Note: This is Part II of a two-part series on the Horseshoe Gallup oil field in northwestern New Mexico. Read Part I.

State Senate 002 well in the Horseshoe Gallup field. Jonathan P. Thompson photo.

Arizona Exploration drilled the Petro-Atlas Bolack 1 well in 1956, marking the first oil and gas development in the Horseshoe Gallup Field in northwestern New Mexico. This sparked an oil-rush in the field—which includes Navajo, Ute Mountain Ute, Indian allotment, federal, and state lands—with a dozen or so operators drilling hundreds of wells over the ensuing half decade. Early operators included Standard Oil, El Paso Natural Gas, Pan American Petroleum, Condor Oil, Mobil, and Atlantic Refining Co.

The field’s wells reportedly had very steep decline curves, meaning production was high during the first few months after drilling, but dropped rapidly after that. In order to coax some more oil out of the field, various operators launched water-flooding operations in the early 1960s, meaning they injected large quantities of water into the field to stimulate the wells.

A production graph of the Horseshoe Gallup unit. Source: “Horseshoe-Gallup Water Injection Project—An Engineering Challenge,” The Atlantic Refining Co., 1964.

And when I say large quantities, I mean the companies injected as much as 30,000 barrels of water per day (1 barrel=42 gallons). That came from groundwater wells scattered throughout the field, and by 1964 the companies had sucked 630 million gallons of water from the aquifer, causing groundwater levels to drop some 700 feet. This surely would have dried out springs and domestic wells in the area.

As the field was bled dry (of both oil and water) and the wells went from gushers to strippers—marginal wells that produce less than 10 barrels per day—the big operators plugged and abandoned their wells or sold out to smaller, less financially stable firms. In many instances, the wells were then traded back and forth between marginal companies and even individuals for years. Sometimes the owners went belly up or just vanished into the ether, leaving the taxpayers to pick up the tab.

Using New Mexico oil conservation division records, court documents, press releases, and Securities and Exchange Commission reports, we traced the long and twisted lives of two wells in the Horseshoe Gallup Field, the State Senate 002 and the NE Hogback 53, and the companies that own them. They illustrate the way in which wells, which are not only a blight on the landscape but also tend to ooze methane and other pollutants, can be passed around like properties on a Monopoly board between companies that lack the wherewithal to properly operate or clean them up. But it also shows how regulators miss opportunities to hold companies accountable before they go broke.

These wells are not anomalies, by any means. Dozens of wells like these ones are strewn across the Horseshoe Gallup Field, wells that haven’t produced any oil or gas in years, that are owned by non-existent or insolvent operators, and that are still considered active, going concerns by state and federal regulators.

Saga of an Oil Well I: The State Senate #002, API 30-045-09889

1960 Standard Oil Co. of Texas applies for a permit to drill the Navajo 82-1-1 well on Navajo allotment land in the Horseshoe Gallup Field, where other drillers have been hitting gushers. But the hole is dry, and Standard plugs and abandons the well.

Between 1960-1981 The lease is eventually acquired by Raymond E. Sitta or his son, R.E. Sitta, Jr. The elder Sitta, a New Mexico state senator, dies in 1979.

1981 Raymond E. Sitta, Jr., applies for a permit to “move in cable tools, clean out cement plugs, and open hole to 1735 and test for oil production” on what is now called the State Senate #2. He finds oil, but state production records don’t go back this far, so there is no monthly production figure.

1984 New Mexico regulators “cancel the allowable” for the well after Sitta fails to file required C115 reports.

1992 Sitta files a request for authorization to transport oil from the well, indicating he is reviving an idled well.

2000 Regulators again warn him for failing to file C115 reports for over a year, but they don’t cancel his permits yet.

2005 Sitta applies for a pit or below-grade tank approval for an unlined production pit where he intends to put produced water.

1993-2007 The well produces between 17 and 55 barrels of oil per year, making it a marginal producer, at best. The last year of consistent production is 2007, when the well kicks out 24 barrels for the entire year.

2008 Sitta dies; the lease remains with his estate.

Don Schreiber inspects a sign on a tank at the State Senate 2 that still bears R.E. Sitta, Jr.’s name. Jonathan P. Thompson photo.

2011 BIYA Operators Inc., registered to Richard and Debbie Baldwin of Aztec, take over the well, the lease, and Sitta’s other wells, making BIYA one of the larger operators in the Horseshoe Gallup with about 50 facilities.

2012 The well produces a whopping 6 barrels of oil during 5 days of operation for the entire year, the only production between 2007 and 2022.

2014

An inspection finds “oil leak through stuffing box,” also noting, “Leak resolved.”
2014 Diversified Resources, Inc., (a Colorado based company with assets in the D-J, Raton, and San Juan Basins) purchases 98% of the outstanding shares of BIYA Operators from the Baldwins, including 48 producing wells covering 10,400 acres in the Horseshoe Gallup Field. Diversified reportedly pays $4.9 million, including $174,000 in cash, plus stock, notes and “assumption of liabilities.” Paul Laird, CEO of Diversified, says there is a lot of “industry interest in this area” and they are looking at a number of similar projects. Jubal Terry is the Exploration Manager/Geologist for Diversified. Under the agreement, BIYA would remain intact, Richard Baldwin would be an employee of Diversified and would be CEO of BIYA, and BIYA would drill several new wells in the area.

2015

An oil and/or produced water spill occurs at another BIYA Horseshoe Gallup facility, this one on Ute Mountain Ute land. Records of the spill and cleanup, if there was one, are scant.
BIYA “respectfully requests that this well {State Senate 2} have continued shut-in status. It is BIYA’s intent to install a new electric line and re-stimulate this well in the near future.”

2016

Regulators note that BIYA had not submitted required bradenhead tests for the well in 2015.
The Bureau of Land Management’s Farmington District Office sends a letter to Jubal Terry in Littleton, saying that State Senate #2 hasn’t produced since 2012 and Indian #3 hasn’t produced since 2007. “Since the above-mentioned leases are in their extended terms by production, they must contain a well capable of producing hydrocarbons in paying quantities … or they will be considered to have expired … If you consider the above-mentioned wells incapable of production in paying quantities, the subject leases will terminate and you should make plans to plug and abandon these wells.”
Three oil spills are reported at three different BIYA facilities in the Horseshoe Gallup field, but not at the State Senate #2.

2017

Four oil spills are reported coming from a BIYA pipeline system in the Horseshoe Gallup field. BIYA hires Souder, Miller & Associates to create work plans to cleanup the messes. Satellite imagery indicates that one of the spill sites was excavated, but the hole was never filled back in and the work does not appear to have been completed.
Diversified Resources and its affiliates (including BIYA) file their last SEC report, noting: “As shown in the accompanying financial statements, the Company has incurred significant operating losses since inception, has an accumulated deficit of ($13,311,716) and has negative working capital of $5,379,415 at April 30, 2017. As of April 30, 2017, the Company has limited financial resources. These factors raise substantial doubt about the Company's ability to continue as a going concern.”

2019

Diversified Resources Inc., along with its two affiliates (BIYA and Natural Resource Group), file for Chapter 11 bankruptcy in Colorado. “Debtor lists assets in the range of less than $50,000 and liabilities from $1 mil to $10 mil.”
Diversified Resources Inc. files to convert Chapter 11 reorganization to Chapter 7 liquidation. “The debtor is unable to obtain insurance for its lands as the property situated at tribal lands and the sovereign immunity issues on those lands. Absence of insurance can lead to cease operations of the debtor.” It was approved, meaning the companies should be liquidated with any proceeds used to pay creditors.

BIYA’s top 20 creditors and the amount the firm owes them include:

Ute Mountain Ute tribe: $124,818
State of New Mexico: $6,577
Office of Natural Resources Revenue: $11,642
Souder Miller: $31,288
JC Well Service: $39,393

2020 BIYA Operators file a notice of intent to abandon its interest in its mineral leases—including the State Senate and others in the Horseshoe Gallup Field—and any equipment or other personal property located on or used in connection with the leases or oil and gas wells. If there are no objections, the property would be deemed abandoned under bankruptcy law. There is no record of objections and this is the last filing or record in the bankruptcy case file.

July 2022 BIYA Operators is still listed as the owner of over 50 wells in the Horseshoe Gallup Field, all of which have not produced in at least one year but are listed as “Active” nonetheless.

Tanks adjacent to the NE Hogback 53 well. Jonathan P. Thompson photo.

Saga of an Oil Well II: The NE Hogback 53

The NE Hogback 53 isn’t your run of the mill inactive oil well. It’s an inactive well, two tank batteries, a storage site for broken down equipment and half-empty chemical bins, and it even has a leaky wastewater pit. But according to state records, it’s just another oil well—and an active one at that.

1995 Giant Exploration & Production Co. applies for and receives a permit to drill the NE Hogback 53 well in the midst of a heavily developed section of the Horseshoe Gallup field, about one mile east of where Arizona Exploration drilled the first well in this field, the Petro-Atlas Bolack, back in 1956. The proposed well was adjacent to a large clearing that housed at least one tank battery and a wastewater pit as early as 1991, according to satellite imagery.

1997 Central Resources Inc., having taken over the well, requests a six-month extension of Giant’s permit to drill.

1999

The Bureau of Land Management rescinds Central Resources permits to drill the NE Hogback 53 and three other permits for failing to drill within the permitted period.
Central Resources, ℅ Playa Minerals & Energy, with a Houston address, applies for and receives a new permit to drill the NE Hogback 53. It’s not clear if Central Resources simply changed its name or was acquired by Playa. But after this, the operator is listed as Playa.

2000 Playa Minerals & Energy drills the well, does a two-stage watergel/sand hydraulic fracturing job, and puts it into production with an initial rate of 44 barrels per day.

2001 Playa Minerals & Energy, in anticipation of a merger with Regent Group, Inc., changes its name to Vulcan Minerals & Energy.

2002

Vulcan Minerals and Energy notifies the BLM that it has brought the NE Hogback 53 back into production “following repairs to the gas engine and tank battery repairs.” But it files the report under the API number for the well permits that were cancelled in 1999, causing consternation for regulators, who note that they still show the operator as Playa Minerals (Vulcan/Playa seems a bit confused as to what they are called).
Playa Minerals & Energy reports an oil spill at the “Tank Battery near well #53” that releases 230 barrels—nearly 10,000 gallons—of oil and wastewater from a stock tank on the main tank battery.

2003 Parawon Operating, LLC, based in Mobile, Alabama, takes over as operator of the NE Hogback 53 and other wells owned by Playa/Vulcan.

2009 Parawon Operating asks for an extension of the shut-in—or temporary halt in production—period on 25 of its wells in the field, including the NE Hogback 53, “due to current economic conditions. When these economic conditions improve, the wells will be returned to production.”

2011 Chuza Oil Company takes over Parawon’s Horseshoe Gallup wells, including the NE Hogback 53. Bobby Goldstein is listed as president of Chuza, which is headquartered on Lovers Lane in Dallas, Texas. Goldstein helms Bobby Goldstein Productions, the producers of a reality television show called Cheaters. Goldstein will soon change his title to CEO of Chuza Oil and Patrick Padilla will become president of the company.

2012 Chuza requests authorization to take wastewater from two of its oil wells and inject it back into its NE Hogback injection facility for enhanced oil recovery, or to stimulate its aging Hogback wells to produce more oil.

2013 Chuza hires EnergyNet Inc. to sell its interests in the Horseshoe Gallup. It says “The combined 28 producing vertical wells produce more than 30 barrels of oil per day.” No sale ever takes place.

2014

Chuza Oil Company requests authorization to transport oil from the NE Hogback 53.
Chuza Oil Company enters Chapter 11 bankruptcy with substantial debts. Included in the debtor’s personal property are two reclamation bonds, one with the Navajo Nation for $32,550, and one with the BLM for $90,760. This would amount to less than $5,000 per well. A 2021 study finds the median cost, nationwide, to plug and reclaim a single oil and gas well is $76,000; the cost is substantially higher in New Mexico.

2015 Padilla, Chuza’s one-time president, is appointed assistant commissioner of the New Mexico Land Office’s Oil, Gas and Minerals Division.

2016

The NE Hogback 53 produces 17 barrels of oil in May 2016. This is the last recorded production from the well.
Chuza emerges from Chapter 11 bankruptcy.
State regulators file a bradenhead test report on NE Hogback 53, listing the well status as “shut-in.”

2017 State regulators notify Chuza that they are revoking the firm’s “authorization to transport from or inject into all wells you operate” because Chuza had not submitted its monthly operator reports. Production from all of Chuza’s wells ceases during or before 2017.

Chemical bins and a pumpjack at the NE Hogback 53. Jonathan P. Thompson photo.

2018 Chuza’s creditors file a petition to force Chuza into Chapter 7 bankruptcy. The case grows more and more byzantine as the months go by and includes allegations that Goldstein tried to extricate himself from the company to avoid responsibility for its debts, that Chuza continued to sell oil from its wells even after state regulators had revoked authorization to do so, and that the company made fraudulent payments to Goldstein’s family members.

2020 As the bankruptcy case drags on, Chuza files an intent to abandon its interest in 27 oil and gas wells and three injection wells in the Horseshoe Gallup Field, including the NE Hogback 53.

2020 The U.S. Interior Department objects to the intent to abandon, noting that the estate’s obligation to plug wells cannot be abandoned. It requests that the court order the debtor’s estate to “comply with laws reasonably designed to protect the public health or safety from identified hazards, including federal regulations obligating the performance of reclamation in connection with the Federal leases.”

2020 Interior agrees to a fixed claim of $117,106 against Chuza for reclamation and cleanup, allowing the abandonment to proceed. Whether Interior will be able to get that money is questionable. And it will only cover plugging and cleanup costs for two wells, maximum.

2022 Filings continue to be made in the bankruptcy case. The state oil conservation division website lists all of Chuza’s wells as “active” even though they have not produced since at least 2017.

***

In June of 2021, WildEarth Guardians sent notice to the New Mexico Oil Conservation Division of its intent to sue the state if it “does not address widespread violations of regulations requiring plugging and abandonment of inactive oil and gas wells.”

Specifically, Guardians says the Division is in violation of a New Mexico statute requiring that wells be “properly abandoned” within 90 days after a determination that a well is “no longer usable for beneficial purposes” or “a period of one year in which a well has been continually inactive.” The state’s records show more than 3,300 wells across the state fit the bill, including dozens in the Horseshoe Gallup Field. All of BIYA’s and Chuza’s wells, including the two chronicled above, are on the list.

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