Shell previews plans for development in Huerfano County

by Bill Knowles
WALSENBURG — The Communication Forum heard from Philippe Heer, the Huerfano County Project Manager for Shell Western Exploration and Production Inc., on Thursday, Feb. 2 in the meeting room at the Huerfano County Community Center. It was the first time the forum was given an overview of Shell’s plans on oil and gas development in the county.
The forum, which meets just once a month, has about 20 members, most of whom havebeen appointed by the County Planning and Zoning Commission. Membership is made up of industry officials, ranchers and property owners who’ve sold their mineral leases to the company, three members of the Planning and Zoning Commission, and residents of the county who either support Shell or are skeptical of Shell’s presence in the county.
Heer’s powerpoint presentation outlined some aspects of Shell’s operational philosophy, underlining the company’s emphasis on safety and on five principles Shell employs in their operations. Other parts of the presentation focused on the current operations in the county and what to expect in the future. “We are explorers,” Heer said. “We don’t know everything that is here.”
Shell originally bracketed the county on a north-south axis, with the north areas of the county around the Gardner area currently under study. The company is taking a three-dimensional seismic survey using explosives at various depths. The sound waves are being recorded and will be studied over the next three months.
By then Shell will know in which area to begin an exploratory well. There are currently three areas near Gardner that are being considered. When a site is identified, an exploratory well will be drilled into the Niobrara Shale at a depth of about 8,000 feet. That area of the county’s geology could hold a reserve of light sweet crude oil deposits.
The company maintains that it has about a 20 percent chance of finding oil in the county. “The company still doesn’t have a clear idea of what the pay-off would be,” Scott Scheffler, the communications specialist for Shell, noted.
According to Heer, the Gardner area well may be the make or break exercise in Huerfano County for the company.
Because the Klikus 2-19 site two and a half miles west of La Veta is on indefinite hold due to a lawsuit and to reduced prices for natural gas, the company is deferring water baseline sampling as well as any improvements to the county roads that would be used to truck in a rig and other equipment needed for the operations. Shell did not use 3D seismic data collection at the Klikus site because of the expense involved.
A number of individuals in the community have questioned whether Shell would use a closed loop system for flowback water at the Klikus site. The company will not know whether a closed loop system would be appropriate to use until after the well is drilled and it is determined how much flowback they will have on an untested gas patch. The use of a closed loop system is dependent upon how much water will flow back up from the well versus how much will remain in the ground.
The Klikus site is planned for extracting natural gas, and with natural gas prices at $2.55 per 1,000 cubic feet in New York, the cost benefit is lost. According to Heer, prices at $5.50 per 1,000 cubic feet are needed to be cost effective. Oil prices, on the other hand, need to be in the $100 per barrel range to be beneficial. Oil in New York was at $96.36 per barrel on Thursday, Feb. 2. It was going for $112.07 per barrel in London last Thursday.
Water for operations is another concern for many in Huerfano County. Shell is finalizing a deal for the Thorn Ranch that will see them acquiring the numbers three, six, eight and some of the fourth in water rights that are used by the ranch. This will give them the needed water for operations on the four exploratory wells they plan for the Gardner area.
“We will be permitting four wells and we hope to drill one well this year,” Heer said. “The well may not be fracked because the rock we’re targeting, we hope will have natural fractures, small scale cracks in the rock.” The fractures in the rock would be small hairline fractures not seen by the seismic testing and caused by sub-seismic fracturing that has naturally occurred.
The location for the first test well hasn’t been determined because Shell is still waiting for analysis of the seismic data. They hope the data will lead them to a site by April.
Shell is currently collecting about 50 square miles of 3D seismic data from the Gardner area and is also looking at data collected from 80 area wells that have been drilled in the Gardner area from the 1930s to the present. So far there have been about 420 wells drilled in Huerfano County with 120 of those being coal bed methane wells.
If Shell finds what they are looking for during 2012, they will begin working on the pilot phase, siting five to ten wells over the next two to three years. Also in the pilot phase, they will determine the number of pad sites to be developed. The development of those pad sites will take about five to ten years with the production phase to last an additional 20 to 30 years.
If Shell doesn’t find what it’s looking for around Gardner, that could change everything said Heer. “We are going to acquire as much data as we can to evaluate what the situation is and to decide, are we going to stay here or are we going to walk away. I do have to say if this is a dry well, if the indications are negative, we probably are not going to be doing very much work here any more.”
Shell has other oil and gas plays they are exploring in other areas of the country, and if the search for oil and gas in Huerfano County doesn’t produce, then one of the other areas may. “We don’t release the costs of our exploration but when you piece together the seismic and the road costs, you start seeing the dollar signs go up. As a company, you really have to look at your costs. You’re not going to put your dollars in one spot and have the risk of it going dry. You’re going to spread your investments out across different opportunities.”
The economic benefits of Shell’s operation to the county have yet to be released. The Huerfano World Journal has requested some ballpark figures from the company, and the company will work to pull that data together.
In their presentation, Shell has shown that they will be paying taxes on the acreages where they hold mineral leases in the county, at this time about 134,000 acres. They will continue to spend funds on rental of commercial space and residential properties, as well as on supplies, hotel occupancy and patronage of the local area restaurants. During the exploration phase, they will also upgrade roads and begin their social investment program.
The development phase, if pursued, will grow local economic stimulus with an economic force multiplier of about seven dollars generated for every one dollar spent.
There will also be increased revenues to the area municipalities, the county, state government, and local school boards. When asked about financial aid for local projects such as the Northlands District sewer line, Shell representatives said that the company doesn’t contribute to infrastructure projects.
Shell also says jobs will be produced because of their activities. Those jobs will be the result of the use of local vendors and local subcontractors as well as increased spending into the local economy by Shell employees. However work in the oil and gas patches will be conducted by crews who have been trained by Shell and brought in to perform specific tasks.
The next meeting of the Communication Forum will be on Thursday, Feb. 16, at the Huerfano County Community Center beginning at 5:30. The topic will be water. The meetings usually last about three hours. Contributing information from an interview with Shell officials.