Emerging Oil and Gas Development in Northwestern New Mexico HORIZONTAL GALLUP / MANCOS PLAY

Gallup / Mancos Oil Play Northwestern New Mexico Bob Just, Petroleum Geologist, Ron Lloyd, Petroleum Geologist Robert Anderson, Branch Chief / Petroleum Geophysicist Assistant Secretary – Indian Affairs, Division of Energy and Mineral Development

Introduction of the EnCana well have had cumulative production ranging from around 7,800 to 21,000 barrels of oil A new oil exploration play is beginning to develop and 114 million to 345 million cubic feet of gas. These in Sandoval and San Juan Counties, New Mexico. A production values are relatively poor except that Calgary based company (with offices in Denver, CO), water production is low, ranging from 1,000 to 3,400 Encana Oil and Gas (Encana) has recently horizontally barrels cumulative. It appears the horizontal portion drilled and produced oil from the Cretaceous age of the EnCana well is in the same zone as the older Gallup sandstone. These wells offset unleased Navajo vertical wells. allotted lands and it is anticipated that Encana and other oil and gas companies will be very interested in leasing Navajo allotment tracts as soon as possible.

Early Play Development and Reported Results

One of Encana’s wells, the Lybrook #H36-2307 (located in se se 32-23n- 7w, Figure 1) was reported flowing at a rate of 838 mcfgpd (natural gas) and 786 bopd (oil) from a lateral leg in the Gallup sandstone formation. Daily production through the initial 30-day period was around 440 barrels of oil per day. This well is a horizontal well with a 4,100 foot lateral section. Figure 2B is a cross-section through the Lybrook well and surrounding wells (index map for the cross-section is Figure 2A).

This is a very good well although it is too early in the production history of the well to know the flow rates over time and the ultimate economic recovery. However because the drilling depths are relatively shallow (vertical depth of 5,600 ft and lateral lengths between 6,000 ft to 9,800 ft) the costs to drill and complete these wells is considerably less than, for Figure 1: Map of northwestern New Mexico showing Navajo Tribal land and Navajo Allotted example, a Bakken shale well. lands and the locations of Encana’s horizontal wells targeting the Gallup / Mancos formations. Encana’s discovery well is the Lybrook H36-2307. Also shown is the outline of the oil window for the Gallup Formation. It is within this area that companies will be focusing their leasing Five older vertical wells in the vicinity efforts. Encana Corp. San Juan Basin Encana has 15 other active or proposed wells listed From Encana’s presentation to their shareholders on the New Mexico Energy Minerals and Natural and investors, July 2012) Resources Department Oil Conservation Division in the Gallup Play. The wells are located from as far northwest as Township 30 North, Range 14 West to Target Well Parameters Township 23 North Range 6 West on the southeast. Well cost: $4.3 million Encana holds approximately 168,000 net acres in the EUR per well: 550 MBOE region. Lateral length: 5,000 feet TVD: 5,500 feet Production is from the Gallup Sandstone zone of the lower Mancos Shale Formation. Figure 4 is a regional Encana has also release information on their second map of northwest New Mexico showing Encana wells Gallup well, the EnCana Good Times P32-2410 and the Navajo Allotted and Navajo Tribal lands. The #001H. This well has been reported as flowing 57 producing interval in the five vertical wells is at depths Mcfgpd and 66 BOPD. Roughly 22 miles northwest of ranging from 5,100 to 5,400 feet with total perforated the Lybrook well, the Good Times well is section 32, intervals of approximately 500 feet. The producing Township 24 North, Range 10 West. It was placed on zone consists of interbedded shale and sandstone pump in June 2012. layers with low permeability. They have lower initial potentials and lower ultimate production.

26 25 30 29 Extent of the Gallup Oil Play CUMOIL : 23,729 CUMOIL : 4,523 CUMGAS : 134,687 CUMGAS : 6,656 CUMWTR : 8,660 CUMOIL : 21,184 CUMGAS : 282,358 CUMWTR : 65 CUMWTR : 2,739 The Gallup Sandstone is not a new oil and gas target

CUMOIL : 13,512 in New Mexico. Several conventional vertically drilled CUMGAS : 300,483 CUMWTR : 3,406 CUMOIL : 7,784 CUMGAS : 345,154 CUMWTR : 996 oil fields exist in the area, so much is known about DEMD

Gallup Play 35 36 CUMOIL : 11,613 31 Discovery Well - Horizontal Gallup CUMGAS : 145,749 the geology of the Gallup. This recent activity is a ENCANA CUMWTR : 1,250 Sec 36 Township 23 North Range 7 West Sandoval County, New Mexico POSTED WELL DATA result of applying new horizontal drilling and hydraulic LYBROOK H36 2307 CUMOIL : 17,033 CUMGAS : 114,762 CUMWTR : 2,030 No. 001H WELL - CUMOIL (BBLS) WELL - CUMGAS (MCF) IP 786 BOPD, 838 MCFD, GALLUP WELL - CUMWTR (BBLS) fracturing technology to an already existing oil fairway. Production data at Gallup wells As an example of a Gallup oil filed, one of Encana’s 0 1,633 FEET

PETRA 8/22/2012 3:56:38 PM Figure 2A: Index map showing the line of cross-section of wells surrounding Encana’s Lybrook horizontal Gallup well.

Figure 2B: Cross-section of wells surrounding Encana’s Lybrook horizontal Gallup well. Location of wells is shown in Figure 2A. newly stated tests is located on the southeast flank of Navajo Reservation is in the overlying Mancos shale. the Lybrook Field, which was discovered in 1956. The It was deposited as the Cretaceous seaway inundated conventionally produce field has produced more than the area depositing over 1,500 feet of marine shale 50.3 bcfg of gas and 5.4 million bo from the Gallup. in the basin (Figure 5 is a paleomap of New Mexico Another field is the Rusty Field, located three miles and surrounding areas during Cretaceous time). south of Encana’s test. Discovered in 1974, the field Production has been established from vertical wells produced over 6.8 bcfg of gas and 76,000 bo. where natural fracturing has been induced as a result of structural deformation that occurred during basin Tocito and Gallup sandstones were deposited as a formation. regressive – transgressive depositional sequence that is productive predominantly on the southern and Production from the Mancos with vertical wells is western sides of the basin (Figure 3). Deposition highly variable with a majority of wells producing less of these formations was not prevalent in the distal, than one-half of a billion cubic feet of gas or less than eastern side of the basin; however lentils or exten- 50,000 barrels of oil. Economic producers are the sions of the main sandstone deposit are present and result of a higher degree of fracturing encountered by productive on the reservation. the well bore. As a result, exploration has focused in structurally complex areas of the eastern basin edge. The greatest potential for new production on the

Figure 3. Stratigraphic chart of the San Juan Basin showing the stratigraphic position of the Gallup Sandstone (red arrow) and the surrounding Mancos Shale. NATURAL GAS MATURITY LINE Recently permitted Encana locations

OIL PRODUCING WINDOW OIL MATURITY LINE AREA SURROUNDING THE ENCANA DISCOVERY HORIZONTAL WELL Encana Lybrook 1H 001 IP: 786 BO, 838 MCFD

EDGE OF BASIN (Fruitland Coal Outcrop) NATURAL GAS MATURITY LINE Recently permitted Encana locations

Figure 4. A detailed map of the northwestern corner of New Mexico showing Navajo Allotted and Navajo Tribal lands. Those tracts colored in red are Navajo Allotted lands that are open to be leased. The dark red tracts are Navajo Allotted lands that are held by production (HBP) and are not available for leasing. Lease bonus from a recent State lease sale ranged from $255 per acre to $3,982 per acre. It is expected that most of any new leasing will occur within the oil producing area as shown.

OIL PRODUCING WINDOW OIL MATURITY LINE AREA SURROUNDING THE ENCANA DISCOVERY HORIZONTAL WELL Encana Lybrook 1H 001 IP: 786 BO, 838 MCFD

EDGE OF BASIN (Fruitland Coal Outcrop) History of Oil and Gas Production in New Gallup Sandstone Mexico During this period, the two largest fields to produce The first well-documented oil discovery in the San from the Gallup Sandstone (also known as Tocito Juan Basin occurred in 1911 in the Chaco slope Sandstone Lentil) of the Mancos Shale, (Figure 2 Bisti area of New Mexico. The well produced about 12 and Horseshoe Fields were discovered (Figure 4). barrels of oil per day from the Menefee Formation. The Gallup Sandstone has now produced over 920 Gas was discovered in 1921 from the Farmington billion cubic feet of gas and 173 million barrels of oil Sandstone Member of the Kirtland Shale in a well from over 3,800 wells in the San Juan Basin. It is by south of Aztec, New Mexico. Subsequently, oil was far the greatest oil producing horizon in the San Juan discovered in the Dakota Sandstone in 1922 west of Basin. Farmington which led to additional discoveries on surface structures on the Four Corners platform and The discovery well in the Gallup Sandstone (Tocito gas in the central basin from Pictured Cliffs Sandstone Lentil) in the Bisti area was El Paso Natural Gas Com- and the Mesaverde Group in the decade. Modest pany Kelly State No. 1 (Section16, Township 25 North, development continued in the next 20 years followed Range12 West), completed in 1955 from an interval of by pipeline development bringing the drilling boom of 4760-4842 feet. Initial potential (IP) was 180 barrels the 1950s for gas in the Dakota Sandstone, Mesaverde oil per day (BOPD). Subsequent productive wells in Group, and the Pictured Cliffs Sandstone.

Figure 5. The Mancos Shale was deposited in the Cretaceous Seaway, at which time New Mexico was divided by an inland sea. This inland sea also cut across the North American continent throughout the Cretaceous era. The shale deposited in the western part of the seaway provided the source for today’s major Rockies shale plays, such as the Niobrara and Gallup. Bisti Field had IPs ranging from 100 to 700 BOPD. ing vertical fractures to increase production. Recent The sandstone zones which produce are generally technological innovations in drilling and steering the considered to have been deposited as offshore bars, bit to stay within the target formation have increased as indicated by greater length than width, coarser the success rate of the process. Production is further grain character developing upward, and cleaner (less enhanced by multiple stage fracturing to concentrate silt and shale size particles) well-sorted sands. Bisti pressures and increase subsequent fracture length. Field has produced 79.5 Bcfg and 42 MMBO. Care is taken to determine and use appropriate fluids in order to decrease damage to the formation. Bisti and other fields such as Horseshoe, Gallegos Although horizontal drilling and hydraulic fracturing in recent years have been instrumental in greatly increasing the country’s oil and gas reserves, these methods must be applied ap- propriately. Cumulative well production must be sufficient to pay for find- ing costs. Even in trends such as that of the Gallup, economics will determine activity. Product prices Table 1. Cummulative production by geologic formation in the San Juan Basin. must be high enough to entice exploration and and Kutz are located in what is considered to be the development. oil-prone window, with wells farther to the north notable for producing gas. Petroleum is generated by increasing burial depth causing increased temperature Drilling, Completion and Production Activity of source rocks. The resulting product depends as of August, 2013 upon the depth in large degree. Shallow deposits can generate methane gas by biogenic decomposition. Since the Lybrook H36 well announcement, EnCana Examples are coal-bed methane and biogenic gas has reported approximately twelve additional well in formations such as shallow Niobrara chalks and completions, and subsequent production data through organic rich shale. Deeper burial increases tempera- June 2013 (refer to Fig. 6). Results are varied as ture and pressure to a point where source beds will indicated by initial potentials and production data. It produce crude oil. Further burial will cause the oil is still a bit too early to accurately gauge the strength to break down, resulting in wet gas and finally, dry gas of the play. All unconventional plays to date have gone at even greater depths. This process is evidenced by through an initial period of determining best drilling conditions in the San Juan Basin as described above. and completion procedures and implications of the rock characteristics. Horizontal Drilling and Hydraulic Fracturing The Lybrook H36 discovery well has produced nearly Horizontal drilling has been utilized with varying 50,000 barrels of oil in its first 15 months. Other degrees of success since the 1970s. The process gen- wells in the vicinity of the Lybrook H36 well have erally involves drilling vertically to or near the top of positive initial results. Four miles east-southeast, the the target formation and then turning into the target Lybrook A03 2206 1H produced 34.2 thousand on a horizontal leg for the purpose of exposing more barrels of oil (MBO) in its first 3 months and just over of the productive zone to the well bore and intersect- one mile west-northwest, the Lybrook H26 2307 1H produced 21.8 MBO in its first three months. One MBO and 28 MMcf gas also in 11 months. In section 6 and one-half miles south of the H36 well, the Lybrook Township 23 North Range 10 West, a mile southwest P01 2207 1H produced 10.7 MBO in its first two of the two previously discussed, the Good Times A06 months. 2310 1H produced 7.5 MBO and 16.5 MMcf gas in 9 months. Farther to the west-northwest, the Escrito I24 2409 1H (Section 24 Township 24 North Range 9 West) Removed some nine miles to the north of other produced 50.7 MBO and 111 MMcf gas in its first 9 EnCana wells, the Bisti H09 2510 1H well (Section 9, months. Three miles west-northwest of that well, Township 25 North Range 10 West) has produced 9.2 the Escrito I16 2409 1H produced 14.7 MBO and 22 MBO and 38.3 MMCf gas, indicative of changing gas-oil MMcfg in its first 4 months. In the same section the ratio. Escrito P16 2409 1H produced19.6 MBO and 131 MMcfg in 14 months. WPX Energy Production is now also active in this area. Two completions and preliminary production EnCana has completed three wells in their Good data have been announced. The WPX Chaco 2408 Times area, about 7 miles west-southwest of the 32P 114H (Section 32 Township 24 North Range 8 Escrito wells. Good Times I32 2410 1H (Section 32 West) has produced 20.8 MBO in its first 4 months. Township 24 North Range 10 West) has produced Two miles to the south the WPX Chaco 2308 16I 16.9 MBO and 28 MMcf gas in 11 months. An immedi- produced 13.5 MBO in its first 3 months production. ate south offset, Good Times P32 2410 produced 27.8 A number of additional locations have been permitted by WPX as indicated on the map.

35 36 31 32 33 34 35 36 31 32 33 BIA - DEMD for Jicarilla Apache Tribe 34 35 36 31 32 33 34 35 1 6 36 5 4 31 32 33 3 2 Horizontal Gallup Play 1 6 5 4 3 2 1 6 5 4 3 2 1 6 EnCana & WPX Horizontal Activity BISTI H09 -2510 1H 5 4 3 2 1 6 5 4 3 2 12 1 7 IP 1.2 MMcfg, 54 BOPD 6 5 August 2013 8 9 4 10 11 12 7 8 9 10 11 WELL SYMBOLS 7.8 MBO 29.612 MMcfg7 4 MBW8 Encana Location 9 10 11 12 7 WPX 8 9 10 11 WPX OIL 12 7 8 9 10 location 11 13 12 18 17 7 8 9 ENCANA OIL WELL 16 15 14 13 Oil Well 18 17 16 15 14 13 Gas Well 18 17 16 15 14 Oil & Gas Well 13 18 17 16 Dry Hole 15 25N 11W 14 13 18 17 Junked 16 15 25N 10W 14 Temporarily Abandoned 24 13 18 19 20 25N 9W 17 16 Dry Hole, With Show of Oil 21 22 23 24 19 20 Dry Hole, With Show of Oil & Gas 21 22 25N 8W 23 24 19 20 Dry Hole, With Show of Gas 21 22 25N 7W 23 24 Well Derrick 19 20 21 22 New Symbol 23 24 19 20 21 22 23 25 24 19 REMARKS 30 29 20 21 28 27 Older vertical wells are screened out. 26 25 30 29 28 27 26 25 30 29 28 27 26 25 30 29 28 27 0 5,997 11,994 17,991 26 25 30 29 28 27 26 25 FEET 36 31 30 29 28 32 33 34 35 36 31 August 21, 2013 32 33 34 35 36 31 32 33 34 35 36 31 32 33 34 35 36 31 32 33 34 35 36 31 1 6 ESCRITO I24-2409 1H 32 33 34 5 35 36 4 3 31 32 2 1 6 5 4 3 2 1 6 IP 558 BOPD, 1355 Mcfg, 464 BWPD 5 4 3 2 1 ESCRITO I16 2409 001H 6 5 4 3 2 1 38.2 MBO, 68.7 MMcfg, 5 MBW 6 5 4 3 2 1st month, March 2013 1 6 12 7 5 4 3 8 9 2 1 10 1st 6 Months 6 5 11 12 7 8 9 73810 BO11 12 7 8 9 10 11 12 7 8 9 10 11 12 7 8 9 10 11 12 13 18 7 8 9 17 16 10 11 12 15 7 8 14 13 18 17 16 15 14 13 18 17 16 15 14 13 18 17 GOOD TIMES I32-2410 1H 16 15 24N 11W 14 13 18 17 16 15 24N 10W 14 24 IP 195 BOPD 251 Mcfg, 13 18 17 19 24 16 15 20 21 N 9W 14 13 22 18 17 23 24 24N 19 20 8W 13.9 MBO, 20 MMcfg, , 21.1 MBW 21 22 23 24 19 20 21 22 24N 7W 23 24 19 20 21 22 24N 1st 8 mos. 23 24 6W ESCRITO P16-2409 1H 19 20 21 22 23 25 24 30 19 20 21 22 29 28 23 24 27 IP 294 BOPD,354 Mcfg, 19 20 26 25 30 29 28 27 26 25 30 29 28 27 16.4 MBO, 97 MMcfg, 4.8 MBW 26 25 30 29 28 27 Escrito A36 2407 26 25 30 WPX 29 28 1st 11 mos. 27 26 36 IP ? 25 31 Good32 Times A06 2310 1H 30 29 28 27 26 33 25 34 LOCATIONS 30 29 35 36 31 32 33 34 35 36 31 1,777 BO 1st month IP 106 BOPD 392 Mcfg,964 BWPD 32 33 34 35 36 31 32 33 34 35 36 31 32 5.7 MBO 10.6 MMcfg 27.1 MBW 33 34 1 35 6 36 5 4 31 32 33 34 35 36 3 31 32 1st 6 months 2 1 6 5 4 3 2 1 6 5 4 3 2 1 6 WPX CHACO 2408 32P 114H 5 4 3 2 1 6 5 4 3 IP 361 BOPD 1236 Mcfgpd 2 7 1 8 6 9 5 4 3 2 1 6 10 11 5 12 7 8 9 10 11 11,240 BO 1st 2 Months 12 7 8 9 10 11 12 7 8 9 10 11 GOOD TIMES P32-2410 12 7 8 9 10 11 LYBROOK I02 2308 1H 12 18 7 17 16 WPX CHACO 2308 16I 147H 8 IP 66 BOPD, 57 Mcfg, 1210 BWD 9 10 11 15 12 7 14 13 8 18 17 16 15 14 Set csg @9413, 5/22/2013 13 18 24 MBO, 23 MMcfg, 17.5 MBW 17 IP 12676 BOPD15 104 BWPD 14 13 18 17 LYBROOK H36-2307 1H 16 15 14 13 23N 11W 18 17 16 1st 12 months 1609 BO 1st Month 15 23N 14 10W 13 IP 786 BOPD 838 Mcfg 19 20 23 18 17 21 N 9W 16 15 14 1 22 23 3 18 24 19 23N 17 20 21 8W 22 23 45.9 MBO, 78 MMcfg, 11.3 MBW 24 19 20 21 22 23N 7W 23 24 19 20 21 22 23 23N 6W 24 19 1st 13 mos. 20 21 22 23 30 24 19 29 20 28 LYBROOK H26 2307 2H 21 22 27 23 24 26 25 19 30 29 20 28 27 26 25 30 29 28 2 COMPLETED 7 26 25 30 29 28 27 26 25 30 29 NO PRODUCTON REPORTED28 27 26 31 25 30 32 29 33 28 3 27 2 4 35 6 25 36 30 29 31 32 33 34 35 36 31 32 33 34 35 36 31 32 33 34 35 36 31 32 33 34 35 36 31 Lybrook A03 2206 1H 6 ENCANA & WPX 32 5 4 33 3 34 35 2 1 36 31 6 5 32 4 3 IP ? 2 1 6 5 4 3 2 1 6 5 4 3 2 23.9 MBO 1st 2 Months 1 6 5 4 3 2 1 6 7 8 HORIZONTAL WELLS 5 4 9 10 3 11 2 1 12 7 LYBROOK H26 2307 1H 6 8 9 5 10 11 12 7 8 9 10 11 12 7 8 5,441 BO 1st mo 3/2013 9 10 11 12 7 8 9 10 11 12 7 18 8 17 16 Lybrook D229 2206 1H 10 15 14 11 13 12 7 18 17 16 8 15 14 13 18 17 2,411 BO Jan 2013 16 15 14 13 18 17 16 15 22N 11W 14 13 18 17 LYBROOK P01 2207 1H 16 1st Month 2 15 14 2N 10W 13 18 19 17 20 16 21 22N 9W 15 22 23 IP 101 BOPD 650 Mcfgpd 14 24 422 BO FEB 13 19 20 22N 8W 18 21 22 17 23 24 19 20 21 22N 7W 22 23 24 No Production Data Reported 19 20 21 22 23 22N 6W 24 19 20 21 22 23 24 19 30 20 29 28 21 27 26 22 25 23 24 30 29 19 28 20 27 26 25 30 29 28 27 26 25 30 29 28 27 26 25 30 29 28 27 26 25 30 31 29 32 33 28 34 35 27 36 26 25 31 32 30 33 29 34 35 2 36 31 32 33 3 4 35 36 31 32 33 PETRA 8/21/2013 3:11:15 PM J Figure 6. Map showing drilling activity as of August, 2013. WPX Energy, Inc. has now entered the play and expects to drill 8-10 development wells in the area. Maximum rates of their first four wells were 488, 623, 1,004, and 800 boe/d. The company stated it has already spudded three of the development wells. WPX is drilling 4,300-ft laterals in Gallup at 5,400 ft true vertical depth. The company didn’t give the location of the discovery but said it is in an area of the basin that is not subject to seasonal closures. The company expects the new field to be producing 3,400 boe/d by yearend. Oil is trucked to a nearby pipeline injection point. CONTACT INFORMATION

For more information regarding the leasing of Navajo Indian lands, please contact the Bureau of Indian Affairs - Navajo Regional Office, at:

Navajo Regional Office

Sharon Pinto Acting Regional Director Navajo Regional Office Bureau of Indian Affairs

Phone: 505-863-8314 Email: [email protected]

Division of Energy and Mineral Development

Bob Just (720) 407-0611 Petroleum Geologist

Phone: (720) 407-0611 Email: [email protected]

Bureau of Indian Affairs 13922 Denver West Parkway, Ste. 200 Lakewood, CO 80401