The oil and gas industry says a highly productive new well drilled within a mile of the Thompson Divide area ups the stakes as the Bureau of Land Management considers possibly canceling some leases there.
The West Slope Colorado Oil & Gas Association on Tuesday said SG Interests made the Piceance Basin's latest Mancos shale natural gas discovery with its new well in Gunnison County west of McClure Pass and Colorado Highway 133.
David Ludlam, the organization's executive director, said the well helps put to rest the question over the extent of the oil and gas resource that's at stake in leases the BLM has proposed canceling in the Thompson Divide area southwest of Glenwood Springs.
"Our whole point all along has been that the agency has not accounted for the Mancos shale in assessing what's to gain or lose here," Ludlam said.
The Mancos/Niobrara shale lies beneath the sandstone formations energy companies have extensively drilled in western Colorado's Piceance Basin. Companies have been drilling into the shale in recent years to test its potential, and in many cases have reported highly productive results. In 2014, Oil and Gas Investor magazine gave its Best Discovery award to WPX Energy based on a Parachute-area Niobrara well so productive WPX called it "The Beast."
That well averaged 12 million cubic feet of gas production a day over its first month, and in a half-year produced 1.7 billion cubic feet of gas. That's what many area sandstone wells might produce in three decades, although the deeper wells drilled down and then horizontally into the shale are significantly more expensive to drill.
The new SG well has averaged about 6.5 million cubic feet a day of gas since it began producing 21 days ago. That's still strong production, akin to results Encana saw with local Mancos wells several years back. Robbie Guinn, an SG vice president, said SG has been choking back production on the well, which could yield even more gas otherwise. The well also extends less than 3,000 feet horizontally through its shale production zone, whereas local Mancos wells more commonly extend laterally 5,000 feet and can tap more gas. Still, SG believes the well "would stack up, we think, with some of the better wells that have been drilled" by other companies into the Mancos locally, he said.
Guinn said SG has drilled other Mancos wells in that area, but achieved more productivity with the newest one after optimizing its hydraulic fracturing techniques. He said he hopes the BLM pays attention to the well's results.
"We don't believe that they have adequately considered what the resource is when they're talking about canceling our (Thompson Divide) leases," he said.
Ludlam plans to include information on the well in comments to the BLM on its draft environmental impact statement on a retroactive environmental analysis it is doing on 65 leases on the White River National Forest. It is proposing canceling all or parts of 25 of those leases that are within the Thompson Divide area. The comment deadline is Friday.
Ludlam and Guinn say if the agency cancels leases, it should reimburse companies not just for the lease acquisition but rental money they've paid the agency.
Reimbursements "should be appropriate to what the value of the leases themselves are" based on their oil and gas resource, Ludlam said.
Guinn said if the leases are canceled and SG has to pursue court action, it would seek damages for breach of contract that would include lost profits from production and not just the lease purchase and rental payments. He said a number of court cases on property takings support the company's argument.
BLM spokesman David Boyd said he's not familiar with any such cases, but instead only knows of local instances where the BLM refunded only lease sale and rental costs when canceling leases.
Peter Hart, an attorney with the Carbondale-based Wilderness Workshop, said in a news release that the new SG well is in an area of existing oil and gas development and infrastructure, not Thompson Divide, and there are miles of roadless areas between it and the undeveloped leases under BLM review.
Pitkin County and the Thompson Divide Coalition previously have had evaluations done that question the economic viability of drilling in the Thompson Divide due to issues like lack of nearby roads and pipelines, questions over the extent of the gas resource and challenges such as seasonal closures and other drilling restrictions.
Zane Kessler, executive director of the Thompson Divide Coalition, said those reports were predicated on natural gas prices of $4 per thousand cubic feet, not the $2 prices of today.
Kessler and Hart also both pointed to SG's failure to drill on its Thompson Divide leases already.
"They held those leases in a period of historic highs in the price of natural gas and they never drilled," Kessler said.
Guinn previously has said SG has tried to develop those leases but been thwarted by obstructionist efforts of environmental groups.
Guinn acknowledged Tuesday that things like pipelines and infrastructure will be expensive, but he said gas prices also won't stay at $2 forever.
He said the same Mancos formation tapped by its new well also underlies its leases in the heart of the Thompson Divide, and he believes the geology will be close to the same there. SG also is pursuing approvals to proceed with drilling a test well in the Thompson Divide under a lease that's not part of the current lease review, to further delineate what gas resource exists there.
Said Ludlam, "I don't know a producer who's put in a well in Mancos shale in western Colorado and hasn't had success yet."
The Thompson Divide Coalition and Wilderness Workshop continue to argue that regardless of its gas development potential, the Thompson Divide is an inappropriate place for drilling, and that other existing uses are more valuable in the long term.
Said Will Roush of the Wilderness Workshop, "Local citizens want to see those areas protected to ensure clean air, water, and to maintain the tourism, ranching and recreation-based economy of the region, which has no active oil and gas development currently."