Navajo Oil & Gas plans coalbed methane project

Copyright © 2009
Gallup Independent
By Kathy Helms
Diné Bureau

WINDOW ROCK — Navajo Nation Oil & Gas Co. is hoping to pursue oil and gas initiatives that will add revenue to the Nation’s coffers, including coalbed methane production in the San Juan Basin.

“Within Upper Fruitland, Nenahnezad, San Juan, maybe not as far as Burnham but primarily in that area, there is a large reserve of coalbed methane,” LoRenzo Bates, shareholder representative for the Budget and Finance Committee, reported this week to the committee.

About five years ago Western Gas Resources had looked at tapping into those reserves, he said, “but over the years, that company has changed hands and Navajo Oil & Gas has taken on that initiative,” Bates said.

There is the potential for more than 220 billion cubic feet of new gas reserves.

Wilson Groen, Navajo Oil & Gas CEO and president, said Thursday that the project would be located east of the BHP Billiton mine.

“To develop that, the major capital expenditures will be at $430 million over 10 years from the time the Council approves it. That would be Navajo Oil & Gas doing it by itself.

We may have to solicit partners, we don’t know. But right now our goal is to do it by ourselves.”

The project will include gas gathering and compression stations, with the product delivered into some of the existing major interstate pipelines already on the Nation.

“It’s a project that will require Navajo Nation Council approval and signature of the president. We hope to be presenting that to them soon,” Groen said. “We’re basically negotiating an agreement with the Navajo Nation which we believe will provide immediate cash benefit to the Nation plus long-term cash flow from the development of the resources.”

Short-term revenues to the Nation include bonuses and rentals projected at $25 million to $30 million over seven years. Groen said significant future revenues hopefully will alleviate some of the cash shortages the Nation is experiencing as well as replace other declining revenues.

“The current draft agreement calls for the initial bonus payment to be made to the Nation within 10 days of the president’s signature. It’s more than $1 million and less than $10 million,” he said.

Equipment purchases will be part of the $430 million investment. “We can cover the initial investment required until it gets to be self-funding. We would start our initial drilling activity in 2010, and production, if successful, would start within 12 to 18 months of that. We’re looking at 80 to 100 jobs, from skilled laborers to professionals.

“We’re not asking the Nation for any money. We intend to fund it from our operations,” Groen added.

Navajo Oil & Gas has approximately 25 percent interest in most of the oil properties in the Aneth, McElmo and Ratherford fields.

Exploratory drilling in conjunction with Genesis Gas and Oil has begun at Echo House Mesa and test results from Ute Canyon 23-P have been encouraging, with initial tests producing 42 barrels of oil per day, according to the Budget and Finance presentation. The company is now testing the second of four major zones.

Additional drilling is planned for the Ute Canyon well and in the Tohonadla Field. Four development well permits have been approved and drilling is expected to begin this summer.

Navajo Oil and Gas, working with the Department of Economic Development and the Regional Business Development Office, also is applying for federal stimulus money to accelerate the development of its rural development plan, which includes new gas stations with services expanded beyond convenience stores to include restaurants and postal facilities.

They are now assessing which ones are “shovel ready,” a condition to receiving stimulus funds.