Diana

Washington Valdez

A Texas energy company is set to begin drilling exploratory wells east of El Paso County that could lead to a shale oil bonanza in the region.

Torchlight Energy Resources Inc. recently acquired 172,000 acres in West Texas for this purpose. The land that Torchlight described in its announcement, the Orogrande Basin lies in mostly contiguous acreage 22 miles east of El Paso County. A majority of the land inside neighboring Hudspeth County involves oil and gas properties leased by the University of Texas System.

Tom Lapinski, Torchlight CEO, said This new Orogrande Project has the potential to add 2,500 wells to our current drilling inventory of approximately 1,000 existing locations.

The company will be required to pay a total consideration of 865,000 shares of Torchlight common stock and $100,000 in cash to McCabe Petroleum for the acquisition. The acreage involves five-year leases that carry additional five-year extensions provisions.

Torchlight (NASDAQ: TRCH), based in Plano, Texas, is a high growth oil and gas company with a primary focus on acquisition and development of highly profitable domestic oil fields, according to the company’s website.

We are very excited about this exploratory undertaking for the company, said Will McAndrew, Torchlight’s chief operating officer. This new asset gives us the opportunity to prove up and develop the western most section of the Permian Basin and a chance to make history with another emerging play.

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McAndrew said geologist Rich Masterson developed the idea that the region may harbor rich oil and or gas deposits.

Under the terms of the acquisition, Torchlight will begin operations no later than March 31, with a six-month continuous drilling commitment after that.

El Paso’s economic experts and strategists are keeping an eye on the developments.

Although the costs of production are still unknown, the prospects of energy production in Hudspeth County raise all sorts of business possibilities, said Tom Fullerton, chairman for the Study of Trade in the Americas at the University of Texas at El Paso.

If the field holds sufficient reserves that are economically feasible to develop, it could spur regional growth in manners not contemplated since underground water was discovered near Dell City in 1948. Of course, that discovery was made by oil prospectors and there is no guarantee that the oil and gas deposits that may lie in the Orogrande Basin can be mined at current prices.

It is still too early to know what will happen, Fullerton said, but an energy boom could easily transform the two-county (El Paso and Hudspeth) region in profound manners.

Torchlight’s initial test program is expected to consist of four vertical wells, each drilled to a total depth of 6,000 feet. The company said its analysis from the tests will determine the presence of oil and gas and horizontal exploitation potential.

The first wells will be drilled near four historic wells, which originally confirmed a 1,300-foot section of organic rich siltstones and silty shales that Torchlight expects to encounter across its acreage, McAndrew said.

El Paso city Economic and International Development Director Cary Westin said that although the project is speculative at this stage, it’s going to be pretty exciting if they are able to find oil resources there.

There are lots of social issues associated with boomtown effects, but as we’ve seen with Fort Bliss, El Paso is prepared to handle a large influx of population and attendant job growth. This could bring some really good-paying jobs, and further bring down our unemployment rate.

Torchlight’s exploratory drilling may also involve fracking, a hydraulic fracturing extraction technology that environmentalist have criticized. Change.org carries an online petition against this practice in the West Texas region.

Torchlight Energy says that it may drill up to as many as 2,500 wells on this area immediately east of El Paso called the Diablo Plateau which, with the Otero Mesa in New Mexico, forms a rich ecosystem of plants and animals, according to a post by El Pasoan Jim Tolbert on elpasonaturally.blogspot.com, with a link to the online petition. Torchlight Energy Resources must not drill there. The University of Texas Lands System must not allow them.

A spokesperson for Torchlight was unavailable late Friday to comment on the fracking concerns, and the University of Texas System did not have any concerns.

The technique of horizontal hydraulic fracturing has enabled production from these lands to triple in the last three years. The University of Texas System does not take a position on fracturing, said Jenny LaCoste-Caputo, spokeswoman for the University of Texas System in Austin.

However, the University Lands Office takes very seriously its role in ensuring all drilling is performed in a safe and sustainable manner. For example, we require that only non-potable water be used in hydraulic fracturing on University Lands, LaCoste-Caputo said. More than 1,000 new wells a year for the past three years have been drilled on University Lands with no adverse environmental effects.

In the Nov. 4 general election, residents of Denton, Texas, voted to stop fracking in that city with 59 percent of the voters supporting the ban. The measure that passed faces considerable challenges from energy organizations and state agencies.

Aaron Velasco, a geologist at the University of Texas at El Paso, who is familiar with the Mexican government’s interest in attracting fracking industries along the Northern Mexico border, said previous efforts to get at potential oil and gas deposits in West Texas had not been fruitful. But, the newer technology could change that, Velasco said.

LaCoste-Caputo provided some history about the recent land transactions.

The Board for Lease of University Lands, chaired by Commissioner Jerry Patterson and made up of UT and Texas A&M regents, approved the leases, she explained.

These leases were originally bought by Arabella Petroleum at University Lands’ 123F lease sale in April 2013, LaCoste-Caputo said. It was then sold to McCabe Petroleum in March 2014, and then to Torchlight Energy in July 2014.

Fracking in recent years has seen boomtowns in Oklahoma, Kansas and in the Eagle Ford area of South Texas. Midland and Odessa have reported a revival of the oil industry in that region, and a big demand for workers.

Rob Gurrola said his son found a petroleum job in Odessa after languishing for months without a job in El Paso. He’s been commuting, coming home on the weekends, but he’s thinking of moving out there permanently. He and his friends all found jobs there, Gurrola said.

Reducing the nation’s dependence on oil imports has been one of President Barack Obama’s primary energy and economic goals, and by focusing on the domestic production of oil and gas, the country appears to be on track for meeting those objectives, according to the White House.

By 2012, net petroleum imports had fallen by one-third since 2008 to the lowest level in 20 years, White House officials said.

They also said that every barrel of oil or cubic foot of gas produced domestically instead of importing means more jobs and faster growth, and a lower petroleum-related trade deficit (down from 40 percent in 2009 to 25 percent in 2013) for the United States.

Besides opposition from environmental groups, companies that conduct large-scale shale oil and gas production have new challenges to overcome the recent drop in worldwide oil prices and strategies by rivals in the Organization of the Petroleum Exporting Countries (OPEC) to stop or slow the advancement of shale oil producers like Torchlight.

Reuters news agency published a story Nov. 28, Inside OPEC room, Naimi declares price war on U.S. shale oil, that highlights the concerns of OPEC members that feel threatened by U.S. domestic producers. OPEC’s 12 members include Saudi Arabia, Kuwait, Venezuela and Ecuador.

While consumers have welcomed the drop in crude oil prices in the form of lower gasoline prices at the pump, what’s been good for consumers may mean smaller profits for producers, including those in the young shale oil industry.

Steve Austin, analyst for Oil-Price.Net said, Transport costs feed into the price of every physical product, so if oil gets cheaper, everything gets cheaper. If the oil price falls too far, however, the USA’s recent fracking boom will come to an end. Forces are at play to end the USA’s projected energy independence and return the country to dependence on the Middle East for its fuel supplies.

Diana Washington Valdez may be reached at dvaldez@elpasotimes.com; 546-6140: @eptimesdiana.