Region holds potential for shale gas development

QUICKREAD

• Charting the interest

Mancos Shale drilling activity has been fairly minimal so far.

Permits for 25 Mancos Shale wells were issued by the state in 2006. Fifteen were approved in 2007 and 36 in 2008, although they included eight refiles of previously approved permits. Last year 38 were approved, including 20 refiles.

Twelve new permits have been approved so far this year, and there currently are 51 active Mancos drilling permits. This year’s permits are for locations in Moffat, Delta, Mesa, Routt, Gunnison and Garfield counties.

Also, EnCana Oil & Gas (USA) Inc. this year obtained 12 permits to do recompletions on previously drilled and completed Mancos wells in Garfield and Rio Blanco counties.

“I guess the optimism is there, the intent to test it,” said Thom Kerr of the Colorado Oil and Gas Conservation Commission.

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• Early shale action

Mancos Shale energy development actually has a long history. Oil was produced from it in the Rangely area in the 1920s, before drilling there shifted to a more productive oil-bearing formation a few decades later, said Thom Kerr of the Colorado Oil and Gas Conservation Commission.

The Mancos oil was produced conventionally, not by unconventional oil shale development involving extraction of kerogen from rock. The region’s rich oil shale deposits are in the Green River Formation.

Mancos Shale is known to contain oil where it is closer to the surface. But deeper underground, higher pressures and temperatures tend to convert the oil to gas, Kerr said.

Colorado State Geologist Vince Matthews said an optimal depth for gas-producing Mancos Shale is probably 7,500 to 15,000 feet, which is seen in certain parts of the Piceance Basin.



When a slowdown in drilling hit western Colorado last year, one reason was competition from emerging natural gas development in other parts of the country.

Newfound success in producing gas from underground shale formations helped drive up gas supplies and drive down prices, while also competing for drilling investment dollars.

But even as the industry landscape was changing for energy producers in the Piceance Basin of western Colorado, some of them had begun wondering whether a key to responding to the change lay right beneath their feet.

Much of Colorado also is underlain by shale formations. And in the Piceance Basin, companies are starting to explore the degree to which a thick band of shale might be tapped to enhance their already prolific gas production.

“It’s an important question mark, but it’s a big question mark,” said Thom Kerr, permit and technical services manager for the Colorado Oil and Gas Conservation Commission.

The question at hand involves Mancos Shale. The formation surfaces in places such as Grand Junction but is buried deeply in much of the Piceance Basin. The Mancos sits below the Mesaverde Group, which contains the sandstone that companies have successfully been drilling in for natural gas for decades.

The two geological formations are strikingly displayed at Mount Garfield, where sandstone caps shale slopes.

Some companies have begun drilling test wells into the Mancos in the Piceance Basin, but the shale extends to a much larger region than the Piceance. And the Pierre Shale, formed by the same sea that created the Mancos some 85 million years ago, surfaces or is buried in much of eastern Colorado.

“Certainly if the Mancos does prove out, it’s very widespread throughout all of western Colorado, and the Pierre Shale is widespread throughout eastern Colorado. If it’s as good as everybody is hyping right now, the potential is pretty exciting,” Colorado State Geologist Vince Matthews said.

Pioneer Natural Resources Co. has been reporting promising results from shale gas exploration in the Pierre Shale in the Trinidad area.

Even though the Mancos and Pierre formations are “being looked at seriously by some really good companies,” Matthews said, it’s way too early to know how productive drilling in them might be.

“I think the fact that companies are interested in testing it out is very encouraging because they don’t like wasting money for no reason, but I think it’s early to get too excited about the Mancos right now,” he said.

Said Kerr, “Is it something to scream about as a huge boom? I think the story hasn’t been told yet.  … They need more testing.”

Matthews said natural gas development in U.S. shale formations is so new that questions of productivity have yet to be fully answered.

Many of the wells in the Barnett Shale in Texas aren’t proving as productive as hoped, he said. Only about 30 percent of the wells have been economical, although wells tapping sweet spots are highly productive, and “the smart companies that can figure out where the sweet spots are probably are going to make some good money out of shale gas,” he said.

Kerr said unsuccessful wells are easier for companies to tolerate when drilling in shallow formations because drilling costs are cheaper, and they can just try again. But it costs a lot more to drill 11,000 feet, as some companies in the Piceance Basin are starting to do to explore the Mancos.

The payoff potentially could be immense. Dejour Energy (USA) Corp., which holds some Piceance Basin leases, is planning to do some Mancos drilling. For now, it has been fairly encouraged by the results of Piceance shale development efforts by other companies, Dejour President Hal Blacker said.

“We view it as potentially doubling the production from the gas wells,” he said.

If so, he added, it would result in the basin’s production being competitive with that of shale gas development areas elsewhere in the country, making it again one of the better places in the country to invest in drilling.

Kerr said a few Mancos Shale wells in the Piceance each are producing around a million cubic feet of gas per day, which puts them on par with Mesaverde wells for initial production.

“But it’s certainly not all of them,” he said.

About a year and a half ago, Antero Resources obtained state approval for 10-acre well spacing for some Mancos drilling in Garfield County’s Mamm Creek gas field.

The approval involved the larger Mancos Group, which includes the Niobrara Formation. The Niobrara is where an oil discovery recently was made in eastern Colorado.

At the time of its well-spacing approval, Antero reported it had drilled six Mancos test wells in the lands in question, and it was selling gas from five of them.

Antero told the state that where Mesaverde formations are shallower and may be moderately viable at best when drilled, the economics improve if the Mancos Group can be tapped from the same wells.

Said Matthews, “I think the idea of combining (drilling of) the Mesaverde with the Mancos sounds very appealing.”

Antero Chairman and Chief Executive Officer Paul Rady said earlier this year the Mancos is interesting, but not such a good development prospect with current gas prices.

“At higher gas prices it’s quite intriguing,” he said.

He said Antero believes the 5,000-foot-thick formation is a large resource in the Mamm Creek field, but the company will be developing just the Mesaverde Formation there. It also has no plans to develop the Mancos when it begins drilling in Battlement Mesa, he said.

“That is something for the future,” he said.

EnCana Oil & Gas (USA) Inc. is taking an interest in Mancos shale development, including doing new completion work on previously drilled wells. EnCana spokesman Doug Hock noted EnCana already is involved in shale gas development elsewhere in the country.

“We know there’s shale gas in the Rockies. … It’s something that we’re taking a look at,” he said.

Williams spokeswoman Susan Alvillar said her company has drilled several deep test wells into the Mancos, including one in the 1990s.

“We’re not ready to say what that might mean to our operations, but we’re looking at the results. It’s sort of in its infancy, I would say, with our company, but it’s certainly something that’s on our radar screen that’s very important to our business,” she said.

Michael DeBerry, who oversees Chevron’s Piceance operations near De Beque, said this spring his company had completed one Mancos well.

He doesn’t even characterize Chevron’s effort as a shale-gas-development project. Rather, it’s an attempt to tap some sandy intervals in the shale, he said.

Shale isn’t very permeable. It’s hard to hydraulically fracture it and keep it open to allow for flow of gas, Matthews said. The trick is to find sandier, siltier, more brittle zones that can be successfully propped open, and such zones exist in the Mancos, he said.

Only testing and time will tell whether companies can succeed in developing the formation.

“It’s a multimillion-dollar question. It’s quite expensive to run those tests,” Kerr said.


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