Basin Resources Spring 2014

BASIN RESOURCES4

www.basinresourcesusa.com • SPRING 2014

Spring 2014

Four Corners Oil and Gas Conference set 18Conference to be held May 7 and 8

Good News Travels Fast 8School of Energy expanding program

All for exports 35Gessing: There is global opportunity for San Juan Basin

Energy News 42Across the Nation

More than $300 million 22Encana plans to add 45 to 50 wells in 2014

Udall backs LNG exports 32Senator: This is an important industry to New Mexico

contents

14

26

10

ConnectivityTribes, communities benefit fromfederally funded electric upgrades

Year-End Closure, PurchaseAPS shuts down units 1, 2 and 3 to reduce emissions

Hard work opened doorsService, dedication

made business grow

36 40On the moveHenry Production and Pumps &Services now in same location

Farmington Museum Energy HallConstruction nears completion

www.basinresourcesusa.com •SPRING 2014

BASIN RESOURCES6


Editor’s note

Still stuck in the recession with dry natural gas output at a 20-year low, there hasn’t

been a lot of good things to talk about in the San Juan Basin over the last couple of years.

But lately, talk in the oil patch has begun to turn from the stagnant almost nonexistent

natural gas production to real hope for the Mancos Shale. That talk has begun to turn into

some real proof as companies are beginning to invest and see solid opportunities in the

Basin again.

Encana announced its future plans and the San Juan Basin is one of the company’s five

core liquid-rich plays the company will focus in 2014.

To date, Encana has spent approximately $200 million to explore the Mancos Play and

in 2014 they plan to invest between $300 million and $350 million in the San Juan Basin

while running a two-to-four drilling rig program to drill 45 to 50 net wells in 2014. The

company said this will optimize its completion process by continuing to advance its pace

of development and will work further to reduce well costs.

Also, in 2013 WPX Energy had 15 wells in the Mancos and the company has an-

nounced plans to budget $200 million to drill 37 more wells, according to its third-quar-

ter earnings report.

This has area industry leaders encouraged and many believe these investments will spur

other companies to follow their lead.

Of course, we’ve been through these mountains and valleys many times and businesses

are still cautious about declaring economic victory just yet.

However, when companies start putting money where their mouth is, the area starts to

take notice.

A spark of hope onthe horizon in 2014

Don Vaughan

puBliSHER

Cindy Cowan Thiele

EDiTOR

Debra Mayeux

Dorothy Nobis

Bill papich

CONTRiBuTiNG WRiTERS

Josh Bishop

CONTRiBuTiNG pHOTOGRApHER

Suzanne Thurman

DESiGNER

Shelly Acosta

DeYan Valdez

Aimee Velasquez

SAlES STAFF

For advertising information

Call 505.516.1230

www.basinresourcesusa.com

Basin Resources magazine is published four times ayear by Majestic Media. Material herein may not bereprinted without expressed written consent of the pub-lisher. Opinions expressed by the contributing writersare not necessarily those of the publisher, editor orBasin Resources magazine. Every effort has been madeto ensure the accuracy of this publication. However thepublisher cannot assume responsibility for errors orommissions. © 2014 Basin Resources magazine.

Majestic Media

100 W. Apache Street

Farmington, NM 87401

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Cindy Cowan Thiele


BASIN RESOURCES8


Word has gotten out about the quality of the training offered

by the San Juan College School of Energy.

Because of the ever-increasing demand from the industry and

the community, the School of Energy is expanding its Well

Control program to

other community

colleges throughout the

country. We have

created an interactive

television, or ITT, Well

Control course that

provides the training

needed to be proficient

as a supervisor for

drilling, workover and

completion, and to

receive an International

Association of Drilling

Contractors, or IADC,

certification and

accreditation from San

Juan College.

The ITT classes will

give students at Panola

College in Carthage,

Texas, through Work-

force Training, the same

opportunity to be ac-

credited and certified as

our students in the Four

Corners. Panola’s first

class was scheduled for

the end of January. The

School of Energy will provide students with simulators so they

can complete the course requirements.

Those at the School of Energy and San Juan College

appreciate the opportunity to share these programs with those

throughout our country who are experiencing a high boom in

oil and gas production. The Well Control program is also being

extended to community colleges in Wyoming and Ohio. Our

focus will continue to be on providing a curriculum to those

working in the oil and gas industry to help them obtain the

education and training they need to be successful in their

chosen career.

The School of Energy is also working with the industry to

provide a series of short courses for those who can’t attend

college on a full-time basis. The 18-month program will give

students an associate degree in Petroleum Production Operation

at a cost of under $4,000 for the degree.

These new ventures of providing classes online and through

ITT will help San Juan College and the School of Energy meet

the high demand from the industry for professionally certified

and educated field technicians.

If you’d like more information about the Well Control

program, call 505.566.3880, or for any other training offered

by the School of Energy, please call 505.326.5705.

good news travels fast

ranDy Pacheco

Dean of School of energy

San Juan college

BASIN RESOURCES10


“Our plan for the plant moving

forward saves APS customers nearly a

half-billion dollars over other energy

sources and maintains a highly reliable,

cost-effective source of electricity

generation for APS and other users

in the Southwest.” — Mark Schiavoni

ExEcutivE vicE PrESidEnt

aPS oPErationS

BASIN RESOURCES 11

SPRING 2014 • www.basinresourcesusa.com

DebrA MAyeux

Basin Resources

In an effort to reduce carbon emissions

in the Four Corners region, Arizona

Public Service, or APS, closed units 1, 2,

and 3 of the Four

Corners Power

Plant and pur-

chased the

Southern Califor-

nia edison

interests in units

4 and 5.

The move

came Dec. 30, 2013, and had been

planned since November 2010. It

included a plan to install emission

controls on units 4 and 5, which are

considered by the company to be “more

efficient units,” according to a press

release from APS.

APS CeO Don brandt referred to the

closure and purchase as “bittersweet,” but

also as a “milestone” for the plant, which

is one of the oldest coal-fired plants in

the region. The plant opened in 1963

with units 1 and 2, and then added unit

3 in 1964.

“We have completed a transaction that

will benefit the environment, allow us to

continue to support the economy of

the Navajo Nation and surrounding

community, and help electric users in

the Southwest with an important,

low-cost generating resource,” brandt

said. “Generations of Four Corners

employees have dedicated their careers to

running those three units to keep lights

on for our customers.”

APS plans to install selective catalytic

reduction equipment on units 4 and 5 by

July 31, 2018, to meet the best Available

retrofit Technology, or bArT,

requirements set forth in August 2012 by

the environmental Protection Agency.

“Our plan for the plant moving

forward saves APS customers nearly a

half-billion dollars over other energy

sources and maintains a highly reliable,

cost-effective source of

electricity generation for APS

and other users in the South-

west,” said Mark Schiavoni,

executive vice president for

Year-end closure,

purchaseAPS shuts down units 1,2, and 3 to reduce emissions

operations at APS. “Along with natural gas, nuclear, renewable

and energy efficiency, coal has an important place in our

company’s balanced energy portfolio.”

APS purchased Unit 4 from Southern California Edison for

approximately $182 million, and then filed an application Dec.

30, 2013, with the Arizona Corporation Commission to

recover costs associated with the purchase of Southern Califor-

nia Edison’s interest in the plant. This came about because the

company’s 2012 rate settlement case included provisions that

allowed APS to seek rate relief for those expenses prior to its

next rate case. The filing amounts are expected to have a rate

increase of about 2 percent for the APS residential customer.

The next step of this plan is for APS to proceed with

decommissioning work on Units 1, 2, and 3. This includes

dismantling and removal of the older units and any associated

structures. This will be handled by employees who were

responsible for operating the units, and should last for the next

three years.

The decommissioning work allowed APS to keep its promise

of “no layoffs” at the plant, which employs 434 workers, 82

percent of whom are American Indian, according to Schiavoni.

The workforce will be reduced through attrition.

APS historically has been one of the largest employers in the

region. Along with its support of Navajo Mine, it is believed

that the Four Corners Power Plant has an estimated $225

million annual economic impact on the Navajo Nation and Four

Corners economies. The company has estimated that during the

next 30 years the continued operations at Four Corners Power

Plant could generate more than $6.3 billion in economic value

for the region.

Also, APS filed an application with the Arizona Corporation

Commission to recover costs associated with the purchase of

SCE’s interest in the plant. The company’s 2012 rate case

settlement includes a provision that allows APS to seek rate

relief for those expenses prior to its next rate case. The filing

amounts to a bill impact of about 2 percent. For a typical APS

residential customer, monthly bills would increase from

$140.12 to $142.89.

APS, Arizona’s largest and longest-serving electricity utility,

serves more than 1.1 million customers in 11 of the state’s 15

counties. With headquarters in Phoenix, APS is the principal

subsidiary of Pinnacle West Capital Corp. (NYSE: PNW).

BASIN RESOURCES12


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BASIN RESOURCES14


Bill papich

Basin Resources

construction of Farmington Museum’s

new energy exhibit building is nearing

completion. Next comes the process of

making detailed decisions on the exhibits

that will fill the building.

Museum staff is planning to form an ex-

hibit review committee to address exhibit

details and to provide advice to museum

curators on how to prepare for placement

of museum exhibits and their details.

“We would want the committee to re-

view our current plans and provide input

on what we may be missing and what

more we need to include to make sure that

what we have is accurate,” said Bart Wilsey,

museum director.

planning for the Farmington Museum

Energy hall began 10 years ago. area oil

and natural gas production companies and

power plants have contributed approxi-

mately $1 million for exhibits. Wilsey said

the funding goal for museum exhibits is $2

million.

construction of the building is funded

by the city of Farmington through a $2.5

million city bond renewal.

The Farmington Museum Energy hall

Farmington Museum Energy Hall

Construction near completion; exhibit review committee forming

Bill Papich photo

will be 7,500 square feet of exhibits that ex-

plore the entire process of energy development.

The Energy Hall is intended to tell the story of

how natural gas, oil and coal are formed, how

these minerals are discovered, and the process

of producing

energy from these minerals, and how the en-

ergy produced is transported and utilized.

Technological innovations in energy

exploration, production and transportation are

to be included.

“In the words of T. Greg Merrion – he put it

best when he

donated $100,000 for the Energy Hall ex-

hibit,” said Wilsey. “He said, ‘I want a world

class exhibit.’”

T. Greg Merrion is CEO of independent oil

and natural gas producer Merrion Oil and Gas

Corp. of Farmington. Wilsey said Merrion’s

words sum up what everybody involved in

planning for the Energy Hall wants: A state of

the art energy exhibit that

becomes nationally known and puts Farmington on the map as a

destination for visitors from throughout the United States.

The Energy Hall also is intended to become a regional destina-

tion for students who attend schools with energy exploration,

development, production and transportation on their school

curricula. Wilsey said the Energy Hall would include exhibits on

renewable energy such as wind, solar, geothermal, hydrogen fuel

cells and algae that can be converted into energy.

“If you go from the dinosaurs to the renewables, that’s a big

stretch,” Wilsey said. “So we’re grappling with the story of

energy, how to tell that story, and the story is huge.”

That’s where the review committee comes in, Wilsey said, to

assist in the process of deciding what exactly to include in the

exhibit − with the resources available to the museum and the

BASIN RESOURCES 15


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BASIN RESOURCES16


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Farmington Museum

Energy Exibit Floor Plan

space available − and what not to put in

the Farmington Museum Energy Hall.

Exhibits are planned to include a ride

into an underground coal mine, a moving

pump jack and other natural gas and oil

production equipment exhibits. A “long-

wall” coal mining machine with an

interactive control panel for visitors also is

planned.

Of the 7,500 square feet of space

available in the Energy Hall, approximately

5,000 square feet will focus on the oil and

natural gas industry. Approximately 2,500

square feet will be exhibits on the coal

mining industry and electricity production

by power plants.

On the drawing boards are exhibits on natural gas pipeline

transportation and scale models of a power plant and an open

pit coal mine. A major part of the planned geology exhibits

will include an exhibit of the inland sea that covered the San

Juan Basin approximately 100 million years ago when

Farmington was a tropical area. When the inland sea receded,

layers of sedimentation covered the organic materials – the

tropical forests, marine life, dinosaurs – that today have become

natural gas, oil and coal. The inland sea exhibit is planned to

include a simulated underwater experience of 100 million years

ago so visitors can observe the prehistoric life that became the

fossils on display in the museum’s fossil collection.

Farmington Museum’s existing oil and natural gas exhibit of

1,500 square feet will be incorporated into the new exhibits.

The existing museum includes much of the Alan Hawkinson

Collection of oil and gas memorabilia dating back to the

beginning of the 1900s. The collection relates to the history

of the oil and gas industry consumer markets. There are thou-

sands of memorabilia items from the earliest gas stations and

from the early oil and natural gas production and transportation

companies that operated in the San Juan Basin. The new

Energy Hall will provide space for a full-sized replica of a

1940s gas station that showcases items from the Alan

Hawkinson Collection.

Museum planners anticipate that the approximately $1

million that still is needed for the new Energy Hall’s exhibits

would come from donations by the energy industry, science and

museum foundations, the state legislature and the city of

Farmington.

BASIN RESOURCES 17


Learn more about Encana’s operations in San Juan:

encana.com/sanjuan

Investing resources to save resources.

Over the past five years, Encana has substantially invested in projects to improve our industry’s environmental performance and safety standards through developing innovative technology.

e about Encana’n morLear

encana.com/sanjuan

ations in San Juan:s opere about Encana’

encana.com/sanjuan

BASIN RESOURCES18


DOROTHY NOBIS

Basin Resources

In 1994, visionaries in the oil and gas

industry decided to host an oil and gas

conference to bring together professionals

in the business to learn about new rules

and regulations that affected the oil patch.

That first conference was held at the

Farmington Civic Center and was organ-

ized by six organizations – chapters from

the American Petroleum Institute, or API,

the Society of Petroleum Engineers, or

SPE, the National Association of Corro-

sion Engineers, or NACE, and the Ameri-

can Society of Safety Engineers, or ASE,

along with the Desk and Derrick Club of

Farmington and the Farmington Chamber

of Commerce. Each partner had – and still

has – a vested interest in the oil and gas

industry in the San Juan Basin and the

Four Corners and had volunteers serve on

the conference’s Executive Board.

Today, 20 years later, the Four Corners

Oil and Gas Conference has grown, taking

its “home” from the Civic Center to San

Juan College to McGee Park as attendance

demanded more growth and more room.

This year, the conference will be held May

7-8. The conference is not open to the

public, due to safety concerns, and there is

no charge to attendees, who must pre-reg-

ister.

Jan Tomko is the conference coordinator

for the conference, which is held every

other year. In spite of challenges the indus-

try has faced, the conference continues to

be successful, she said. “The conference

brings together professionals in the indus-

try, who share knowledge and information

and (a chance) to network with their peers.

It’s a great opportunity for businesses to

promote themselves.”

Karen Ortega has been involved in the

conference for many years and has served

Four Corners Oil and Gas Conference set for May 7 and 8

Industry professionals,

businesses come together


as the conference chair for the past two conferences. “Since its in-

ception, the goal of the Four Corners Oil and Gas Conference has

been to provide information on new types of technologies, plus

new and changing regulations that affect the oil and gas industry,”

she said.

The conference offers a trade show, which is a big draw for

those who attend as well as the vendors who hope to get one of

the 399 booth spaces available. The booths are awarded first to

previous vendors, then on a first-come, first-served basis, Tomko

said. “In 2012 we had 305 exhibitors,” she said. “Not all are local

– many of the vendors come from outside the region. Some are

trying to move into the area and find the conference a great op-

portunity to showcase their goods and services.”

Gavin Tweedie is the chair of the Program Committee, which

strives to bring in speakers who share their knowledge of the in-

dustry.

“We are very excited to have Encana and WXP Energy coming

to discuss their production and future plans for the Mancos Shale

development,” Tweedie said of this year’s speakers. “We will have

Water Management Solutions, New Mexico Tech and LT Environ-

mental all coming to talk about ground water usage and issues

around that.”

Environmental experts from WXP and Exterran will discuss

BASIN RESOURCES20


Ozone and New Source Performance Stan-

dards, or NSPS, JJJJ (an alphabet number-

ing system) regulations and the effects on

the industry, Tweedie added. In addition,

safety presentations and regulatory updates

are also on the speaker list.

“We always want to make sure that we

have a good quality program with speakers

who are relevant to what’s going on in the

industry,” added conference chair Karen

Ortega. “We always have a great list of

speakers and it’s hard to have to choose

among so many great speakers when we

only have so many slots available.”

Putting on a conference that attracts

people from throughout the Southwest

takes the time and effort of many, Ortega

said. “We have representatives from the six

sponsoring organizations, plus our confer-

ence coordinator, who sit on the Executive

Committee, which is a total of 16 people.

However, it takes many more volunteers

behind the scenes and countless hours to

make sure our conference is a success. We

couldn’t do it without the help of the

sponsoring organizations.”

After conference expenses are paid, the

committee divides the proceeds among the

six partners. “Many of them use it (proceeds)

to offer scholarships for students to attend

college or for members to receive training

and certifications,” Tomko explained.

In spite of the hours spent planning and

hosting the conference, Karen Ortega said

the conference is an event she and the oth-

ers enjoy.

“I, like many others in the Four Corners

region, rely on the oil and gas industry in

several ways,” she said. “I find the friend-

ships made and the familiar faces we see

year after year very rewarding.”

“I want to do anything I can to help

make the conference a success and have

people wanting to come back,” Ortega

added.

For additional information on the

conference, visit the website at

www.fourcornersoilandgas.com or call

Jan Tomko at 505.258.1748 or the

Farmington Chamber of Commerce at

505.325.0279.

“We are very excited to

have Encana and WXP

Energy coming to discuss

their production and future

plans for the Mancos Shale

development.”

— Gavin Tweedie

ProGram CommiTTee

Chairman

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BASIN RESOURCES22


DEbra MayEux

Basin Resources

The San Juan basin is one of five core liq-

uids-rich plays on which Encana Corpora-

tion will focus in 2014 to generate profitable

growth, according to a company statement

issued Dec. 11, 2013.

“In November, we announced

a clear vision and strategy to lay

the foundation for Encana’s fu-

ture,” President and CEO Doug Suttles said.

“Going forward through to 2017 we will

measure success by our performance on

three key indicators: our transition to a bal-

anced commodity portfolio, operational ex-

cellence and the integrity of our balance

sheet.”

Encana plans to transition to a more bal-

anced commodity portfolio and achieve a

goal of deriving approximately 75 percent of

its cash flow from oil and natural gas liquids

by 2017, by focusing on three quarters of its

planned $2.4 billion to $2.5 billion

capital investment on five oil and

liquids-rich assets: the San Juan

basin, Montney, Duvernay, DJ basin

and the Tuscaloosa Marine Shale.

Encana plans to invest between $300 and

$350 million in the San Juan basin while

running a two-to-four drilling rig program

to drill 45 to 50 net wells in 2014. The

company said this will optimize its comple-

tion process by continuing to advance its

pace of development and work further to re-

duce well costs. Work will also continue to

delineate further the company’s acreage,

with Encana intending to work with the bu-

reau of Land Management to find ways to

streamline the permitting process.

Encana plans to accelerate its develop-

ment of the oil and liquids-rich areas of the

Montney play, specifically the Gordondale,

Pipestone and Tower areas, while continuing

to improve capital efficiency across the play.

With an investment of nearly $900 million,

Encana plans to run a six-to-eight drilling rig

program to drill 80 to 85 net wells in 2014.

More than $300 millionEncana plans to add 45 to 50 wells in 2014

Jeff Balmer, asset manager of the San Juan Basin for Encana, speaks March 18, 2013, at San Juan College during the San Juan Basin Energy Conference. – Debra Mayeux photo


Fifteen to 20 wells are expected to be drilled in Duvernay with En-

cana moving into a full resource play hub development mode with

pad drilling in the northern Kaybob area of the Duvernay. The com-

pany also plans to complete its evaluation of the southern Willesden

Green while finalizing a midstream infrastructure solution to support

future development. This will be an investment of nearly $300 mil-

lion.

Encana’s focus in the oil and liquids-rich DJ Basin play will be con-

tinuously to improve capital efficiency with a goal to reach approxi-

mately 70 percent year-over-year growth in production in the play.

The company plans to invest $250 to $300 million and run a four-to-

six drilling rig program to drill 40 to 50 net wells in 2014.

In 2014, Encana also will complete its assessment of the Tuscaloosa

Marine Shale with plans to invest upwards of $150 million to operate

one-to-three drilling rigs and complete nine-to-12 net wells.

These five assets are expected to make up about 25 percent of total

production in 2014 while generating approximately 45 percent of

total upstream operating cash flow before the impact of commodity

price hedging.

This reflects a 10 percent reduction in planned capital investment

from its 2013 levels, but the company’s forecasted production is ex-

pected to remain the same. Total liquids production is expected to

grow by 30 percent year-over-year, which is expected to offset a

small decline in expected gas production for 2014. “With growth

in higher margin liquids, the company is estimating it will achieve

an approximate 10 percent increase in netbacks in 2014,” the pre-

pared statement said.

Encana said it will maintain its balance sheet integrity by

“aligning its capital expenditures with cash flow and unlocking

value from its asset base through an initial public offering of its

Clearwater Royalty business. The company also plans to repay

from cash a US$1 billion, 5.8 percent note maturity due May 1,

2014.”

The goal would be to create a “sustainable shareholder value”

into the future, Suttles said. “The work we completed in 2013 has

positioned us very well for a strong start in 2014, a start well

aligned with our new strategy.”

As a result of Encana’s “focused strategy and capital investment

plan,” the company projects its 2014 upstream operating cash

flow, including hedging, to nearly $3.2 billion. Total cash flow is

expected to range between $2.4 and $2.5 billion. Natural gas

production is expected to average between 2.6 billion cubic feet

per day and 2.8 billion cubic feet per day with total liquids pro-

duction reaching75 thousand barrels per day.

These plans came after the company went through a 20 per-

cent workforce reduction to restructure in November 2013.

“We have completed the most difficult part of our transition

and I want to thank all of our staff for their professionalism and

continued dedication to the company through what was a tough

time for everyone at Encana,” Suttles said. “With the announce-

ment of our 2014 plans, we are solely focused on building an ex-

citing and successful future for Encana.

BASIN RESOURCES24


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BASIN RESOURCES26


DeBRa Mayeux

Basin Resources

Hard work

opened

doorsBill Bailey’s consistent service and

dedication made the business grow

Bill Bailey graduated in the spring of

1982, and by summer of the same year

he had a business.

Bailey purchased a welding rig and

began seeking clients for Bailey’s

Welding. He learned his skill at

Farmington High School, where he

completed two years and 1,080 hours

of vocational training.

With his welding truck and

knowledge, Bailey began taking any

odd job that came his way. “I needed to

have experience, and I was young and

nobody knew who I was,” he said.

Thirty-two years later, Bailey and his

wife Vanessa have an office, welding

shop and more than 30 acres of land at

505 County Road 350 in Farmington.

BASIN RESOURCES 27



BASIN RESOURCES 29


The company expanded on Nov. 4,

2013, when it moved from its old loca-

tion on U.S. 64 to the new building. “We

purchased the place and remodeled the

offices,” Bill said. It was a necessity. The

business outgrew its old space that con-

sisted of a shop on three acres and an

offsite office. Now, it is a one-stop shop

for all of Bailey’s services.

The growth came from his sought-

after services. Bill proved he could pro-

vide the jobs that were needed, but it

took a lot of work and dedication to the

craft.

In the early days, he would take his

welding truck out to well sites for well

hookups and rig maintenance. He also

did some ornamental work – “Whatever I

could.”

Some of Bill’s first jobs included

building compressor shields for Merid-

ian. “That got us in the door,” Vanessa

said.

Bill started Bailey’s Welding as a sole

proprietorship. When he received con-

tracting jobs, he had to hire a few em-

ployees. “We wanted to keep it small, but

as time went on there were opportunities

for growth,” he said. “We went from a

small shop to a bigger shop, to a bigger

shop.”

At one point the Baileys were operat-

ing the shop, but doing all of the office

work from their home. Then in 2001,

the business grew big enough to become

incorporated.

BASIN RESOURCES30


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“Bill has worked really hard and we’ve

been totally blessed,” Vanessa said.

Today Bailey’s Welding employs 23

people and has contracts with such com-

panies as ConocoPhillips, Enterprise and

XTO.

“We build tanks at the shop. We do

field work, pipeline maintenance,” Bill

said. “We haul materials to locations with

our semis.”

They work with heavy equipment pro-

vide dirt work and remediation work,

while still providing the service that

founded the business – welding.

Bill is surprised when he thinks about

how big his business has become. “I just

thought I would keep it small,” he said.

“We are thankful for the people who gave

us the opportunity to show them what

we could do.”

He has built a business that can be

passed down to the Baileys’ only son,

Timothy, who is studying business at

New Mexico State University. “He, hope-

fully, will be able to help his dad some-

day,” Vanessa said.

And with all of the extra space at their

new location, “We have a lot more room

to grow and work and meet our cus-

tomers’ needs,” Bill said.

For more information about Bailey’s

Welding call, 505.632.3739.

“We are thankful for

the people who gave

us the opportunity

to show them what

we could do.”

— Bill Bailey


BASIN RESOURCES32


Debra Mayeux

Basin Resources

u.S. Senator Tom udall, D-N.M., has

joined other state officials to push for the

export of liquid natural gas, in order to

support natural gas exploration in the

state.

“This is a tremendously important in-

dustry to New Mexico,” udall said during

an October meeting with industry offi-

cials. “Most New Mexicans know this in-

dustry contributes a lot to the state.”

The oil and gas industry employs

68,000 New Mexicans and historically

has provided 50 percent of the state’s

budget through royalties and taxes.

udall wants to see the oil and gas in-

dustry continue to operate and provide

jobs and tax base to the state, he said.

The industry, however, has been stag-

nant, with oil production down and natu-

ral gas exploration on hold. There are

many reasons for the decline, including

the low cost for natural gas, which slowed

the market for the product, as well as dif-

ficulty placed on the industry by federal

agency that has slowed down the permit-

ting process.

The San Juan basin has a potential to

develop “tens of trillions” of cubic feet of

“We want to urge the

Energy Department

applications and move

them along.”

— U.S. Senator tom Udall

d-n.m.

The Benefit of LNG Exports

Udall backs LNG exportsSenator: This is a tremendously important industry to New Mexico

natural gas to be marketed inside and out-

side of the United States. The reason this

hasn’t happened is the price of natural gas,

New Mexico Oil and Gas Association

President Steve Henke said

“There hasn’t been drilling in the San

Juan Basin because of decreased natural

gas prices,” Henke said.

Oil exploration also has slowed here

because of regulations that limit compa-

nies’ access to public lands, according to

Henke, who pointed out the BLM has a

hydraulic fracturing rule and limited ac-

cess to public lands for production.

“There’s a lot of natural gas that can be

developed, but we need the support of the

BLM for that to happen,” Henke said.

Udall, however, said there has been

Congressional legislation to streamline the

process for permitting. Congress devel-

oped a pilot program to streamline permit-

ting in both the Permian and San Juan

Basins. “That pilot of this area was to

make sure there is better permitting and

better enforcing,” Udall said.

The law has expired and the senator is

receiving requests to reauthorize it. “I

think it’s a good law” Udall said, adding

he would like to see it continued.

Udall also joined with 33 U.S. Senators

in sending a July 9 letter to Energy Secre-

tary Earnest Moniz asking the Energy De-

partment to speed up the process to allow

for the exportation of liquified natural gas,

or LNG, to other countries.

BASIN RESOURCES 33


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BASIN RESOURCES34


“The world is hungry for U.S. natural

gas, and the geopolitical implications of

LNG exports are tremendous. To bolster

their own energy and national security

profiles, nations around the world are

seeking opportunities to diversify their en-

ergy supplies,” the senators wrote. “For the

first time, the United States is being recog-

nized as one of their options. Responsible

development of natural gas can benefit the

environment and our international priori-

ties.”

The letter asked the Energy Department

to consider exporting LNG to Europe and

Japan; both nations are in need of natural

gas to “fuel their economies.”

The Energy Department has received 20

applications for LNG export projects, but

set a timeline of considering one every six

to eight weeks, according to the letter.

“We want to urge the Energy Depart-

ment applications and move them along,”

Udall said. This could drive up the price of

natural gas and encourage increased pro-

duction.

Secretary Moniz responded on Sept. 12

saying the energy department must “con-

duct a public interest review of LNG ex-

port applications to non-Free Trade Agree-

ment countries and to grant the

Is the Industry Ready?

* Natural Gas 48

DeBra Mayeux

Basin Resources

There is great economic opportunity for

the San Juan Basin, if natural gas becomes a

key export from this country and the Fed-

eral Governments open up public lands for

production.

This was the message from Paul Gessing,

executive director of the rio Grande Foun-

dation during the October 2013 Desk and

Derrick Club banquet at the San Juan

Country Club.

Gessing has been pushing for the u.S. to

start exporting natural gas to countries such

as Japan, India and europe. “Japan really

wants our natural gas,” Gessing said. “We

could be a major producer and exporter of

natural gas.”

There is a global “opportunity” for natu-

ral gas exportation and, as far as oil produc-

tion goes, the u.S. is topping the global

market, with an opportunity to overtake

russia as the world’s leading oil producer.

“No one thought that would happen,” Gess-

ing said. “We are on an upward trend head-

ing north in terms of production.”

This could help in Gessing’s quest to

make New Mexico into an “economically

free state.” He focused on ways to do that

during his presentation.

It includes seeking support from the pub-

lic for a campaign to encourage the Federal

Government to return control of the public

lands to the Western States for a local man-

agement. “Wouldn’t it be great if the state of

New Mexico controlled Carlsbad Caverns,”

Gessing said.

Instead there are “nameless, faceless bu-

reaucrats” who make it difficult for states to

access public lands and the minerals found

below the land.

“The federal government is moving all

too slowly on oil and natural gas develop-

ments, with declines of 33 percent for natu-

ral gas production,” Gessing said. “With all

of the energy out there, the states that have

private land holdings are doing well.”

North Dakota is having a boom at this

time, much like Pennsylvania.

Thirty percent of the nation’s coal re-

serves are found in states west of the Missis-

sippi and 20 percent of the nation’s oil and

gas reserves are in those same states – one

of which is New Mexico. The problem is

that the bureaucracy in Washington does

not allow these reserves to be developed

without a lot of red tape and expenses

through the permitting process, according

to Gessing.

With 41 percent of New Mexico’s land

being federally owned, oil and gas compa-

nies have to wade through lengthy and

costly permitting processes to access the re-

serves. Gessing argues that if the states were

allowed to manage the land, “incredible

wealth could be generated.”

“New Mexico would be transformed, if it

controlled its own resources,” Gessing said,

adding that 68,000 jobs could be added to

the state, along with $8 billion to the econ-

omy.

Without the ability to access those natu-

ral resources, New Mexico has an estimated

two-tenths of a percentage point for eco-

nomic growth.

Gessing pointed out that he is not sug-

gesting the federal government open up the

forest or national parks for the purpose of

oil and gas production. He did, however,

say that he believes the land is not being

“managed effectively for the economic ben-

efit of our nation.”

National forests are burning down each

year from fires that burn uncontrollably be-

cause the land is not appropriately man-

aged. There also are questions about the

way the national parks are being managed –

specifically after the recent government

shutdown.

“It’s embarrassing for a First World coun-

try not to be able to open its major tourist

attractions,” Gessing said.

The rio Grande Foundation is support-

ing a version of House Bill 292, which was

introduced during the 2013 Legislative Ses-

sion in Santa Fe. It is the Transfer of Public

Lands act, which encourages the Federal

Government to give New Mexico back its

All for exports

“Japan really wants our

natural gas.

We could be a major

producer and exporter

of natural gas.”

— Paul GessinG

executive director

rio Grande Foundation

BASIN RESOURCES 35


* Gessing 48

Gessing: There is global opportunity for San Juan Basin


BASIN RESOURCES36

“We decided to expand ourselves a bit.

We’re preparing for more

growth in the basin.” — Sam Henry,

Henry Production PreSident


Henry Production opened its doors in

1962 in the San Juan basin when Harvey

Henry made the decision to live in Farm-

ington rather than be transferred by

ConocoPhillips to North Dakota.

Harvey believed there was opportunity

in the region, so he purchased a small

production business from Jim Gould for

$2,300. “There were a bunch of contract

pumpers at the time, and I thought I

could do better than they did,” he said.

The family-owned business has perse-

vered through the industry’s booms and

busts, and in preparation for the next pos-

sible boom, the business changed loca-

tions to provide it with more space.

Henry Production and secondary com-

pany Pumps & Service recently moved

from 603 and 603 S. Carlton ave., to

3430 Morningstar Drive.

“We’ve actually owned the building for

about five years,” said Sam Henry, presi-

dent of the company.

The move allowed Henry Production

Henry Production, Pumps and Services now in same location

On the move

Debra Mayeux

Basin Resources


and Pumps & Service to work

out of the same location. “We

decided to expand ourselves a

bit,” Sam said. “We’re preparing

for more growth in the basin.”

Pumps & Service opened in

1978 as a service organization.

“Pumps & Service sells, services

and fabricates durable equip-

ment systems — pumps, com-

pressors, generators, controls

and more — that ensure

smooth, around-the-clock pro-

duction at agricultural sites, con-

struction sites, energy

production plants, food manu-

facturing plants, landfills, na-

tional laboratories, oil and gas

sites, semi-conductor plants and

wastewater treatment plants,”

according to the website,

pumpsandservice.com.

“Our 36-year record of

successful turnkey engineering

projects is driven by our trusted

industry and equipment

experts,” the website stated. “We

know what it takes to keep

systems working seamlessly to

ensure uninterrupted processes,

greater production and larger

profits for our customers.”

Henry Production is a “com-

pressor rental, maintenance and

fabrication company,” Sam said.

The company provides rental

and sales on a flexible schedule

including 30-, 90-, and 120-

day contracts. The two compa-

nies employee 90 people.

In the new office is the typewriter that Virginia Henry began using in 1962 to type invoices

at the kitchen table. Three months after the company started, after picking up several

leases to operate, Harvey Henry hired his first employee. For the first seven years, he

worked every day of the week. – Josh Bishop photo

BASIN RESOURCES40


Debra Mayeux

Basin Resources

The Navajo Tribal utility authority

has been included in a more than $1.8

billion plan to improve electric service to

37,000 rural customers in 25 states.

The u.S. Department of agriculture

will award the Navajo Tribal utility au-

thority $168 million to build 1,215

miles of line, will invest in smart grid

technologies, and has made other system

improvements to help 3,800 rural electric

consumers in the arizona, New Mexico

and utah portions of tribal land.

“rural electric cooperatives have pro-

vided reliable, affordable power to rural

communities for more than 75 years.

Today’s investments will help ensure our

electric infrastructure continues to deliver

reliable and affordable electricity for

years to come,” agriculture Secretary

Tom Vilsack said.

The funding will include $45 million

for smart grid technology and $73 mil-

lion for renewable energy projects, and

more than $213 million will benefit

american Indian tribes. It is slated to

build or improve 6,500 miles of electric

line throughout the u.S.

ConnectivityTribes, communities benefit from federally funded electric upgrades

“This funding is part of the Obama Administration’s vision for

a new rural energy economy and USDA’s commitment to creat-

ing economic opportunity in rural America,” Vilsack said. “In-

vestments in smart grid technologies will continue to modernize

our nation’s electric system and improve operational efficiencies.”

Other entities receiving funds include Tri-State Generation in

Colorado, which supplies electric power to La Plata County. This

electric cooperative will receive three loans of more than $318

million to finance upgrades and modification to existing genera-

tion facilities in various parts of New Mexico, and it also will

allow for upgrades to infrastructure in Colorado, Nebraska and

Wyoming.

Kit Carson Electric Cooperative in Taos will receive a $33

million loan to build 284 miles of distribution line and make

other system improvements. The loan also will fund more than

$2.2 million in smart grid projects and nearly $1.1 million for

service to American Indians. It will benefit 1,346 electric con-

sumers.

“The modernization of the electric grid in New Mexico is ex-

tremely important if our economy is going to grow, because if

we don’t have good electric service we can’t create new jobs,”

USDA Rural Development State Director Terry Brunner said.


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BASIN RESOURCES42


E N E R G Y N E W S. . . . . . . . . . . . . . . . . . . . . . . . . .

Across the Nation

ConocoPhillips announced

Dec. 6 a 2014 capital expendi-

tures budget of $16.7 billion for

continuing operations globally.

The budget includes the com-

pany’s allocation of 55 percent of

funds toward operations in North

American and 45 percent toward

Europe, Asia Pacific and other in-

ternational businesses.

There will be an increased in-

vestment in the Permian Basin,

with the company promising to

spend approximately two-thirds of

development drilling program

funds in the Lower 48. This

would target development in “liq-

uids-rich, unconventional plays in

the Eagle Ford, Bakken and Nio-

brara, as well as conventional and

unconventional plays in the Per-

mian,” a press release from Cono-

coPhillips stated.

Exploration and appraisal activ-

ity will focus on the Niobrara and

Permian in the Lower 48, and the

Canol, Duvernay and Montney

plays in Canada. Internationally,

unconventional exploration spend-

ing will be directed toward

Colombia, Poland and China.

There will be a higher alloca-

tion of capital to Alaska compared

to 2013, reflecting increased

spending on the CD-5 develop-

ment and higher activity resulting

from improved fiscal terms from

the passage of the More Alaska

Production Act, the release said.

There also are plans to “ramp up in

operated conventional exploration

drilling programs in the deepwater

Gulf of Mexico and Angola.”

ConocoPhillips CEO Ryan

Lance said 2014 will be an impor-

tant year for the company. “Since

becoming an independent E&P

company, we have set out to de-

liver a unique value proposition of

3 to 5 percent volume and margin

growth with a compelling divi-

dend. To position the company

for these goals, we generated pro-

ceeds of more than $12 billion

from the disposition of nonstrate-

gic assets since the start of 2012,

while investing in programs to

drive future profitable growth,” he

said. “Today, we have an unparal-

leled inventory of opportunities

that will enable us to deliver or-

ganic growth from continuing op-

erations in 2014 and beyond. In

addition, our planned conven-

tional and unconventional explo-

ration activity should provide

opportunities that can keep us on

track for sustained growth and re-

turns.”

Budget announced

U.S. Energy Information Administration | Drilling Productivity Report

Permian play included in North American

2014 ConocoPhillips production

* ConocoPhillips 44

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BASIN RESOURCES44


CHATSWORTH, Calif. – Capstone Tur-

bine Corporation, the world’s leading clean

technology manufacturer of microturbine

energy systems, announced today that it has

received orders for two Capstone C1000s

and an order for 25 Capstone C65 microtur-

bines to be used for oil and gas production

in the Permian Basin located beneath west

Texas and southeastern New Mexico.

According to an October 2013 article in

Investors Daily, the Permian Basin receives a

fraction of the press coverage accorded the

Bakken and Eagle Ford, but it has more pro-

duction potential than these two shale for-

mations combined. The Permian is not just a

shale oil play, nor is it a recently developed

basin. The Permian currently produces some

900,000 barrels per day of crude, about 12

percent of U.S. oil production. Some analysts

expect Permian production to more than

double by 2018 to 2 million barrels per day

– a level last reached during the 1970s. The

Permian Basin is projected still to contain re-

coverable oil and natural gas resources ex-

ceeding what has already been produced.

Industry experts estimate that, at current

prices, more than $3 trillion worth of oil

and more than $300 billion of natural gas

are yet to be extracted. These projections

dwarf the combined estimated reserves for

the Bakken and Eagle Ford.

Horizon Power Systems secured the order

for the two Capstone C1000 microturbines

to be used by an independent oil and gas

producer in the area. This marks Capstone’s

first multiple megawatt project in the Per-

mian Basin after previously installing multi-

ple C30s and C65s at project sites in the

region. The C1000s will replace unreliable

grid service from the local utility and be

used to power the client-owned electric grid.

This small local grid will supply power to

various well locations in addition to the field

operations office. The site is expected to be

commissioned in March.

Horizon Power Systems also ordered 25

In addition to ramping up exploration

and drilling, ConocoPhillips announced it

is on track to achieve its targeted produc-

tion of 1,600 thousand barrels of oil per

day, including 50 from Libya. The com-

pany expects to achieve this through

growth in the Lower 48, Canada, Europe

and Asia Pacific regions, it announced in a

prepared release.

The company also “anticipates utilizing a

portion of its cash balance to fully prepay

the $2.8 billion joint venture acquisition

obligation to its 50 percent owned FCCL

business venture. This obligation would

otherwise have been paid with interest over

the 2014 to 2017 time period,” the release

stated.

The capital budget also includes funding

for base maintenance, development of

drilling programs, major projects, and ex-

ploration and appraisal spending, as well as

corporate expenditures. Approximately 13

percent of the capital budget is allocated

for maintenance of the company’s high-

quality legacy base portfolio, including

2014 planned turnarounds.

Approximately 39 percent of the capital

budget is allocated to the company’s high-

margin development drilling programs,

with approximately 90 percent targeted to-

ward North America. Growth from these

development drilling programs should ac-

count for 600 barrels per day of produc-

tion by 2017 and offsets normal field

decline from the company’s producing as-

sets. The remaining one-third is targeted

toward other conventional and unconven-

tional opportunities, mainly in Alaska,

Canada, Norway and Western Australia.

ConocoPhillips continued from 42

PermIAn BAsIn shAle PlAy

Capstone Turbine gets multiple orders for customers

* Capstone 47

As part of President Obama’s plan to ensure a fair return to Amer-

ican taxpayers for federally-managed natural resources, the Bureau of

Land Management has sold 400 million cubic feet of crude helium

from the Federal Helium Reserve, generating $38 million in revenue.

The Jan. 17 sale implements the initial phase of the Helium Stew-

ardship Act of 2013.

Two firms received the bulk of the he-

lium: Air Products was awarded the largest

amount at 129,600 million cubic feet (Mcf )

while Praxair, Inc. was awarded 122,400

Mcf.

The full results of the sale are available at

the BLM Amarillo Field Office website at

www.blm.gov/nm/amarillo.

“W’'re pleased with the results of this helium sale," BLM Principal

Deputy Director Neil Kornze said. "It's critical that we get a fair re-

turn on this national resource that is so important for health care in-

novation and technology development. We are also proud to have

cleared the debt on this program in 2013, two years ahead of sched-

ule.”

The helium was offered at a price of $95 per Mcf, which is up

from $84 per Mcf in 2013, reflecting a change in methodology de-

signed to match market forces more closely, encourage industry con-

servation and provide a higher return for American taxpayers.

In September 2013, Congress passed the HSA to continue the

Federal helium program.

The HSA succeeds the Helium Privatization Act and allows for

continued operation of the federally managed helium reservoir and

pipeline near Amarillo, Texas, which supplies about 42 percent of

domestic demand for crude helium and about 35 percent of the

world’s demand. The intent of the HSA is to allow for a smooth

transition to private means of helium sourcing as the reserve is

steadily drawn down. The passage of the legislation allowed the

BLM to continue funding the helium operations.

The BLM had spent an initial $272 million to buy helium and

then stockpile it in federal storage.

The BLM has now paid off this debt,

which totaled about $1.4 billion of principal

and interest, to the U.S. Treasury two years in

advance of the 2015 deadline.

Helium is an essential resource for the

aerospace industry, optical fiber manufactur-

ing and medical use, including lung tissue vi-

sualization, heart catheterization methods and

medical lasers. The lighter-than-air gas is also used in aluminum he-

lium arc welding, scuba diving mixtures and national defense appli-

cations such as rocket engine testing, scientific balloons and blimps.

Surveillance devices and air-to-air missiles are additional military

uses for helium.


BASIN RESOURCES 45

Lighter than air mineral

BLM begins implementing Helium Stewardship Act

BASIN RESOURCES46


You can add New Mexico to

the short list of U.S. states that

are utility-scale geothermal en-

ergy producers.

The new plant in the Animas

Valley, way down in the south-

western part of the state, is oper-

ating at a modest 4 megawatts

right now. But a second phase is

expected to kick the power pro-

duction up to more than double

that figure within the next year.

And New Mexico officials said

they’re hopeful more geother-

mal sites can be developed in the

state.

“This project opens the door

for an amazing future for geot-

hermal power in our state,” Sec-

retary of Economic Develop-

ment Jon Barela said in a state-

ment. “This major project has

been a tremendous economic

development driver for south-

western New Mexico, and other

projects, we hope, are on the

way to continue our develop-

ment of this resource.” As the

map immediately below indi-

cates, the state has at least a

handful of other locations that

are identified hydrothermal sites.

As enthusiastic as Barela was,

the Albuquerque Journal re-

ported that local residents had

some concerns about the plant.

Unlikely as it sounds, right

around the corner from the new

geothermal plant in this high

dry, ranching country is a com-

pany called AmeriCulture, which

bills itself as “one of America’s

largest tilapia hatcheries.” They

take advantage of the area’s nat-

urally hot waters to heat the

pools where they raises tilapia

fingerlings, so water quality is

understandably a chief concern.

State environmental officials

said they’ll be watching the

Another energy venture

New Mexico joins the geothermal power ranks

Capstone C65 microturbines to expand operations for multiple

existing clients in the Permian Basin. This repeat business demon-

strates a high level of customer satisfaction with Capstone microtur-

bines, helping to cement microturbine technology as a preferred

option in the U.S. oil and gas industry.

Capstone microturbines were chosen based on their reduced

maintenance costs, low exhaust emissions, and higher reliability than

traditional engine-based generation. The microturbines easily meet

Tier 4 emission standards without requiring after-treatment.

“The Permian Basin currently contributes about 14 percent of the

nation’s overall oil and gas production,” said Sam Henry, Horizon

Power Systems President. “Horizon is pleased to continue to expand

our presence in this dynamic area. This sale – the first multiple

megawatt Capstone microturbine installation in the Permian Basin –

follows several other C65s and C30s already in place there. Low-

emission, low-noise, and low-maintenance Capstone microturbines

are the go-to solution for running onsite equipment and meeting

customers’ power requirements in the Permian Basin.”

About Capstone Turbine Corporation

Capstone Turbine Corporation is the world’s leading producer of low-emission mi-

croturbine systems and was the first to market commercially viable microturbine energy

products. Capstone Turbine has shipped approximately 7,000 Capstone Microturbine

systems to customers worldwide. These award-winning systems have logged millions of

documented runtime operating hours. Capstone Turbine is a member of the U.S. Envi-

ronmental Protection Agency’s Combined Heat and Power Partnership, which is com-

mitted to improving the efficiency of the nation’s energy infrastructure and reducing

emissions of pollutants and greenhouse gases.

BASIN RESOURCES 47


Capstone continued from 44


applications unless DOE finds that the proposed exports will not be

consistent with the public interest.”

The review includes a number of factors including the “impact on

domestic natural gas supplies and prices and the full range of

macroeconomic impacts of the proposed export,” Moniz wrote.

Environmental reviews also must be conducted.

While the exportation process is in its infancy, Udall said at least

three applications for exports have been approved, and now the U.S.

is just awaiting the infrastructure, such as ships and ports of entry

and export, to be completed.

In the meantime, Moniz stated that the Energy Department will

continue to review export applications “on a case by case basis as

expeditiously as possible.”

Natural Gas continued from 34

Gessing continued from 35

land. This push is being made in other western states with Utah

leading the way, Gessing said.

This is based on a movement in 1828, when Indiana, Illinois,

Missouri, Louisiana, Alabama and Florida persuaded the Federal

Government to return the lands to the states. It worked then. It is

Gessing’s hope that it will work again in the not too distant future.

BASIN RESOURCES48

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CCUUTT CCOOSSTT.. NNOOTT CCOOVVEERRAAGGEE

plant closely, but developer Cyrq

Energy is promising that a

closed-loop system poses no

threat.

In this closed-loop system,

the hot geothermal fluid is

pumped from the deep reservoir

to a heat exchanger, where heat

from the geothermal fluid is

transferred to a working fluid,

with a lower boiling point, con-

tained in a separate closed-loop

system.

This working fluid then

flashes and powers the turbines,

generating electricity. The geot-

hermal fluid is then re-injected

into the same deep reservoir to

be naturally reheated without

ever coming in contact with the

secondary working fluid or ex-

posed to air.

According to the state, the

first phase of Cyrq’s Dale Bur-

gett Geothermal Power Plant

cost $43 million to build. “The

second phase is scheduled to be

completed in 2014, for an addi-

tional $67 million,” the state

said. Cyrq on its website said

the plant ultimately would be

“capable of generating up to 20

megawatts (MW) of electricity,”

although power purchaser PNM

said it would be a 10-MW plant

and, as the map shows, the

NREL map at that forecasts 15

MW for New Mexico.

If prices remain high and de-

velopers continue drilling

through June, officials said the

state would be on track to break

the earnings of last fiscal year by

as much as $100 million.

Petroleum and natural gas

production make New Mexico

the third largest net energy sup-

plier to the nation, according to

the federal Energy Information

Administration.

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Basin Resources Spring 2014