BP American Production Co. is contemplating pulling out of the San Juan Basin natural gas and oil field in what could be another devastating hit to the economy in Southwest Colorado and northern New Mexico.
In a letter sent Tuesday to employees, Dave Lawler, BP’s chief executive officer of its U.S. Lower 48 Onshore business, announced plans to sell assets in the San Juan Basin, as well as the Anadarko Basin in Oklahoma and Texas, and the Arkoma Basin in Oklahoma.
The letter was anonymously leaked to The Durango Herald and confirmed by BP officials.
Lawler wrote that BP “intends to sell” assets in these natural gas and oil fields as part of a plan to divest $5 billion to $6 billion to help fund the purchase of U.S. shale oil and gas assets from global miner BHP Billiton.
BP’s purchase of BHP’s assets for $10.5 billion was announced in July and marked a major turning point for BP, which will increase its onshore oil and gas resources by 57 percent.
The move, however, could cost millions of dollars in revenue – as well as hundreds of jobs – in the communities around the San Juan Basin, which have been reeling for years from the downturn of the local energy industry.
“This has been one of the most difficult decisions of my career, and I announce it with mixed emotions,” Lawler, who became CEO four years ago, wrote in his letter to employees.
The San Juan Basin is a natural gas and oil field that spans across northern New Mexico and Southwest Colorado. It was once one of the leading producers of natural gas in the country.
Discovered in the early 1920s, the San Juan Basin is one of the oldest producing areas in the U.S., but the field didn’t flourish until the 1990s. Now, there are more than 30,000 wells in the basin.
But production has waned since the mid-2000s, largely attributed to lower global prices and the discovery of other energy fields where it is easier and cheaper to operate.
The largest companies operating in the San Juan Basin have dropped out recent years. ConocoPhillips sold its stake in the region for $3 billion in 2016. And earlier this month, Williams Partners sold its assets for $1.125 billion.
Despite the downturn in the basin, BP has remained an economic mainstay.
The company’s production of natural gas, according to state records, has remained consistent since 2013, after a dip from the peak years between 2000 and 2011 when the industry was booming.
In 2017, BP accounted for more than half of the total natural gas production in La Plata County, and 75 percent of new drilling permits. That year, BP produced more than 162 million cubic feet.
The next highest operators were the Southern Ute Indian Tribe’s Red Willow Production Co. at 52 million cubic feet and XTO Energy at 14 million cubic feet.
BP has also made significant investments to modernize and update its equipment in the field and has tested new technologies in the area. It also planned to move its offices to downtown Durango.
Brett Clanton, a spokesman for BP, said there are no immediate changes to the company’s operations in La Plata County.
“All of those pending permits, plans to move the office – all that is business as usual,” Clanton said.
BP’s area manager John Mummery, speaking at a “state of the community” address at the DoubleTree Hotel on Thursday morning, said the San Juan Basin has enough reserves for about 20 to 30 years of viable production.
“La Plata County still has a robust future,” Mummery said. “We’re constantly finding new formations, implementing new technologies.”
Lawler wrote to employees that BP is entering the beginning of a sales process that could take up to two years, and that a particular asset may not be sold if the company cannot obtain a price it deems appropriate.
“Therefore, it is critical that we continue working in a safe and efficient manner, and that we continue filing permits and generating development plans,” Lawler wrote.
BP’s purchase of BHP’s assets does not close until October, Clanton added.
The prospect of the San Juan Basin’s most established company leaving has local officials worried for the economic future of the region.
“It’s a huge deal because we’ve seen so many of our large companies sell off their assets in the last several years,” said La Plata County Commissioner Gwen Lachelt. “In the back of our minds, we’ve all been concerned this day was coming.”
From 2010 to 2018, La Plata County’s property tax revenue has declined nearly 50 percent, from $29.4 million to $14.9 million, as a result of the decline of the oil and gas industry.
In 2018, oil and gas operations are expected to account for nearly $4 million of the county’s total projected property tax revenue of $14.9 million.
BP has consistently ranked among the top five tax-payers in the county.
As a consequence, the county has been forced to cut back on services it can provide, and with no signs of a turnaround, local government and agency leaders have been left trying to find ways to operate with less.
But perhaps an even bigger hit with BP’s potential departure is the loss of high-paying jobs at the company’s Durango office, which employs about 90 people, and the many contributions to local nonprofits. Basin-wide, BP employs about 200 employees as of 2016 data.
Lachelt said it’s common that when big companies sell off their assets in older natural gas or oil fields, they are taken on by smaller operators who usually don’t have that sense of community.
“We really hope to develop those strong relationships with the new companies coming in,” she said.
Roger Zalneraitis, executive director of the La Plata County Economic Development Alliance, reiterated a similar sentiment.
“BP has also been an incredible corporate citizen for Durango and La Plata County, from its commitment to contracting with local businesses to its support for our nonprofits, communities and schools,” he said. “I wish for the best outcome for BP and its employees.”
Lawler wrote to employees that the assets to be sold have significant development potential, but the company is “obtaining even better assets that will deliver a higher investment ratio and make us a much stronger company in the future.”
“The decision rests solely on which assets have the greatest potential to generate the most value for our company given the commodity pricing outlook over the next decade, and thereby provide the best opportunity for long-term success,” Lawler wrote.
jromeo@durangoherald.com
