Natural Gas Production Poised To Boom in San Juan Basin

Natural Gas Production Poised To Boom in San Juan Basin

By Miguel Suazo and Chelsea Allen

New Mexico’s natural gas production comes from two primary locations: the Permian Basin region in southeastern New Mexico and the San Juan Basin region in the northwestern part of the state. Though both areas contribute significantly to New Mexico’s overall oil and gas production, the Permian Basin region, as a general matter, produces the majority of oil in the state, while the San Juan region produces the majority of natural gas. Both areas feature stacked plays and have experienced massive growth in production in recent decades made possible, in large part, by new, horizontal drilling techniques and technology.

The boom in natural gas production in Northern New Mexico is poised to grow even more as access to the Mancos Shale play becomes increasingly financially viable. The Mancos Shale is located in the Four Corners area and extends from northwestern New Mexico into Colorado. According to New Mexico’s Oil Conservation Division, the San Juan basin has long been home to “one of the largest fields of proved natural gas reserves in the United States.” Despite this fact, producers, in the past, have often passed on the Mancos in favor of plays that are easier and cheaper to develop. But, with new discoveries of vast reserves in the Mancos, along with rising costs of acquisition for other more popular plays and continued improvements in horizontal drilling technologies, that situation is likely to change over the long-term. Even as some companies are presently transitioning out of the region, other large and important producers are turning their attention seriously to San Juan and the Mancos.

BP’s onshore division in the Lower 48, for example, has acquired thousands of leases in the San Juan basin in recent years, and was recently credited with the discovery of a highly productive new field in the Mancos shale. Within it’s first thirty days of production, the particular well associated with this discovery reached production levels unmatched in the region within the past 14 years. According to BP, this Mancos well “‘proves up’ the play generally,” and has provided BP with “confidence to continue to invest and economically develop these locations.”

A boom in natural gas production in the San Juan Basin would be especially important for New Mexico, whose general fund relies extremely heavily on oil and gas revenue. As of 2016, New Mexico received approximately two billion dollars in direct revenue from taxes on oil and gas production, and roughly an additional 300 million from indirect but associated revenues. This source of taxes is important to all New Mexicans, especially since a large portion of that revenue is used to support New Mexico’s public schools. In fact, according to the New Mexico’s Legislative Finance Committee, “The common school fund, which benefits public schools and is part of the general fund…is the largest trust beneficiary” of oil and gas revenue in New Mexico. Thus, a boom in production in the Mancos would have long-term positive effects on the whole state by boosting funding for New Mexico’s desperately needy schools. Producers should stay tuned as we continue to monitor developments in the San Juan region and Mancos shale play.

FOR LEGAL ASSISTANCE WITH OIL AND GAS PRODUCTION IN THE SAN JUAN BASIN IN NEW MEXICO AND COLORADO, PLEASE CONTACT MIGUEL SUAZO AT (505)-375-1400, OR BY EMAIL AT mas@suazolegalgroup.com.

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