New kid in the basin

How is BP’s successor, IKAV, fairing in the San Juan Basin natural gas field?

by Jonathan Romeo

BPAmerican Production Co. was once one of the largest oil and gas operators in the San Juan Basin, overseeing more than 3,800 wells in the vast natural gas field that spans southwest Colorado and northwest New Mexico.

So, when BP announced in 2018 it was prepared to sell all of its assets in the downturned basin, it was yet another economic blow to the region – following the exits of other major companies, ConocoPhillips, Williams Partners and Encana Oil & Gas.

After BP’s departure, all eyes turned to the new operator set to take over, a renewable energy company based in Europe – IKAV. At the time, many local officials wondered how the new operator would fill the void of one of the largest economic drivers in the community.

IKAV, which operates locally under the name Simcoe, officially took over BP’s assets in 2020.

For two weeks, The Durango Telegraph sent requests to IKAV for comment on this story. Ultimately, a spokeswoman wrote in an email: “Thanks for your interest in our company but we will not be commenting or participating in a story.”

However, according to local and state officials (both in Colorado and New Mexico), as well as area residents, the transition to IKAV has been successful overall. Based on a number of interviews, it looks as if the company is in compliance with state regulations, responds to resident concerns and is generally a competent operator.

And, taking a deeper look into the company, it appears IKAV is using its assets in aging natural gas fields like the San Juan Basin, as well as in California, to fund and support renewable energy projects around the world.

Pulling up stakes

In 2018, BP announced its intent to pull out of the San Juan Basin as part of a larger strategy to divest up to $6 billion to fund U.S. shale oil and gas purchases in other regions.

From the 1990s to the mid-2000s, the San Juan Basin flourished as one of the leading natural gas producing regions in the country. Around 2008, the gas patch precipitously declined because of falling natural gas prices globally, along with the discovery of other energy fields where it is easier and cheaper to operate, like the Permian Basin.

One by one, the major oil and gas companies started to sell off their assets. ConocoPhillips sold its stake in the San Juan Basin for $3 billion in 2016. In August 2018, Williams Partners sold its assets for $1.125 billion.

Yet BP held out the longest, employing 200 people, maintaining an office by the airport and publicly sharing a message of optimism. An area manager in 2018, for instance, said the basin still had a “robust future” with enough reserves for another 20-30 years, adding that the potential of new technology could open up reserves in new formations.

So, it was a bit of a shock when BP made its departure official in 2018. More questions arose the following year when BP announced it was selling its stake to a renewable energy company with little experience in natural gas fields.

“There was a community wide-concern,” Gwen Lachelt, a La Plata County commissioner at the time who has worked extensively on oil and gas issues, said in an interview this week. “You want to make sure the company is responsible. Are they going to be responsive? Are they going to fix leaks? Are they going to do all the normal things associated with an aging oil and gas field?”

BP did not respond to requests for comment on this story.

A clean record

By all accounts, IKAV has been a responsible and responsive operator (and maintained a team of about 160 employees).

On the Colorado side of the basin, officials with the

Colorado Energy & Carbon Management Commission and La Plata County said IKAV is in compliance with various regulations and is responsive when an issue arises. State data shows IKAV has reported 32 spills since taking over in 2020. However, many of those spills are relatively small and unimpactful. (Spills of produced water are somewhat common for all companies.) IKAV, though, is on the hook for possible violations in two incidents in which the spills came close to the Florida River. And, seven resident complaints were filed, mostly about the noise of operations, noxious weeds and late royalty checks.

Shawna Legarza, La Plata County’s Director of Emergency Management, said IKAV has developed a detailed emergency response plan for spills and is part of a larger emergency management plan for oil and gas operators in the region.

“They’ve been great, to be honest,” Legarza said. “They’ve been pretty dialed in when something happens, and that’s great for the community.”

David Honea, who has lived on the edge of the San Juan Basin near Bayfield since 1973 and has a well on his property, said IKAV has been accessible when problems surface, namely a quick fix on a bridge that was falling apart, which is the only way in or out of his land.

“There was a concern with a transition from a very large company (BP) whether they (IKAV) would be responsive,” he said. “But I haven’t seen any problems. I’ve been favorably impressed with the interactions I’ve had.”

Judy Christensen, whose family owns property near Oxford, said that in the early days of the transition, IKAV was late on its royalty payments. Now, however, payments arrive on time (though it’s still hard to get ahold of someone at the Durango office, she said, a common complaint heard from people interviewed for this story).

“At the Durango office (1199 Main Ave., Suite 101), the door is locked, and they don’t return calls,” Christensen said. “I didn’t know who to go to; it was crazy. But now I call Houston and get a response, and we got the kinks worked out.”

In New Mexico, Sidney Hill, the public information officer for the state’s Energy, Minerals and Natural Resources Department, said IKAV is in compliance with state requirements, and the department has not received any recent complaints from the public about their operations.

David Neeley, spokesman for San Juan County, N.M., said IKAV has no code violation cases and is in good standing, according to county records. To his knowledge, Neeley said no complaints have been filed against the company.

But why?

While IKAV has thus far proven to be a competent operator, a question remains: What does a renewable energy company want with an aging natural gas field?

IKAV was founded in 2010 and is headquartered in Hamburg, Germany.

Since 2011, the company has made more than 50 individual investments, mostly in renewables, with 500 megawatts of solar and 800 megawatts of wind projects, totaling $2.5 billion in energy assets.

Investing in older natural gas fields, though, seems to be a growing trend for the company.

In fall 2022, IKAV entered a deal to acquire more than 23,000 wells in California from Aera Energy, which was created as a joint venture between Shell and ExxonMobil, the state’s second-largest oil and gas producer.

As is the case in the San Juan Basin, IKAV inherited assets with aging infrastructure. According to a report in the Los Angeles Times, nearly 9,000 of the acquired wells were idle as of fall 2022, “meaning about 38% of the company’s unplugged inventory isn’t producing oil or gas.”

Still, IKAV sees opportunity. In a news release about the California deal, Constantin von Wasserschleben, IKAV’s chairman, said, “We advocate a co-existence between renewable and conventional energy for decades to come.”

Because IKAV declined an interview, it’s hard to comment on their strategy. However, Michael Umbro, a geothermal developer and energy banker in California (who operates in the same region in California as IKAV but has no connection to the company), said it appears IKAV is taking a holistic approach to transition to renewables.

Umbro said IKAV is on the leading edge of renewable energy development. However, to continue to power the world, as well as fund the transition to renewables, it’s still necessary to use fossil fuels (California, for instance, still relies on natural gas for 50% of its energy, 30% of which comes from the San Juan Basin).

Major companies like BP and Exxon pulling out of the U.S. creates a void in the market for IKAV to snatch up relatively cheap assets that are still in demand. Not only does that bring in money to invest more in renewables, but these fields can also still be revitalized with new technology.

“I see it as IKAV making a really savvy investment,” Umbro said. “Those traditional oil and gas companies are leaving, and it creates a tremendous opportunity for IKAV to show people how to transition oil fields, because it’s never been done before.”

Indeed, according to the company’s website, IKAV plans to progress the energy transition by reducing emissions in the San Juan Basin “over a 15 year period while building-out a solar power plant on the considerable land available across the asset.”

A renewable future

Over the years, BP had also built a reputation as a major contributor to local causes, donating to charities and even funding community projects like baseball fields. With the switch to IKAV, many wondered if that same community spirit would be upheld.

Though taking a more low-key approach, it does appear IKAV is involved locally.

Michelina Paulek, executive director of the Energy Council, a local oil and gas advocacy group, said IKAV is a participating member in the council. She said the company contributes to local charities and causes, and has taken the council’s “good neighbor pledge,” which aspires to work with neighbors to resolve issues and comply with local regulations.

“BP was very out-front in the community, so I can understand the apprehension (with IKAV coming in),” she said. “But we’re excited to have them as a partner with the Energy Council.”

In the past, when the basin was at its peak, oil and gas operators were able to contribute more, Paulek said. Now, with the downturn, coupled with more regulations on drilling, there’s less discretionary money to give to causes. On top of that, Paulek said there’s a sense La Plata

County is less receptive to oil and gas compared to San Juan County (NM).

“We’re happy to comply with the strictest rules in the nation, but it’s chipping away at our ability to be innovative and supportive of communities,” she said. “There’s a feeling (that La Plata County) doesn’t appreciate us, and it’s hard to build a baseball field when we have people saying ‘stop drilling.’”

What’s more, natural gas production was once the largest contributor to La Plata County’s tax revenues. However, as a result of the wider downturn in the San Juan Basin, the county’s property tax revenue has declined nearly 50%, from $29.4 million in 2010 to $14.9 million in 2018. (These figures account for the county’s entire property tax revenues, though the fall is largely attributed to oil and gas. In 2022, the county’s property tax revenue was reported at $14.6 million.)

Despite all the challenges, it appears production remains stable. IKAV produced an estimated 127 million and 118 million cubic feet of natural gas in La Plata County in 2021 and 2022, respectively. For reference, toward the end of BP’s tenure in the basin, the company was producing around 160 million cubic feet of natural gas a year.

In New Mexico, IKAV produced 65.2 million cubic feet in 2022. (IKAV operates about 1,390 wells in Colorado and another 2,440 wells in New Mexico.)

And the future may be bright for IKAV’s investment. New technology that allows companies to drill horizontally, along with new methods of fracking, could bring another boom. Both factors have helped to release the potential of a previously untapped formation in the San Juan Basin called Mancos Shale.

“(IKAV) hit the market right – the price of natural gas is up and these companies are just raking in profits since COVID,” Lachelt said. “We just hope it leads to a significant level of investment in renewables.” ■