thanks to a supply glut and limited markets.
WPX officials say they plan to continue drilling and are talking to the Navajo Nation about securing leases on Indian land.
Underlying the good news, however, are the inevitable cautions.
The wells are drilled horizontally and use hydraulic fracturing to release oil from the Mancos Shale Formation. New technology is making it possible to extract oil from those formations, which are called "plays."
Similar wells drilled here have been balky after the first flush of production. And the leasing legalities mean that many companies are putting San Juan Basin exploration and drilling on a back burner.
Nonetheless, WPX San Juan Basin Director Ken McQueen said he lobbies his company, which has 16,000 drilling locations identified nationally, to put resources in the basin. Other companies are watching closely, he said.
"We think (the Mancos Shale Formation) is going to be very competitive," McQueen said. "Not as huge as Marcellus (in New York) or Eagle Ford (in Texas), but we believe it will be very cost competitive. It compares favorably to the Bakken (in North Dakota), not in volumes, but in return on investment."
Earlier this month, WPX had eight wells on the Chaco slope, six in production and two waiting on "stimulation," which means fracking. And McQueen said the company is planning to start a new well every 15 to 16 days.
Drilling into the Mancos provides a cheaper option than some other areas, McQueen said, because it is relatively shallow.
"It is half as expensive because it is half the depth, and you don't have to drill as long of a lateral," McQueen said. The smaller rigs also cost less. And the shorter runs mean less risk of damage to equipment and lower operation and maintenance costs.
"In the oil business, that's one of our biggest desires ... to mitigate risks," McQueen said. "The risk here is much less."
The shale formation is like the family and the wells are like its children, McQueen says. Despite some common characteristics, each well has a unique personality and the operators must find the best approach in each case.
"This play is very much in its infancy," McQueen said.
"A lot of people are watching to see whether or not this is a commercial play, and we believe it is a commercial play," he said. "The big question now is how widespread this play is. Every well we're drilling, we're learning from the last well and trying to improve."
The Mancos shale oil contains paraffin, McQueen said. The waxy substance can clog pipelines and restrict flows. The wells have a system that injects chemicals meant to keep the paraffin suspended in the oil.
Paraffin is one of many components of crude oil that producers must deal with, McQueen said.
"We've been dealing with it (paraffin) for years," he said.
WPX is following a geologic feature McQueen says is proving to be productive. It is the remains of an ancient sandy shoreline thousands of feet below the surface.
Horizontal drilling allows the well to follow that shoreline, which is permeable and allows the oil to flow.
Drill bits costing $80,000 contain sensors, one of which can detect background radiation signatures of different types of rock. The sensors relay information allowing operators to keep the bit in the sand part of the formation, McQueen said.
Fracking breaks the surrounding shale apart, freeing the oil and gas. Then sand is pumped in to keep the cracks open.
Despite the positives, it could be a while before more companies begin drilling in the San Juan Basin.
It's a problem of priorities.
Leases have terms, usually of 5 or 10 years, which is the time a company has to try to drill productive wells.
If they don't develop a productive well in that time, they lose the lease. However -- to provide the certainty that encourages investment -- most leases allow producing wells to stay in operation until they are no longer economical.
Companies have been drilling in the San Juan Basin since at least the 1950s, and most of those leases have wells that produce natural gas. That means there is no pressure to further develop them because they are not in danger.
So recently discovered oil fields in other parts of the country with new leases are a priority.
"The obvious (business decision) is to go where they've got a deadline," said Jason Sandel, executive vice president of Aztec Well, which drills wells for WPX. "There is not a push to go develop our areas."
Sandel, who also serves as a Farmington city councilor, believes the Mancos shale oil eventually will bring jobs to the county. He'd like to see it sooner than later.
"There are about 50 people that are directly employed by one drilling rig," Sandel said.
And the wages are good -- so good there are few industries that could provide the same kind of economic boost. Sandel said his employees make an average of $75,000 a year, and every drilling rig provides about $3.7 million in wages.
Many of Sandel's employees are locals.
Nathan Scott, who lives in Cuba, is an Aztec Well rig manager with a wife and three children. He was part of a crew preparing to tear down a drilling rig after the operation was completed earlier this month.
"You make great money, and you're helping America's need for resources and energy," Scott said.
He is taking engineering courses as San Juan College to further his career in the industry.
"It makes a huge difference, and that's in food that is being put on people's tables," Sandel said.
But even if oil production does start to increase, it will take a while to reach previous levels, he said.
"If tomorrow there was a boom, there would not be enough employees and not enough equipment," he said.
And it takes up to a year to build a machine that can drill the wells, Sandel said.
WPX has a stake in building up that infrastructure. When there are fewer companies available to meet the demand, the price of those services goes up.
"A belief and hope for where we could go really led to other companies being interested in our area," Sandel said, of previous booms. "So Mancos could become something."
Other obstacles exist, however.
WPX worries about environmental and anti-development groups. And they mostly blame Democrats for an anti-fracking attitude they say is not based in fact.
Specifically, there has been resistance from some to drilling near the Chaco Canyon Puebloan ruins. Concerns include seismic events and light pollution.
"There are activists down here that simply don't want drilling to occur," McQueen said.
Sandel, who grew up in the area and now operates the family business, takes it personally when people refer to oil and gas as a "dirty" industry.
"These people work amid rain and snow and extreme temperatures to deliver fuel for the nation's energy needs so people can turn on their lights and drive their cars," he said.