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BP Mancos Shale gas discovery could be groundbreaking discovery

Mancos Shale

BP’s initial 30-day production rates at its well in the Mancos Shale play hit 12.9 million cubic feet of gas per day.  BP image.

Mancos Shale second largest to Marcellus field

In 2015, BP bought acreage in a little-known area in northern New Mexico where not a single gas well was located.  A year later, a report from the US Geological Survey showed the site, known as the Mancos Shale, could be home to the second largest shale play in the United States.

Results from BP’s drilling activity in the area were impressive.  The initial 30-day production rates of the new well hit 12.9 million cubic feet of gas per day, higher than horizontal wells in the prolific Eagle Ford play which often sees wells produce 8 to 21 million cubic feet per day.

SKYACTIV-XThe results also boost production figures within the San Juan Basin, which includes the Mancos Shale play.

“We are delighted with the initial production rate of this well,” Dave Lawler, CEO of BP’s U.S. Lower 48 onshore business told OilPrice.com. “This result supports our strategic view that significant resource potential exists in the San Juan Basin, and gives us confidence to pursue additional development of the Mancos Shale, which we believe could become one of the leading shale plays in the U.S.”

The 2016 USGS report from the area estimates that the Mancos Shale play holds 66.3 trillion cubic feet of natural gas.

Despite the positive signs, there are a number of hurdles for BP, or any other producer looking to turn the Mancos into a major source of shale gas.

For starters, producers need to see if the BP results were a fluke.

“The next test now will be showing some repeatability,” Linda Htein, senior research manager of Wood Mac’s upstream research team told the Houston Chronicle. “Will they be able to repeat these results in another five wells? They think there’s potential for scalability here.”

As well, costs are high.  David Deckelbaum, energy analyst at Keybanc Capital Markets, told Bloomberg that the geology in the Mancos is much more complex than that of other, more well-known shale plays.

According to Deckelbaum, drillers need to go deeper and drill through some tough rock formations which means costs could top $15 million per well, about twice that of the Macellus.

Drilling in new areas is costly as the area is unknown and companies are trying to figure out the best spot to drill.  The lack of infrastructure at the outset keeps costs high and slows down companies’ ability to ramp up production as they cannot ship their product.

So the question now is will companies jump in to the Mancos play when they could drill in the prolific and relatively cheap Marcellus play?  Or the Permian?  In the desired Texas play, companies can extract both gas and oil.  In both established shale plays, pipelines and processing facilities make it easy to get product to market.

BP may be willing to bet on the Mancos Shale play.

“Given the very strong initial production rates of this well, we believe there is potential for the Mancos Shale to be a large gas play,” BP spokesman Brett Clanton told the Denver Post. “It’s still early, but based on this initial success, we will be drilling more wells in the Mancos this year.”

BP says it plans to move its US headquarters to Denver, a sign that the company sees the Rocky Mountain region as an integral part of its organization.

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