The San Juan basin, located near the Four Corners area, is a basin in which activity was historically driven by larger, public players. However, around 2020, the last of the large, public operators exited the basin, selling assets to smaller, private operators that are typically more price sensitive. In aggregate, drilling activity in the San Juan is sensitive to both oil and gas prices. However, individual operators carry exposure to single commodity price risk. To understand how San Juan production could evolve in 2024, this Energy Market Insight will examine well results from regional operators to understand who could be more exposed to volatility in oil versus gas markets.
Mapping wells turned to sale since 2019 shows that there are two clusters of activity, one along the Colorado-New Mexico border and one just south of the first cluster in New Mexico’s San Juan and Sandoval counties. The maps above highlight that the cluster of wells along the border are gas-focused and that the southern cluster of activity in New Mexico is where operators are targeting oilier wells. Moving on to examine which companies operate each well, it can be observed that along the border, where gas is the focus, Hilcorp and Simcoe (both acquired acreage from BP) are the top two operators. It is notable that in 2020, BP sold off their assets in the San Juan to Simcoe, making it the last of the large, public players to leave the basin. In the southern part of the play, the two primary operators are Enduring Resources and DJR Operating, with Logos Operating completing a handful of wells too.
Moving now to performance, the chart above examines 30-day average initial production rates since 2019 for these San Juan operators. Outside of Logos Operating, historical activity since 2019 suggests that operators have either been primarily oil- or gas-focused, but not both. From a gas perspective, while Hilcorp and Simcoe also have been drilling gassier acreage, Logos Operating has had the highest performing wells with several having IP rates higher than 17 MMcf/d targeting the Mancos shale. For operators targeting oilier portions of the play, DJR Operating and Enduring Resources have been the most active and have seen a wide range in oil well productivity. Furthermore, they too are primarily targeting the Mancos shale.
All in all, the varying focuses of these different operators has led them to have varying levels of impact from changes in oil and gas prices. As highlighted in the right chart above, when WTI prices started strengthening again in July 2023, there was a corresponding increase in rigs even as gas prices remained relatively weak. With strip pricing for 2024 WTI averaging $75.75/bbl as of November 15, some of this rebound in activity could be at risk for 2024. However, some of this activity risk could be offset if gassier operators, such as Hilcorp, Logos, and Simcoe, are able to support programs at the $3.41/MMBtu Henry Hub strip price. For more on BTU Analytics’ view on the San Juan production outlook, request a sample of our Upstream Outlook report, which covers oil and gas production forecasts across the U.S.