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BP to Invest $2.4B for CBM Exploration in San Juan Basin

BP plc on Tuesday announced plans to invest up to $2.4 billion through 2020 to recover an estimated 1.9 Tcf from coalbed methane (CBM) in the San Juan Basin of southwestern Colorado and northwestern New Mexico. The development program would grow BP's current net San Juan production (425 MMcf/d net and 900 MMcf/d gross) by more than 20%, with output expected to exceed current production levels for at least 10 years.

BP, which has been a San Juan leaseholder for more than 30 years, said it already has obtained regulatory approval to drill more than 700 new infill wells and to construct the associated field facilities. BP currently operates 3,400 wells in the basin. To minimize the environmental impact, nearly all of the new wells will be drilled from existing well pads, using existing roads and pipelines wherever possible.

"This investment will allow us to continue the responsible development of one of the largest gas fields in the U.S. while enhancing our ability to continue delivering clean-burning natural gas to domestic markets," said BP E&P CEO Tony Hayward. Hayward has been tapped to succeed current BP plc CEO John Browne when Browne retires at the end of June (see Daily GPI, Jan. 16).

The San Juan Basin project is part of a 10-year plan by BP, which altogether is earmarking more than $45 billion for U.S. oil and natural gas exploration and production (E&P) in the deepwater Gulf of Mexico (GOM), Alaska and the Lower 48 states. At year-end 2005, BP's U.S. gas and oil output accounted for 4 MMboe/d, or about 25%, of global oil and gas production. Forty percent of BP's U.S. production in 2005 was natural gas.

"BP is investing heavily in secure sources of energy for the U.S.," said BP America Chairman Bob Malone. "Continued development of the San Juan Basin is an important part of that effort."

The new investment in the San Juan Basin is a turnaround for BP. Five years ago, the company released results of an internal study on what it considered to be the six major North American natural gas basins (see Daily GPI, April 16, 2002). BP's study indicated that only the Rocky Mountains, the deepwater GOM and Canada's western and eastern basins showed growth potential for gas production. Sustained growth was found along the Gulf Coast onshore, but "pronounced declines" were seen in the San Juan Basin, the shallow Gulf and in the "Heartland" basins, which include the Permian and Anadarko basins. However, since the study was conducted, the success in the Barnett Shale of Texas and across the Midcontinent has expanded many producers' exploration efforts.

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