Exxon Mobil has a potassium problem in the Permian Basin

A vital crop nutrient lying underground near oil and natural gas reserves is holding back Exxon Mobil Corps

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development of a major asset in the booming Permian PR 0.19%

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Unlike many of its rivals in the largest U.S. oil field, the Texas oil company shares a significant portion of its land with mining companies that extract potash and other minerals used to produce fertilizer from underground mines, allowing immediate access to drilling machines until bounties of oil is blocked. soaked rocks.

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paid $5.6 billion in 2017 for prime acreage in New Mexico’s fast-growing Delaware region, part of the wider Permian, which extends into Texas, and is now a pillar of the company’s growth plans.

In the potash area, Exxon and other oil companies must operate from so-called oil rigs, designed for safety.


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Exxon Mobil Corp.

But more than a quarter of Exxon’s best acreage in New Mexico coincides with underground potash mines, according to oil analysis firm FLOW Partners LLC. Due to regulations, higher drilling costs and safety concerns for underground miners, wells in that area are more expensive to complete and less productive, people familiar with Exxon’s business, industry executives and analysts say.

Exxon’s efforts there, people say, will yield less oil and gas, and ultimately less profit, than in other areas of the Permian. The company has not disclosed to investors that the land it purchased in the potash region could be affected by these issues because it does not deem it material, Exxon spokeswoman Meghan Macdonald said.

Ms. Macdonald said Exxon can produce from virtually any location, despite the potential challenges. Exxon has not deviated from drilling plans around the potash area, and the challenges have not affected the company’s broader Permian plans. “There’s nothing to reveal,” she said.

Exxon knew part of its drilling effort would involve maneuvering around active mines when it acquired the land, and believed its engineering skills could solve operational problems, according to those familiar with its operations. But a confluence of challenges has made drilling there more difficult than Exxon initially anticipated, the people said.

In October 2018, Exxon subsidiary XTO Energy Inc. a coupling failure on the steel casing of one of his wells near a mine during a fracking operation, according to interviews and emails reviewed by The Wall Street Journal. The pressure released by the link failure pushed liquid and natural gas far beyond buffer zones intended to protect the potash mines, ending up blowing up a crater from a nearby 1970s exploration hole.

Several workers were evacuated from a nearby mine after receiving a call from Exxon. There were no injuries, but the incident has prompted calls from the region’s largest mining company, Intrepid Potash Inc.,

for stricter rules for oil operations.

Ms. Macdonald said that oil and gas have been safely co-developed with potash for decades, and that Exxon and other companies are safely producing oil in potash areas.

In 2012, the Ministry of the Interior enabled much more oil and gas development on nearly 500,000 protected acres earmarked for potash development, the year after the two industries began coming together as the Joint Industry Technical Committee to strengthen cooperation. ease. But some Permian oil executives said they haven’t bought land in the potash region for years, given strict regulatory requirements that sometimes mean waiting as long as 18 months for drilling permits. The region is also far from the rest of the oil field and the energy, pipeline and service companies that help bring oil to market, which increases costs.

Exxon paid $5.6 billion in 2017 for prime acreage in New Mexico’s fast-growing Delaware region, part of the wider Permian Basin.


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Joe Raedle/Getty Images

Exxon has nearly 1,200 drilling sites in the potash area, according to FLOW Partners. The wells Exxon has drilled in the potash area are about 5% to 10% less productive than the wells outside that area, in southern parts of Delaware that are considered more productive, according to investment firm Pickering Energy Partners.

Those wells are left behind in part because drilling near mines requires companies to operate from so-called rigs, pack wells close together from one location, and then drill sideways to reach under the mines. As a result, producers have fewer places to choose from for their wells and often cannot tap all the oil they target.

Jason Gahr, Exxon’s unconventional well operations manager, said the company has drilled longer horizontal sections, allowing it to reach further below potash, and has become a more efficient producer in recent years. Exxon has said it will increase its oil and gas production in the wider Permian by about 20% this year.

Regulatory restrictions and safety concerns may incur other costs. For example, companies typically use an additional set of steel casings around their wells in the area, adding about $1 million in steel costs. Some executives estimate that drilling wells in the potash region is about 25% more expensive than drilling regular oil and gas wells.

Intrepid Potash has prompted regulators to expand an investigation into the design of oil wells in the potash region to include an investigation of buffer zones.


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Jim West/Zuma Press

“You have to reach out to develop all your leases from an oil rig, and they don’t promise to develop every barrel you have,” said John Smitherman, a former senior executive at Bopco LP, the private oil company whose assets Exxon bought in his 2017 deal, and former JITC co-chair.

In recent months, oil companies and Intrepid have clashed over security concerns. Many of Intrepid’s concerns stem from the 2018 incident, Chief Executive Bob Jornayvaz said. It urges regulators and its oil and gas counterparts on the joint committee to expand a planned third-party study to include research into the appropriate size of buffer zones between wells and mines.

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Intrepid said it is willing to sacrifice its own reserves if a study finds the industries need larger buffer zones to keep underground workers safe. Oil executives say such a study is unnecessary and that larger buffer zones would give them fewer places to drill, to the detriment of production.

Following metallurgical testing following the 2018 incident, Exxon said it determined that the heat treatment process on the cracked coupling had caused some of the pipe to become brittle. The company has revised the design of the well, it said, including using thicker casing joints, and conducted other safety investigations.

“Representatives from the two industries are actively collaborating on safety protocols and best practices,” said Ms Macdonald.

Mr Jornayvaz said he is wary of the current half-mile buffer zones for gas wells and quarter-mile for oil wells, which were created at least a decade ago and do not take into account recent oil and gas extraction practices. .

Officials at the Interior Ministry’s Bureau of Land Management said it is currently commissioning a study into the design of wells for oil companies operating in the potash region, but the study will not focus on buffer zones.

Write to Collin Eaton at [email protected]

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