Focus on Oil & Gas 2012

OIL & GAS 2012

The Future of New Mexico

Oil&Gas Black Gold Bonanza

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Focus on Refining

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The Science of Drilling

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Oil & Gas 101

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The Oil & Gas industry in Carlsbad has been growing steadily for the past several years. Over 3,200 people are employed by this industry alone. Eddy County is the top Oil & Gas producer in New Mexico.

The Carlsbad Department of Development proudly supports Oil & Gas. Whether it’s assisting companies �ind properties for of�ices and lay-down yards, sponsoring Oil & Gas Day in Santa Fe, or supporting the industry against the listing the sand dune lizard as endangered and costing hundreds of jobs, the CDOD has, and will continue its support.

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Focus on Oil & Gas | 2012

OIL & GAS 2012 Focus on finances

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Focus on drilling

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Focus on the blm

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Focus on Geology

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Focus on oil and gas

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Focus on education

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Focus on refining

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Black Gold Bonanza A Time to Drill

Meet the Regulator The Science of Drilling Oil and Gas 101

OIL&GAS THE HEART of the

NMSU-C Welding Program Navajo Refining Complex Focus Business Directory

COMMUNITY

Special Notes:

Graphic- Fracking (page 16): Understanding Hydraulic Fracturing Wells, reproduced August 10, 2012, courtesy of the American Petroleum Institute.

Graphic- Footprint (page 17): Reducing Surface Footprint with Horizontal Drilling, reproduced August 10, 2012, courtesy of the American Petroleum Institute.

Kyle Marksteiner, Editorial Director - Alyx Duncan, Advertising Director Photography by Kyle Marksteiner - along with submitted photos Focus on Carlsbad is published quarterly by Ad Venture Marketing.

Ad Venture Marketing, Ltd. Co. - 866.207.0821 - www.ad-venturemarketing.com All rights reserved. Reproduction in whole or part without permission of the publisher is prohibited.

Every effort was made to ensure accuracy of the information provided.

The publisher assumes no responsibility or liability for errors, changes or omissions.

on finances

There are plenty of different ways to define success in the local oil and gas industry, but a quick glance at the local Bureau of Land Management’s spud count might just be the most telling.

Photo: Thanks to new technologies and new approaches, drilling in Southeastern New Mexico is the busiest it has ever been. (Photo courtesy of the BLM.)

It’s first worth noting that a “spud” is oil and gas jargon for the process of beginning to drill a well.

the smaller companies and affiliates.

According to Jim Stovall, field manager of the Carlsbad BLM’s field office, the local BLM office averaged about 36 spuds (or drilling starts) per month on federal land through the 1980s and 46 per month during the 1990s. The BLM is currently averaging about 55 spuds per month.

That’s a lot of spuds, but the number is even more significant when you consider the fact that drilling starts at many locations in the nation have been in decline over the past few decades.

Southeastern New Mexico and West Texas isn’t just a place for oil and gas right now − it’s one of THE places.

“I know when you look at national job hunting websites, you see that North Dakota and the Permian Basin are both looking for a lot of jobs beyond

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Focus on Oil & Gas | 2012

the borders of their community,” said Wally Drangmeister, director of communications with the New Mexico Oil and Gas Association. “Everyone in the area who wants a job in oil and gas in the area is already working there.”

Unemployment across Southeastern New Mexico and West Texas is especially low right now, and many of the area’s hotels are filled nightly with hydraulic fracturing crews and other teams brought in from other parts of the United States where the industry is currently less lucrative. NMOGA’s membership in Southeastern New Mexico has swelled, and local industry leaders are being called on regularly to lead efforts to protect the industry.

The New Mexico Oil and Gas Association is a member-driven organization whose membership accounts for about 90 percent of the oil and gas producers in the state, including all of the large producers and most of

“Our efforts are basically advocacy and education,” Drangmeister said. “We do everything we can to come up with reasonable and rational regulations and laws that will protect the environment and human health but also allow us to produce.”

How important is oil and gas to New Mexico? As of May 2012, the industry accounted for 29,000 jobs in the state and about $2.2 billion in tax revenue.

New Mexico’s active drilling rig count as of June 15 was at 90.

“It’s a major impact, especially considering that most of the energy produced in our state goes elsewhere,” Drangmeister said.

According to the June 2012 figures reported by the New Mexico Department of Workforce Solutions, Eddy County and Carlsbad now have

Top Five Oil/Gas Producing Counties in NM Rig Count 2010 to Present

New Oil & Gas Wells Drilled in the Carlsbad Area - May 2012

Charts & info Courtesy of the Carlsbad Department of Development.

more than 3,200 people employed in the oil and gas industry.

major reason our area’s unemployment is one of the lowest rates in the state.”

“The Carlsbad Department of Development works with oil and gas companies by helping them locate property here for offices and lay-down yards,” said John Waters, the CDOD’s executive director. “We attend oil and gas events regularly and have a booth supporting the industry in the Roundhouse every year. We also work to provide out-of-town oil and gas related companies with a qualified list of local companies who can provide more competitive goods and services for local operations, in lieu of importing these goods and services from locations hours away and having to transport them here.”

Many New Mexico companies are also members of the Independent Petroleum Association of New Mexico (IPANM), which put out a 2011 publication titled “Oil Is the Lifeblood of the Modern World.”

With more than 100 members, the CDOD also adds its voice in support of the oil and gas industry.

“We fought against the carbon cap and trade policy, and we did the same with the fight against listing the Sagebrush lizard on the endangered species list,” Waters said. “The oil and gas industry provides high-paying jobs and is a

According to IPANM, the Permian Basin produces oil and natural gas from about 53,000 wells, including 26,000 in New Mexico. According to some estimates, development of the shale natural gas resources in the western Permian Basin, known as the R-111-p area, could potentially provide between $7.5 and $15.8 billion to New Mexico. The most recent U.S. Geological Survey estimates that an additional 41 trillion cubic feet of natural gas and 1.3 billion barrels of oil remain in the Permian Basin.

About 95 percent of the oil produced in the state comes out of southeastern

New Mexico, while most of the natural gas comes from the northwest portion of the state. The state produces quite a bit more natural gas than oil, but the total amount of revenue generated from the two is close to even right now – because the price of oil is up and the price of natural gas is down. This March, the value of oil, at $682 million, was three times that of produced natural gas in the state.

Dan Girand, who heads the legislative and regulatory affairs office with Mack Energy, noted that members of the industry can do little to control prices.

“We sell a commodity,” Girand stated.

“We don’t get to set prices. They tell us what they are willing to pay, and we can sell it or hold it. “ While Girand agreed that the industry is doing well, he also cautioned that it is a very expensive trade.

“The oil and gas industry provides high-paying jobs and is a major reason our area’s unemployment is one of the lowest rates in the state.”

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“Just make sure you are looking at profits. As an industry, we profit about 7 percent while the average manufacturing industry profits 12-14 percent,” he said. “There are a lot of (oil and gas) companies out there handling a lot of money who still go broke.”

But the high price of oil is only one of the reasons why the Permian Basin is so busy.

“It’s also very important that more and more companies are developing very good horizontal drilling techniques and multi-stage hydraulic fracturing,” Drangmeister said.

Hydraulic fracturing is the increase of fractures in a rock layer caused by the presence of a pressurized fluid. Induced hydraulic fracturing, commonly known as fracking, is a technique used to release petroleum, natural gas or other substances for extraction.

Horizontal drilling uses a high-tech directional drill to access oil in a relatively large area in one geologic level. Horizontal drilling has been evolving over the past 20 to 30 years,

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according to Drangmeister, and the geologic nature of the Permian Basin makes it especially receptive to the benefits of horizontal drilling.

“With a horizontal well, you can get tremendous production out of geologic zones that have been drilled,” Drangmeister said.

While the oil industry has a very obvious presence in Hobbs and Artesia, even in Carlsbad and Roswell, where it is less directly apparent, Drangmeister estimated that the industry accounts for between 10 and 25 percent of the area’s jobs at any given time.

It’s also worth noting that most area employees of the oil and gas industry are subcontractors.

“You’ll have your major oil company with their name on the gas pump, but depending on the operation, you’ll also have anywhere from two to ten times the number of contactors and service companies working for them as fulltime employees and handling things like well drilling, service, trucking, water, the whole gamut,” Drangmeister said.

NMOGA’s path forward involves leading the fight to implement changes to state rules regarding the drilling of reserve pits. The industry is asking to use temporarily-lined drilling pits and in-place burial of drilling cuttings when these practices are proven to be environmentally safe, providing for changes regarding siting criteria, construction and closure of below-grade tanks and other facilities to improve operational and regulatory efficiency in a manner that is protective of the environment.

The NMOGA notes that with the increased use of horizontal drilling, this provision would allow for larger pits that could serve several wells — thereby reducing the number of pits and the overall footprint previously associated with using individual pits for each well.

“That’s what we strive for,” Drangmeister said. “We want access to productive lands and access to do our business, but to do so in a way that protects the environment and human health.”

on drilling

A Time to Drill S

o all the early efforts involving mineral rights, investments, applications, geology and intuition have been worked out. It’s Driller Time.

By the time you’ve decided to drill a well, you’ve already likely spent a couple million dollars on the process to select (what you hope will be) the right spot. Now it is time to hire a drilling company.

“We pretty much all use subcontractors, even the majors,” said Chase Energy’s Dan Girand. “A lot of times you will develop a relationship with one company, but sometimes they will be busy, so you’ve got to have a second one lined up.”

Drilling companies provide their own rigs, and the manager of a specific rig is called the tool pusher.

“That’s his rig,” Girand stated. “He’s got different crews that each consist of a driller and three other guys.”

There’s also a company man on site representing the operator. He’ll typically be going back and forth between several rigs to make sure everything is running smoothly.

“He walks fast and carries a clipboard,” Girand said. “I spent a lot of nights in the 4-door hotel. That’s the company car.”

If everything goes according to plan, a tool pusher, along with his shifts of drillers and roughnecks, can complete a shallow well in 15-16 days.

But the drilling crew is far from alone.

“You’ve got a dirt company.

They are the ones building the road and doing all the dirty work,” Girand said. “You’ve got a mud company, and a trucking company, and a water company, and you’ve got a service company taking care of things like perforating and cementing.”

is going according to plan in the oil patch, with various support groups moving between multiple rigs on multiple assignments.

“Each of them is doing a particular job at a particular time,” shared Girand.

“Everybody wants to move because they (their company) are losing money if they are paying guys to just sit there.”

The drilling company also has mechanics available nearby to handle any possible equipment failures. There’s also an industry called oilfield fishing that handles any problems in the bottom of the well. “It’s no fun going fishing,” Girand noted.

Getting Started

The company man, the tool pusher and an engineer will usually make the last minute decisions at the drilling rig.

Once all the equipment is in place, the first step is to drill a 17 ½-inch surface hole about 400-600 feet down – deep enough to bypass any fresh water aquifers.

“The drill bit is heavier than normal pipe and turns to the right,” Girand explained. “It has a bunch of cones on it that also turn, and those are what turn up the rocks and dirt.”

Dirt is brought up to the surface using water. Steel pipe (or casing) is lowered into the hole in 30-33 feet increments using a special platform on the rig and is connected to a section of pipe held immediately below the rig.

There’s a certain level of choreography when everything

“When we hit a hard spot on the bottom, that’s when we let the pipe rest and call the cement crew,” Girand explained.

Photo Top: New Mexico skies over a drilling rig. (Photo courtesy of the BLM.)

The cement crew pours concrete into the area between the surface casing and the hole. This is done to protect the hole and to eliminate any chance of intrusion

Graphic: Oilbore (Courtesy of the Independent Petroleum Association of NM.)

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into nearby soil. A blow-out preventer is also installed to protect against any type of unexpected inflow of pressure.

“Then we start drilling again,” Girand said.

A smaller drill is used this time.

Depending on the formation, the drilling company may have to use a special brine solution instead of water to avoid dissolving the rock at certain layers.

“This is a balancing act,” commented Girand. “You are essentially relieving pressure underground. The weight of the fluid with mud in the hole has to

essentially equal the pressure of the formation you are drilling through.”

Girand explained that the hole is going to move from time to time, and an experienced drilling crew knows how much pressure to use to keep movement to a minimum. Casing is again run and cemented in place.

“Now you are going to go down to your objective,” Girand emphasized.

“It’s getting harder to drill because you are getting deeper and there’s more pressure. You are still trying to balance out by putting heavier mud down there.”

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This is when the mud/geology companies usually begin looking at rock samples every few feet.

The operator may have a backup depth within the same formation if the original goal does not yield the hoped-for high hydrocarbon content.

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Focus on Oil & Gas | 2012

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casing, called production casing, is run through the productive zone and cemented into place. Assuming the hydrocarbon analysis looks good, it is time to begin adding perforations to the “pay” area of the well.

“Perforating is basically where we shoot holes into the rocks,” Girand said. “We used to perforate by dropping dynamite down the hole.”

From there, the industry moved to perforating guns, which essentially shot bullets through the pipe; the industry eventually began using compressed air.

Sometimes, that’s good enough, and the company can then run tubing down the pipe. In many cases, a hydraulic fracturing job is also needed to stimulate production. Ideally, the hydrocarbons seep from the rock through the perforations and begin working their way up the pipe due to pressure. A pumpjack installed on the surface assists with lifting the crude oil, natural gas and water to the surface.

On the surface, the crude oil, natural gas and water are separated before the crude oil goes into a pipeline and away from the rig. The crude has come a long way, baby.

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on the blm

Meet the

Regulator THE B UREAU O F LAND M ANA G E M ENT

Southeastern New Mexico has an awful lot of federal land and an awful lot of oil – so there is obviously going to be a pretty hefty overlap. That’s where the Bureau of Land Management comes in. The agency’s work scope includes leasing mineral rights and processing applications to drill where mineral rights are federally owned.

BLM Manager Jim Stovall estimated that the Carlsbad area BLM probably handles about 1,500 environmental assessments a year. He’s worked at three other offices that each averaged 75 to 100 assessments a year.

“This office is probably one of the busiest in the nation,” Stovall said. A given application can be somewhere between 40 and 60 pages long and will include a legal description, geologic background, cementing aspects and 13part surface use plan.

“The biggest struggle is staying ahead of oil and gas,” Stovall remarked. To do so, the BLM has made a number of changes to try to speed up the process.

“People are busy, so what we’ve done is to try to get all of our specialists into

a room at once – wildlife biologists, archeologists and geologists − and they’ll (the company) will have a really diverse team also – and we’ll make sure we can do the right thing,” he said.

After the initial meeting with the interested company, the BLM then follows a sort of assembly line process to work through a given application.

Each specialist reviews the application and ensures that their resource concern is addressed.

The BLM’s job is to act as a sort of neutral arbiter. An oil and gas company wants to lease mineral rights from the federal government in a specific location, and the BLM wants to make sure the process is done in a way that has minimal impact on wildlife, archeology, ranching, mining and other land uses. The State of New Mexico follows a similar, though less extensive, application to drill process.

“We have multiple use obligations,” Stovall said. “We work really hard to find the best balance and take a longrange approach.”

For example, the BLM might agree to a specific well, but ask that the equipment all be put in a slightly different location to speed up the reclamation process.

Stovall said the organization has also Photos: An employee of the Bureau of Land Management photographs signs of area archeology.

(Photos courtesy of the BLM.)

made significant progress in how it handles archeology. The BLM is a participant in a memorandum that agrees to a sort of database of archeological sites in 28 townships and ranges nearby that are heavily developed. That means less paperwork and more focus where it is needed -- for archeologists.

“We’re able to focus on targeting archeological sites that can contribute to our understanding of the past,” said BLM archeologist James Smith. “It’s worked well for the industry, and it has also worked well for us.”

Members of the industry use the database to avoid areas where known archeological finds exist.

Smith said the retention rate for a BLM archeologist in Carlsbad, prior to the agreement, was around seven months. Now that archeologists aren’t caught up in an overwhelming mill of paperwork, the average employee stays for five years. Members of the oil and gas industry also retain their own archeologists, and the two groups work together closely.

“The primary mitigation measure for any archeology is avoidance,” Smith said. “The second would be to mitigate the impact through data recovery, but typically they (oil and gas) can usually move to avoid the impact.”

Southeastern New Mexico’s oil patch is pretty old, and similar resources already exist for avoiding environmental issues, such as karst features and raptor nests.

Stovall stressed that the BLM aims to work with companies interested in drilling in the area, not against them.

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“A lot of it is the thought that before one could be understood, you need to understand,” Stovall shared. “We’ve done a lot of outreach where we will take our team to corporate offices, so we can talk administratively about what needs to come on their permit. If we can communicate, we can build stronger relationships.”

The BLM does not just handle permits.

The organization also works with water haulers and sends engineers to drill sites to inspect for safety. The BLM is especially interested in conservation efforts after drilling is complete and down the road when pumping has concluded.

The Carlsbad BLM office’s area of responsibility includes all of Eddy and Lea Counties and the boot-heel area of southwestern Chaves County.

“Our office here covers just over two million acres of surface and almost four million acres of mineral estate,” Stovall said. “What’s really different is that you may have 80 total operators you

work with in the San Juan Basin (near Farmington), while here we’ll have 400 operators, ranging from large to small.”

One thing for sure, a busy BLM is a good sign of a healthy oil and gas industry.

Photo: BLM and oil and gas industry employees in the field. (Photos courtesy of the BLM.)

The BLM also monitors aging wells.

There are wells in the area’s oil patch that were drilled 50 to 60 years ago which were originally designed for 20 years. Many of them are still running, and they may require some remedial cementing.

“We’ve got wells out there that have been producing since the 1920s,” noted BLM staffer Jim Amos. “They may just be producing a couple barrels a day, but they are still going.”

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on geology

Science of Drilling The

Geologists aren’t afraid of getting into a little mudslinging.

“The mud delivers samples to us,” explained geologist Corky Stewart, president of Carlsbad’s Morco Geological Services, Inc. “The drilling rig pumps mud down the hole, and when the mud is pumped back to the surface, it brings minute gas samples and rock chips.”

Geologists play an important role after a drilling spot has been sited and selected.

They are there to give running advice that lets the drilling company make key decisions.

A team of geologists will have an equipment trailer parked next to the rig during the drilling process. The drilling mud is dumped into a steel tank system, allowing the geologists to pull out the rock samples.

“It (the mud) is dumped into a box called a possum belly,” Stewart said. “It flows out of that box and over a lift onto a shale shaker. The drilling fluid drops out and lands into a pit, where it is cleaned and pumped back into the hole.”

The shale shaker separates the rocks, which is where the geologists come in.

Samples used to be collected every 10 feet or so, but that has changed a bit due to faster drilling processes.

“We start collecting samples from whatever depth the oil company wants us to start,” Stewart said. “We monitor the total gas coming out and break it down into constituents and end up with what’s called a mud log.”

Geologists accomplish that by putting the rock samples into a special ultraviolet box and adding a drop of solvent into the sample. The drop dissolves all the oil in the rock, and the geologists record what colors it gives off. For example, a duller color might indicate thicker oil.

A collection of such information about various gases forms a mud log. A mud log may also present information on natural gamma radiation, which comes from potassium in the clay.

The company that is drilling the well uses the information from the mud logs to decide if they are going in the right direction.

“So if they have a limit of 14,107 feet and they get to 14,000 and they’ve run out of oil indicators, they may decide to just quit,” Stewart said. “If it is horizontal drilling, they may realize that the layers of rock are tilted in a direction so that they are going the wrong direction.”

“Oil companies rely on mud logs even more with horizontal drilling than they do with

vertical,” Stewart continued, “because other methods of obtaining information in a horizontal well are extremely expensive.”

The mud log is also used to decide where to blow holes (perforations) in the casing.

“So you’ll look and decide, say, that you want to perforate this zone,” he said, gesturing at a nearby map. “You run a tool into the hole with charges set to go off at the right points.”

The charges essentially blow a series of small holes into the pipe. That’s usually when the drilling crew will move on to another location and a smaller work-over unit will take over at the well.

“A drilling rig will cost $35,000 to $50,000 a day,” Stewart noted. “For most of the wells, we’re out there 18 to 28 days.”

The work-over unit will typically handle the fracking process, which essentially pushes out pressure from the small holes in the pipe to increase the size of the adjoining cavities. Once the pump is set up, the process will be reversed, and the oil, gas, water and various materials will be pulled into the small holes and up the pipeline.

Putting together a mud log may be a dirty job, but somebody’s got to do it.

Photo: A geologist with Morco Geological Services Inc. examines a rock sample for hydrocarbons.

Inset Photo: Geologists set up a trailer at the drilling rig site to put together what’s called a mud log.

(Photos courtesy of Morco Geological Services Inc. )

2012 | Focus on Oil & Gas

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on oil and gas about it. He may want a new pickup. It’s just a matter of working it out.”

What are some things to understand about the oil patch? Here are a few key concepts.

The very first thing you’ve got to do is become an operator, which requires approval through the state Oil Conservation Division and the Bureau of Land Management on federal lands. To get the money to pay for a project, you’ll probably work with a group of investors – many of them likely were former operators.

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There’s a difference between property rights and mineral rights. Many property owners sold their mineral rights generations ago.

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“A lot of ranchers sold off their minerals,” noted Mack Energy’s Dan Girand. “Well, now their great-grandchildren wish they’d kept their minerals.”

About half of Eddy County is made up of BLM land. Much more of Lea County is privately owned, but the mineral rights in many instances are controlled by the federal government. The BLM is in charge of 2.2 million acres of land in Eddy and Lea Counties on the surface, but 4.1 million acres of federal mineral rights. Federal mineral rights are leased for up to ten year increments; the leasing process takes place before an application to drill is completed.

Graphics provided by The American Petroleum Institute.

Your landmen are the guys who work out issues related to mineral and property rights.

3

Ownership of a large area can get complicated. In Lea County, for example, there are some ranches where the mineral rights have been split up over the past four generations into two and three acre parcels.

Girand said that the landmen might have to track down several hundred people to set up a series of wells on 600 acres.

“I remember once trying to track down some guy who was a musician in Europe,” he said.

“Wherever I found him, he’d already moved on to somewhere else.”

Individuals leasing mineral rights may want what’s called an overriding interest in a well within their area. That’s a percentage ownership off the very top of the cost.

You’ve got to also work something out with the property owner. You need to build a road onto the owner’s property, and the rancher wants to make sure his cattle are not disturbed. Here the negotiations can also get complicated.

4

“It’s two competing rights, and we have to balance and see if we can make it work,” Girand stated. “In an old oilfield like ours, a practice has developed. You go out there and lean on his pickup truck and you talk

Part of the deal may be an agreement to buy water and caliche (rock) from the rancher.

There are also legal issues related to exactly where the line is between a mineral right and a surface right. For example, Girand shared a recent court case in which a rancher sold sand to an oil company. The sand was sold to the highway contractor, but the state, who held the area’s mineral rights, claimed it was not the rancher’s to sell.

Once a company is interested in an area, called a new play, a company’s first step may be to shoot some seismic, a method of geophysical prospecting which involves bouncing elastic waves off layers within the earth to get a better idea where patches of oil might be located.

5

Most of the geophysical activity in the area is handled by a single company who shoots seismic and then provides the basic information back to its customer for additional interpretation.

“If it’s more of a frontier area, away from existing production, they might have to run several test wells to figure out what they have,” notes Wally Drangmesiter, director of communications with the New Mexico Oil and Gas Association. “If you have oil producing on either side of the lease and you know your geology is very similar, you may be able to just drill the well.”

“Not everybody uses geology every time,” Girand said. “Some use ‘close-ology’ where they rely on their experience of the oilfield.

We did it for years. Mack (Chase), he just kind of knew and it worked.”

Most of the time.

Girand recalls visiting a ranch near Lovington that belonged to a woman in her 80s. He pointed out where the company planned to drill.

“She looked at me and said, ‘There’s no oil over there,’” Girand recalled. “I told her we were going to try, and she just laughed and said, ‘Send me your check!’”

“She was right,” Girand continued. “There wasn’t any oil there!”

You’ve also got to apply for a permit to drill with the New Mexico Oil Conservation Division. It’s a relatively simple procedure compared to the federal application process, but there is another cost. It’s also worth noting that this entire model is taking place in three dimensions, so two competitors may be exploring a similar

6

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Focus on Oil & Gas | 2012

area (in terms of the X and Y axis) at vastly different depths. A 3-D leasing model can get pretty complicated.

Drilling a well takes several weeks or longer, depending on depth or whether horizontal drilling is involved. A drilling site can require about an acre of land. A company is expected to conduct some reclamation after drilling is complete, effectively shrinking the well’s footprint down during the hydraulic fracturing and pumping stages. The product of any well is going to be a combination of oil, natural gas and water. Innovations in the search for natural gas and innovations in the search for oil have played off of each other over the years.

7

Horizontal drilling has significantly enhanced the productivity of many areas of the Permian Basin.

8

“I’ve been doing this for over 30 years, and we used to tell our clients that many shales were full of oil, but few companies were interested in exploiting it because the technology hadn’t been developed yet,” said geologist Corky Stewart. “But now a well that comes out of shale might be doing 1,000 barrels a day. The technology has changed the mentality.”

pores inside that need to be squeezed.”

Fracking hasn’t been without its controversy, with some opponents suggesting that materials from the compound may eventually get to the water table.

“We have been doing frack jobs since 46, and EPA has been studying the process for the past few years, and no one has objectively found evidence of any frack job getting fluids into the water,” Girand said. “This is not something new, and it has never been a problem.”

One important name to local oil companies is the Bone Spring. Bone Spring is a geological formation in the Permian Basin that has been especially lucrative due to horizontal drilling. It is divided into different “members” according to rock type -- 1st, 2nd, 3rd Bone Spring Carbonates, and some of the shale members are also named. Oil production can come from any of these members, which is why the Bone Spring is so important to the area.

10

Where is Bone Spring? Remember this is the

oil and gas industry, so you need a 3-D map.

According to the website, the Bone Spring layer is located on the western end of the Permian Basin, about 8,000 feet down.

“We had an old geologist who thought for years something was there,” Girand claimed.

“We’d been drilling through some of the stuff, and we didn’t even stop to look at it.”

The Delaware Basin, a few thousand feet up from Bone Spring, has also been popular lately.

Most of what is currently going on in Southeastern New Mexico’s oil patch is what is called infield drilling because it is taking place in an already-existing oil patch.

11

Some of the wells in the area have been producing since the 1920s. The BLM has to consider anything more than 50 years old as a possible artifact, so some of the wells themselves can qualify as archeology.

12

These are just a few tidbits related to one of the region’s busiest industries. Oil’s well that ends well?

“They drug us into it kicking and screaming,” admitted Girand.

Shale is a fine-grained rock that forms from the compaction of silt and clay-size mineral particles commonly called mud.

Stewart said the oil and gas industry is traditionally fairly conservative about risk taking, but risk takers using new technologies inspired the massive turnaround in attitude about horizontal drilling. A horizontal well in Eddy County will cost between $6.5-$8 million. One advantage, notes the BLM, is that horizontal wells may reduce total rehabilitation needs on the surface because they draw from a larger area.

Hydraulic fracturing takes place after drilling but before pumping and relies on the seismic data collected earlier. It effectively puts pressure through the pipe’s perforations, which causes the rock near the perforations to crack.

9

According to the web site www.nmoga.org, a mixture of pressurized water, sand, and a specifically formulated fracturing compound is pumped thousands of feet down into the formation to create tiny, millimeter-thick fissures in carefully targeted sections of host rock. These tiny fractures free the trapped oil and natural gas. The sand helps to prop open the tiny fractures to facilitate the flow of oil or gas.

“It’s not an aquifer,” noted Girand. “Oil and gas might be in something like this table here, and there are just lots of microscopic

2012 | Focus on Oil & Gas

17

on education

Welding Program One Way to Get a Head Start The oil and gas industry is largely responsible for Eddy County’s low 3.5 percent unemployment rate, and New Mexico State University-Carlsbad seeks to help by offering programs for individuals who want to get a bit of a head start in specific industry-related careers.

The college offers degree and certificate programs in drafting and graphics, electronics, facilities maintenance, manufacturing, welding and building trades.

“We’ve recently been in discussion with Intrepid and Mosaic (potash companies) with the possibility of starting an Industrial Mine Maintenance program that is now under consideration,” said Christopher Jones, coordinator of the Manufacturing Sector Development Program at New Mexico State University-Carlsbad. This program would be focused on mine machinery maintenance and increase the number of trained skilled professionals for employability, specifically in that area.

Jones, who arrived in Carlsbad in June, said he’s worked in academic administration at several different colleges around the country. He said a welding certificate, for example, might take, at the fastest, 1½ years to obtain, and classes would either count toward an advanced certificate or Associate of Arts degree.

“With the certificate, you will be educated and trained in the latest technologies in welding, CAD, building trades, auto and body repair, and get some of the accreditations that go with the certificate or an Associates of Arts degree,” he explained. “We are sitting in the middle of an oil and gas boom here.

There is no reason why we can’t have the finest welding program in the world,

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Focus on Oil & Gas | 2012

at least the United States. Welders are in high demand throughout the world, especially Alaska and Hawaii!”

NMSU-C’s welding technology program provides specialized training to prepare students for entry-level welding positions. Blueprint reading and layout instructions are included, and help is offered to get students ready for AWS and ASME welder qualification tests. “(Instructor) Phil Spencer is one of the finest welders I’ve ever seen on the planet,” Jones added. “He’s also very student and community oriented.”

An Associate of Arts program, meanwhile, will include some additional classes in the campus core curriculum.

The certificate programs offered are concentrated on education, training and practical applications, which are more directed to finding employment as quickly as possible and being trained in daily work applications. The Associate of Arts programs are geared more toward advancing and transferring to Bachelor of Arts programs, leading to management positions.

Jones shared that Dennis Williams is the instructor for most of the college’s building construction programs, while Jason Quintana is the automotive technology instructor. Mr. Quintana teaches dual credit during the day for high school students at Carlsbad High School and runs the evening classes for college credit there also. The university’s manufacturing technology program offers classes in computer assisted drafting (CAD), computer aided manufacturing (CAM) and Photos: Welders are always in high demand, and New Mexico State University-Carlsbad’s Manufacturing Sector Development Program aims to provide the nation’s best training. (Photos courtesy of NMSU-C.)

computer numerically controlled systems (CNC), among other courses. Electronics technology training involves preparing drawings, building circuits, installing equipment, performing physical tests and repairing failures.

“These programs are all developing very quickly,” Jones said. “The NMSU-Carlsbad advantage is that we’ve got people on our staff with very good ties to the community who are dedicated and care about the future of our youth and those we educate and train.”

For more information on NMSU-C’s Manufacturing Sector Development Program, please call 234-9460 or e-mail cajones1@nmsu.edu.

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on refining

Navajo Refining Complex the process & technology that unlocks oil’s potential Crude oil can only go so far – a well-placed refinery is needed to complete the cycle.

Artesia and Lovington are home to the Navajo Refining Complex, owned by the Holly Frontier Corporation, and are positioned at either end of one of the nation’s busiest oilfields.

Michael McKee, Navajo’s vice president and refinery manager, said about 75 percent of Navajo’s crude oil is either local or piped in from the Midwest by way of Oklahoma. The remaining 25 percent is piped down from Canada.

Holly Frontier Corporation also owns buildings in Utah, Oklahoma, Kansas and Wyoming.

“The Artesia and Lovington facilities basically function as one entity, with the advanced processing all done in Artesia,” McKee said.

Local wells bring crude oil to Navajo via truck. The facility is open 24 hours a day, 7 days a week, and handles about 100,000 barrels of crude oil a day.

Navajo buys the crude oil from drilling companies and then sells the refined product to third parties for distribution.

After crude oil arrives at Navajo’s gates, the first step is to go through a distillation process using heat and pressure. This separation process separates the crude into gasoline, gas-oil residuals and some liquid petroleum gas products. A given barrel of crude oil, at this point, might only be 20 percent gasoline.

From there, a refining assembly line continues to maximize the product’s effectiveness and increase the

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Focus on Oil & Gas | 2012

percentage of the initial product that is useful.

“Our engineers are looking at optimizing the process, reducing energy use and handling the construction and infrastructure needs,” explained McKee. Navajo employs about 340 people, who handle the plant’s operations, equipment monitoring and laboratory work. Shannon Johnson, community affairs specialist with Navajo, noted that the company’s local services also include a transportation department, an environment department and a safety department.

“One of the key processes is sulfur removal,” McKee said. “Another key process we do is to try to maximize production to higher dollar products and convert the heavier materials into diesel and gasoline.”

A series of catalysts convert the oil and gas residual materials into gas and diesel. McKee said that this is where some of the biggest changes in technology have taken place.

“With higher technology, there’s a higher yield,” he noted. “A catalyst from 30 years ago would be amorphous.

Now, they have specific shape structures to control the yield. Over the past 10-15 years, the amount of sulfur in the final product has also gone way down due to improvements in the catalysts.”

“As it was originally explained to me, picture the catalysts as little Pac-men, and they have to be shaped just right to eat the hydrocarbon pellets,” Johnson said, noting that senior engineer Tom Shetina provided her with the

explanation.

Through a series of catalysts, Navajo unlocks all of the potential within that initial barrel of crude oil.

In the final step, the blending process, everything is mixed together according to customer and environmental specifications. “The final yield from a single barrel of crude oil might be 45 percent gasoline, 40 percent diesel and 15 percent residual material,” McKee explained.

The final product leaves Navajo the same way it came – either by pipeline or truck. Navajo markets some of its remaining residual materials directly, but sells gasoline and diesel fuel to third party distributors.

“It’s a healthy time for the industry,” McKee noted. “The new techniques being used in fracking and horizontal drilling have opened up availability in domestic drilling, but having refineries in these locations to take advantage of that is also an important part.”

McKee stressed the role of the refining process in the industry boom.

“The pipeline and the refiners, they are two key parts of the sequence,” he said.

McKee has spent the past year in New Mexico. “The thing that really impresses me the most is the dedication of the people here,” he said, noting that the company’s labor union and contractors also display such a commitment.

“There’s a dedication to the company and to the community here that just blows me away.”

History of Navajo

With the development of commercial quantities of crude oil in the Artesia field in 1924, the problem of where to market this new product arose. The nearest pipeline was at least two hundred miles away. The nearest railroad was eleven direct line miles away across the Pecos River with no bridge in sight. The town of Artesia was a good twenty miles away, and the roads were poor at best. As a result of this obvious need, a small 1,000 barrel-per-day (bpd) refinery was constructed in Artesia in 1925 by Continental Oil Company. About the same time, the first pipeline connecting the new Artesia Field to the refinery was completed.

As oil production east of Artesia continued to grow, the need for additional refining capacity was identified. In 1931, Maljamar Oil & Gas Company built a second refinery in Artesia directly south of the first refinery which was fully owned and operated by Continental Oil Company. The second facility had a crude capacity of about 1,800 bpd and became known as the Malco Refinery.

In January 1942 Robert O. Anderson and his partner purchased the Malco Refinery. In 1941 the Malco Refinery’s capacity had been increased to 3,200 bpd, and during World War II the capacity was increased to 5,000 bpd.

New oil wells were drilled continually, and additional refining capacity was needed once again. During 1939-1940 a third very small refinery was constructed about a half a mile south of the first two plants which was owned by Nu-Mex Asphalt and Refining Company. The refinery was sold in 1941 to a group of Fort Worth oil men. It was completely rebuilt as an 1,800 bpd crude and asphalt refinery, operating until 1953 under the name New Mexico Asphalt and Refining Company.

Although Continental Oil Company had continued to expand the original Artesia refinery, the company became increasingly aware that the plant was obsolete and it

would be an economical challenge to bring the facility up to current standards. Consequently, in February 1964 Continental purchased the Malco Refinery from Anderson and shut down the original refinery.

The New Mexico Asphalt and Refining Company plant had been expanded over the years to meet growing needs. By 1951 it had reached a capacity of 3,500 bpd. During 1952 the owners also completed construction of a 260 foot “cat cracker” derrick in the refinery to improve gasoline production. This addition and other changes increased the plant’s capacity to 11,000 bpd. This “TCC” tower, as it is known today, has served as southeastern New Mexico’s most well-known landmark and is a living monument to the important role petroleum has played in the development of our community.

In 1953 Anderson purchased controlling interest in New Mexico Asphalt and Refining Company and increased its capacity to 12,500 bpd, and once again there was a Malco Refinery in Artesia.

In 1959 Continental acquired the larger Malco Refinery from Anderson. Continental then merged the two refineries into one through interconnecting pipelines. At a capacity of 16,000 bpd, the refinery was the largest in New Mexico.

In 1969 Continental sold the refinery to Navajo Refining Company, a subsidiary of Holly Corporation, then led by C. L. Norsworthy, Jr. Seven years later, Jack P. Reid was appointed President of Navajo Refining Company, and in 1981 the company completed its largest and most sophisticated expansion project thus far. The new Fluid Catalytic Cracker or FCC was built at a cost of about $25 million dollars.

In 1989 the Lovington Refinery was acquired and put into service in 1991 at a cost of $12 million dollars. The increased capacity of

Photos: The Navajo Refining Complex unlocks the potential of the area’s crude oil. crude processing due to the Lovington operation was 30,000 bpd. In conjunction with bringing the Lovington plant online, several related projects were completed at Artesia to facilitate completion of the refining process begun in Lovington. These projects were the CCR, NHDU and SRU. In 1992 the Alkylation unit was installed at a cost of $11 million dollars. The expansions in 1991 and 1992 allowed the total crude capacity to increase to 60,000 bpd for the Artesia and Lovington facilities combined.

The next two decades would bring many improvements which significantly increased production. In 1995 and 1996 two hydrogen desulfurizer units and an isomerization unit were added to the Artesia facility for a total cost of 16.5 million dollars. In 1998 the FCC was upgraded. In 2000 a Diesel Hydrotreater was purchased from a closed refinery and was reconstructed at the Navajo Refinery in 2002. From 2005 through 2010, the refinery was equipped with two new ROSE units, a Mild Hydrocracker, a Hydrogen Unit, and a 100-ton SRU. FCC capacity was increased to 27,000 bpd. In 2010 the Crude Unit Expansion at Lovington and a Crude re-vamp in Artesia were completed.

In May 2012, Navajo hit a milestone. With the completion of all the expansion projects and new construction, Navajo processed 100,000 barrels of crude oil per day.

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