Oil company wants to drill under Carlsbad city limits

An Artesia-based oil company wants to drill underneath Carlsbad, and a decision by the Carlsbad City Council will allow them to seek mineral rights from landowners and the city itself.

Santo Petroleum was permitted in two unanimous votes by city councilors to go door-to-door to lease mineral rights from owners, and to begin negotiations with the city for hundreds of acres of mineral rights it owns.

Carlsbad Mayor Dale Janway said the city currently owns about 160 acres of mineral rights within the city limits, but that number could grow to more than 600 through further title research by the city.

The challenge: many surface-level land owners in Carlsbad do not own the mineral rights of their properties. 

Santo Vice President Hanson Yates said the company has ongoing title research efforts to identify areas needed for the project, and who owns the rights. 

The city in an oilfield 

The company will extract oil from potentially thousands of wells drilled about two miles outside the city limits, but then will use horizontal drilling to engage with underground oil deposits. 

The plan, he said, is to drill vertically about 1.7 miles underground and then two miles horizontally into the city limits. 

Hydraulic fracturing could be used, Yates said, based on land formations found during the project. 

"The city is very much in an oilfield," Yates said. "This is not a novel concept."

At Friday's special City Council meeting where the project was approved, Yates touted the proven success of past horizontal drilling operations. 

He said thousands of similar projects were conducted in West Texas and other states, but Carlsbad is ideal for its already robust oil and gas industry and subsequent infrastructure that could be used in the project. 

"The fact that Carlsbad already exists on an oilfield, it will be much more feasible," Yates said. "You already have existing infrastructure."

With approval, Yates said Santo employees will immediately start going to residents who own mineral rights, seeking five-year leases of the rights in order to begin drilling. 

'Thousands' of owners

The process of identifying mineral rights owners could take up to two years, Yates said before extraction operations begin. 

"One of the reasons it hasn't been done here before is because it's such a massive undertaking," he said. 

Yates refused to comment on how much money owners would be offered in the leases, explaining the rates would be based on the acreage acquired. 

He said small land owners could make thousands of dollars in royalties if the wells yield good results.

Owners who do sign leases, will get a signing bonus, he said. Yates said he expects Santo to seek "thousands" of mineral rights leases within the city limits. 

"It's literally thousands of tracks, and thousands of owners," Yates said. "The most important thing is for us to be good neighbors."

Leases will not entitle Santo to any of the surface of properties, only the minerals that exist underground. 

"The biggest elements to the public are coordinating what happens on the surface," Yates said. "You won't even know."

Fracking and horizontal drilling has raised concerns among environmental groups in recent years, but Yates said he is certain the operations will not negatively impact Carlsbad. 

"I know it's a popular topic," Yates said. "But fracking has been done safely for years and years."

What about the sinkhole?

As for the city's brine well and potential sinkhole near the South Y highway junction, Yates said drilling will go well beneath the depth of the cavity and operations will focus on the northern portions of the city, at least a mile from the brine well. 

The 400-foot deep cavern is predicted to collapse by 2020, and would destroy key infrastructure elements of the city and Eddy County, while also posing a dire public safety risk. 

During his presentation to the council, Yates said Santo has a "high level" of confidence the brine well will not be impacted. 

Santo's wells will be positioned outside the half-mile radius that comprises the "area of review" set by the New Mexico Oil Conservation Division, he said, for drilling operations near the affected zone. 

"We're very aware of the it," Yates said of the brine well. "We've done a lot of research so our activity will have zero impact. We understand the seriousness of the situation."

Ned Elkins, Los Alamos National Laboratory's Carlsbad operations manager and member of the Carlsbad Brine Well Advisory Authority, said he foresees Santo's operations extended into south Carlsbad, but the depth of the drilling will ensure the brine well is not affected. 

"I'm confident it will not affect the brine well," Elkins said. "Not just from proximity, but surface location. The brine well is such a shallow phenomenon. They're going two miles deep."

City officials said they intend to negotiate a lease with Santo, once all of the city's rights are officially identified.

City Attorney Eileen Riordan said during the negotiations, city leaders must keep the interests of their constituents in mind. 

"We ourselves are a mineral owner. We're also a surface owner," she said. "Also we have our general police powers. Those powers are to protect the safety and welfare of the citizens."

She said drilling itself is regulated by the Oil Conservation Division. 

"We're not without authority," Riordan said. "Our authority is in certain areas, but not in others."

City Administrator Steve McCutcheon said regardless of the city's stance, Santo would likely be able to drill by acquiring mineral rights the city does not own. 

"We couldn't stop this if we wanted to," he said. "But we have consultants out there. We're keeping track of it. We have a responsibility to the people of Carlsbad, and we take that very seriously." 

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.