Exxon puts the squeeze on gas

Energy giant seeks to unlock trillions of cubic feet with new drilling method

Gargi Chakrabarty, Rocky Mountain News

Saturday, June 24, 2006

RIFLE - In a remote area dotted with sagebrush and junipers, Ed Graham keeps an eye on 150 workers handling pipes, equipment and computers mounted on trucks.

He climbs on a truck and checks a monitor, tracking the pressure at which a drilling bit is cracking layers of rock as hard as sidewalk concrete miles below the Earth's surface. The layers trap massive amounts of natural gas in this plot of land in Rio Blanco County.

Graham is in charge of Exxon Mobil's Piceance Development Project, an ambitious plan to use new technology to unlock an estimated 35 trillion cubic feet of gas - enough to feed the nation for almost two years.

Exxon says its deep drilling technology pries open rock and recovers gas, all in less time than the conventional process. The patented technology, according to the company, not only reduces surface damage but also improves the productivity of wells by 25 percent.

After researchers in Houston spent a decade fine-tuning the technique, Exxon began testing it several years ago and believes now is the time to use it commercially in the Piceance Basin.

"We are taking a measured approach to make this technology work," said Graham, Exxon's operations superintendent in the Rockies work area.

Exxon plans to drill up to 200 wells using the technology in its 280,000 acres in the Piceance Basin, beginning this summer and continuing through 2008. The Piceance Development Project also includes building new pipelines, a natural gas treatment plant and other production facilities.

Some are skeptical of Exxon's claims.

Williams Co., a prolific natural gas producer in the basin and an Exxon competitor, said it tried the new technology while drilling in Garfield County and didn't see much savings.

Others say Exxon would need 20 additional rigs and crews to drill the wells - a steep requirement given the current shortage of equipment and skilled labor. Also, the volatile price of natural gas could affect the profitability of adopting this technology.

But Exxon is betting on it.

Although the company refused to reveal its investment, observers say the project could easily cost more than $500 million.

For instance, a new gas treatment plant alone could run $300 million, while each new well comes to about $1 million in that area.

The company says it will have 500 employees and contractors on site at the peak of construction. Once the project is completed, Exxon's natural gas production is expected to jump fourfold to 200 million cubic feet a day.

"This is very different from oil shale," Graham clarified. "This technology is built off of proven drilling technologies, so the risk and ability to develop the (natural gas) resource is lower."

Graham referred to Exxon's oil shale saga of the early 1980s, when the Irving, Texas, company decided to shutter that business and pull out of Colorado, triggering an economic downturn on the Western Slope.

To be precise, on May 2, 1982, or Black Sunday as it became known, Exxon announced it was dropping its $5 billion Colony shale project near Parachute in Garfield County and laying off 2,200 workers.

Although Exxon's decision was prompted by the falling price of oil, which made oil shale hideously expensive, it had far-reaching ramifications with thousands of job losses, home foreclosures and bankruptcies marring the local economy in the subsequent years.

Exxon says this time is different and it is here for the long run, but many residents remember the tough times and are concerned, especially because Exxon has kept its project largely off limits.

"I know a lot of big companies have been waiting to come back when they can make a financial success of drilling in the Piceance Basin, and I expected Exxon to come back," said Tresi Houpt, a Garfield County commissioner, who says she'd like to visit the Exxon project in the adjacent county. "I hope Exxon understands how closely people are watching them. The expectations are higher now."

Goal is the mother lode of gas

The drone from a fleet of specialized trucks is deafening.

Gusty winds blow clouds of dust as crews in blue overalls, hard hats and safety glasses go about their jobs. Some check the pressure and flow rates on computers while others move equipment.

Most of the 150 workers are contractors, although Exxon has 35 employees, most of them at its Piceance Creek Unit office.

Their focus: Get to the bottom of the mother lode of gas.

So far, getting that gas out has proved extremely expensive. Companies have to break open, or "frac," hard sandstone and shale to recover the gas trapped within layers of rock.

But Exxon believes its new technology, called multizone stimulation technology, will improve the recovery of oil and gas by 25 percent while keeping the cost comparable to conventional technology.

It also says the technology's viability won't suffer if the price of natural gas declines.

"All technologies are dependent on some type market price (of natural gas), but we have developed this to see us through low-price environment," said Graham, who's been supervising Exxon's Piceance Basin and LaBarge, Wyo., operations for several years. "Our business outlook here is for the long term."

Exxon has licensed the technology to some drilling and fracing companies including Halliburton and Schlumberger, and it may be used in Exxon's operations in Germany and the Middle East.

In 1995, engineers began research to develop a new drilling technology.

At that time, Graham said, Exxon's goal was to improvise frac techniques and make drilling faster and more efficient.

Conventional drilling uses frac techniques to crack open layers of the reservoir rocks. It involves pushing fluid - a mixture of water and chemicals to make the water slick - down the well at high pressure to force long cracks in the rock.

Specialized hydraulic trucks help pump sand grains along with the fluid to keep the cracks open as natural gas flows through the cracks and into the well through perforations or small holes in the well casing.

It is harder to extract gas in the Piceance Basin compared with other areas because it is trapped between isolated layers of rock, often within 20 feet of one another. Companies often fracture dozens of layers in a well in order to extract the maximum amount of gas.

The conventional process is time-consuming as operators often need two to three weeks to compete a few high-quality fracs in a well.

In contrast, Exxon says, its technology has fractured as many as 50 layers or zones in little more than five days. Drillers who use it can frac or crack open a layer of rock and shoot holes in the well casing in one continuous process. The sequence begins at the deepest layer, at about 12,000 feet, in the well and continues up to each new layer till about 7,000 feet.

Also, the technology uses mostly produced water or water gushing out from the wells and stored in plastic-lined ponds, although Exxon does use some fresh water from the Piceance Creek.

"Our next goal is to make (the process) like a closed circuit, where the same water is recirculated and there is no need for storage ponds," said Jeff Simons, 48, an Exxon employee of 17 years from Texas who's been working in the Piceance Basin and living in Rifle for the past two years.

Exxon plans to boost production

Exxon honed the drilling technique for nearly a decade before applying it in Rio Blanco County last year.

Since then, Exxon has drilled 41 new wells taking the total to 70. And its output has jumped fourfold to 55 million cubic feet of gas per day.

Exxon plans to further ramp up production, beginning with the drilling of 200 new wells in the next two years. That includes drilling nine wells, 15 feet apart, from a single well pad.

The company's first attempt looks encouraging, with five wells from a single pad producing about 1 million cubic feet of gas per day.

Four others, also in the same pad, are under construction.

The 450-foot by 530-foot pad is a little bigger than a football field.

Bunny Rohrig, manager of the Rusty Canon Motel in Rifle, has seen many booms and busts including Black Sunday.

She doesn't blame Exxon for pulling out of oil shale in 1982, saying she understands business pressures.

And this time around, she's not betting that Exxon will stick around for years to come.

"If guys in their Houston boardroom decide to scrap their business here, they will leave tomorrow," Rohrig said.

Others believe Exxon will continue its operations as long as energy prices remain attractive.

"The difference between oil shale and natural gas is that there's already a huge market for natural gas," said Matt Sura, energy organizer for the Western Colorado Congress. "If a company spends $1 million to drill a gas well, they recover the money in the first eight months.

"Exxon is a huge company, and it can afford to do it right - in terms of protecting the environment, reclamation and working with local government officials."

Still, making the technology work in the Piceance Basin has its challenges.

Oklahoma-based Williams, one of the biggest gas producers in the Piceance Basin, tried Exxon's technology while drilling some wells but reverted to the conventional process.

"It didn't work for us," said Steve Soychak, district manager of exploration and production at Williams. "For the additional cost of the technology, we didn't see the benefit."

But Exxon's biggest challenge, perhaps, would be gaining public confidence. Most local officials in Rio Blanco and Garfield counties and community activists say they hardly know about the company's business plans in the area and haven't seen the project site.

"They are in Rio Blanco and not Garfield County, but we are neighbors, and it would be nice if they invited us all out to see what they are doing and their plans for future expansion," Houpt said. "We'd like to find out more from the company."

About the project

Exxon Mobil's 280,000 leased acres in Colorado's Piceance Basin are said to contain 35 trillion cubic feet of natural gas - enough to supply the entire United States for nearly two years. To unlock that gas trapped in tight sandstone and shale, Exxon is trying a new drilling technology.

• What: Exxon's Piceance Development Project

• Location: Rio Blanco County

• Size: 280,000 acres, of which 90 percent is federal land.

• Project details: Drill about 200 wells using a patented deep-drilling technology; build a new gas treatment plant, gas and liquid gathering systems and pipelines, a water pipeline and evaporation pond, and a truck loading site, among other related facilities.

• About the technology: Exxon says it will help improve the productivity of wells by 25 percent and reduce surface damage since up to nine wells can be drilled in a single pad in less time.

• Construction: Set to begin by mid-2006 and be complete by mid-2008

• Employment: At the peak of construction, Exxon anticipates 500 employees and contractors at work on site.

• Investment: Undisclosed, but estimated to be more than $500 million

• Production: More than 200 million cubic feet of gas per daySource: Exxon Mobil

chakrabartyg@RockyMountainNews.com or 303-892-2976