Baca Oil & Gas Project - Colorado

Lexam’s Baca Oil and Gas Project is located along Colorado’s Rocky Mountains and is approximately 72km southwest of the Florence Field, the second oil field in the world (in production since 1881), and 175km northeast of the San Juan Basin, the largest Colorado natural gas producer since 1927. The project is situated on 100,000 acres (40,469 hectares) and is owned 75% by Lexam VG Gold and 25% by ConocoPhillips, one of the world’s largest oil and gas producers.

Work on the Baca Project began in 1992, when Lexam was drilling for gold and discovered oil in 27 shallow drill holes situated on the western flank of the Sangre de Cristo Mountains. Lexam's discovery of a new Cretaceous sub-basin, containing rocks that are prolific producers of oil and gas in the Rocky Mountain region, changed the outlook for the project. To date, the San Luis Basin has seen limited oil and gas exploration. The discovery of oil in the area was to everyone's surprise, as at that time geologists believed that the San Luis Basin did not contain the needed source rock for oil and gas production, as seen in other large producing basins in Colorado and surrounding states, like the San Juan Basin and the Raton Basin.

The discovery of oil was the first indication that conventional wisdom was about to be proven wrong. Independent tests confirmed that the oil was naturally occurring crude oil that came from Cretaceous age sedimentary rocks. Subsequent drilling and geological mapping found outcrops and subsurface occurrences of Mancos Shale, Dakota Sandstone and rocks of the Morrison Formation, precisely the rock formations expected to be uncovered by oil analysis and that are prolific producers of oil and gas in much of the Rocky Mountain region.

The San Luis Basin is bracketed by giant, basin-centred gas accumulations in all surrounding basins where Cretaceous rocks are present at depths greater than 8,000 ft (2,400 m). The San Juan, Denver and Piceance basins have all produced large amounts of oil and gas from the Cretaceous units. The San Juan basin, for example, had over 93 trillion cubic feet of natural gas and 394 million barrels of oil delivered to date. The burial history of the Cretaceous section and modelling of the temperature gradient in the San Luis Basin place prolific source rocks of the Mancos Shale within the oil/gas generation window.

The Crestone East and West Prospects have been mapped according to current seismic data as closed structures in the northwest quadrant of the property, underlying areas of 4,060 acres (1,650 hectares) and respectively 6,945 acres (2,800 hectares). The sealed trap characteristic makes them significant targets for the discovery of economic accumulations of gas and oil.

Immediately down-dip of the strong shows of live oil encountered in Lexam’s exploration drill holes, the Pole Creek prospect is a shallow 1,300 acres (525 hectares) oil target near the eastern margin of the basin, with a structural setting analogous to that of productive reservoir rocks encountered at Grant Canyon, Bacon Flat and Blackburn Fields.

In addition, based on samples, shows, palynology, oil typing, outcrops, gravity and a seismic correlation to the Mancos-Dakota-Morrison section in the Raton Basin 35 miles (56 km) to the southeast, it appears that the Baca Graben of the San Luis Basin contains a blanket accumulation of hydrocarbons in a Mesozoic package approximately 3,000 ft (900 m) thick, at depths of 7,000 to 17,000 ft (2,100 to 5,200 m). Half of the 49,000 acres (19,800 hectares) of the graben's aerial extent projects into Lexam's Baca Grant area, adding another important target for the exploration of significant basin-centred oil and gas accumulation.

In 2008 the United States Fish and Wildlife Service ("USFWS") had issued a Finding of No Significant Impact ("FONSI"), the final approval required for the planned oil and gas exploration program to move forward. USFWS reached its decision based on the results of an Environmental Assessment ("EA") conducted under the National Environmental Policy Act ("NEPA"), a review process that lasted 15 months and involved extensive public meetings, participation and comment by all interested parties.

The Baca Project has been consistently challenged by opposition groups and in November 2008 the San Luis Valley Ecosystem Council ("SLVEC") made a motion to reopen litigation against the USFWS, maintaining that the decision to issue a FONSI based on the EA does not comply with NEPA. In September 2009 the Federal District Court granted the SLVEC motion for a preliminary injunction against the USFWS. This decision prohibits any exploration drilling by Lexam until a final ruling is reached in the litigation.

Since November 2009 the parties to the litigation attended conferences where various proposals have been discussed, including an offer to sell the mineral interests underlying the Baca National Wildlife Refuge and surrounding areas for cash consideration. Lexam also agreed to participate in a process of preparation and completion of a new document by USFWS in compliance with the US NEPA and in April 2011 a FONSI was issued. As at this time no settlement has been reached.

To view the latest summary review on the property, please click here.
To view the top 100 oil and gas fields as measured by proved reserves (2009, U.S. Energy Information Administration), please click here.



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