May 19, 2012

Big plays, big profits

Northern Colorado’s Niobrara shale formation has been producing oil since the late 1800s, but, as most anyone in these parts can tell you, 2009 was the year Niobrara put the region on the oil-and-gas exploration map.

In October of that year, EOG Resources drilled the Jake well and a year later it was steadily pumping out 2,500 barrels per month, compared with a national average of 300 barrels per well. At the end of 2010, Noble Energy’s Gemini well had produced 32,000 barrels over a six-month period.

Now, the Niobrara, which is part of the larger Denver-Julesburg Basin, is being compared with North Dakota’s highly productive Bakken shale oil and gas region. Most of the Niobrara activity is clustered around Northeastern Colorado and across the border into Wyoming.

SPONSORED CONTENT

Ways to thank a caregiver

If you have a caregiver or know someone who has been serving as a primary caregiver, March 3rd is the day to reach out and show them how much they are valued!

Weld County in particular is the spot to be for oil and gas producers. North-central Colorado’s Wattenberg field, also part of the Denver-Julesburg Basin, is another promising area drawing lots of attention.

Given the oil and gas world’s growing interest in Northern Colorado, it makes sense to step back and take a look at the major players.

Figuring out who they are, however, isn’t just a matter of seeing who has the most wells, rigs or permits.

The companies themselves aren’t particularly talkative when it comes to plans for the region, most likely because they don’t want to tip off the competition.

Based on conversations with government regulators, industry officials and trade association spokespeople and a look at what the outside experts are writing, three companies emerge as Niobrara’s top players – EOG Resources Inc., Noble Energy Inc. and Anadarko Petroleum Corp.

Following close behind are two of what we’ll call “honorable-mention” contenders. Here is a quick look at the big three, in no particular order, followed by a roundup of the honorable mentions.

EOG Resources Inc.

Since EOG’s Jake well is credited with starting the rush to Northern Colorado, it makes sense to start with this company. EOG spokespeople, as was the case with the other two big three, declined to answer direct questions and instead pointed to U.S. Securities and Exchange Commission filings and analyst conference-call transcripts.

Those SEC documents show that Houston-based EOG’s revenue grew from $6.1 billion in fiscal 2010 to $10.1 billion in fiscal 2011.

The company also said it is increasing resources for oil exploration and production and decreasing those resources for natural-gas production because of declining natural-gas costs.

Given that the Niobrara is thought to be rich in oil and liquid natural gas, that shift in resources could be good for the region.

Liquid natural gases such as propane and butane are trading at higher prices than “dry” natural-gas, the refined, almost pure methane product used to heat homes.

According to oilshalegas.com, an oil and gas industry web site, EOG has three successful wells in the Niobrara. According to various articles from oil and gas industry experts, EOG has 220,000 acres in the Niobrara, and 76 percent of that acreage has proven viability for drilling.

As for the Jake well that kicked off the land rush, Mark Papa, EOG CEO, said during a conference call with analysts that the well is producing 275 barrels per day, down from its peak but demonstrating a low decline rate.

Noble Energy Inc.

Noble has leases on 860,000 acres in the broad Denver-Julesburg Basin with 190,000 of those acres in Northern Colorado, primarily in the Wattenberg field.

According to its SEC filings, the Houston-based company plans to invest some $8 billion in the Denver-Julesburg Basin between now and 2016.

Currently, the company is pumping 62,000 barrels of oil equivalent (BOE) per day in the region.

Noble thinks its Denver-Julesburg holdings could yield a total of 1.3 billion barrels of oil. In 2011, the company drilled more than 85 horizontal wells and it plans to double that pace in 2012.

During the third quarter of 2011, the company drilled an average of eight horizontal wells per month, double its pace at the end of the second quarter.

In the Niobrara alone, yields from horizontal wells were up to 14,500 BOE per day, up 64 percent from the end of the second quarter.

Noble also said it plans to add acreage in Northern Colorado, but at a more controlled pace than in recent years.

In its last fiscal year, Noble’s revenue increased to $3.7 billion from $3 billion the year earlier.

Anadarko Petroleum Corp.

In mid-November, Houston-based Anadarko released an update on its Niobrara operations. At that time, the company had 11 horizontal wells that were achieving strong initial results and high liquids yields.

The company expects to drill in 1,200 to 2,700 future locations and estimates ultimate yields of 300,000 to 600,000 BOE per well. Ultimately, the company expects a net yield out of Niobrara of 500 million to 1.5 billion BOE.

Chuck Meloy, Anadarko senior vice president of worldwide operations, said initial rates from Niobrara wells are averaging 800 BOE per day, which is considered very promising.

Anadarko bills itself as the largest net producer in the Denver-Julesburg Basin with production of 70,000 BOE per day.

The company has 900,000 acres throughout the broader basin, with 350,000 acres in the Wattenberg field. It has 5,200 wells in that field. This year, the company plans to drill an additional 160 horizontal wells, up from 40 in 2011.

Meloy said the Wattenberg field is proving to be among Anadarko’s most cost-efficient projects in its U.S. onshore portfolio.

Anadarko posted revenue of $14 billion in fiscal 2011, compared with $11 billion in fiscal 2010.

Honorable mentions

Two other companies ranked highly, according to sources, but weren’t considered in the top three.

n Calgary, Canada-based Encana Corp. has 48,000 acres in Northern Colorado and five wells producing 260 to 540 BOE per day and 100 to 200 BOE per day of liquid natural gases. The company has identified another 200 drilling sites.

n Oklahoma City-based Chesapeake Energy Corp. at the end of 2011 announced it was selling a 33.3 percent interest in its 800,000-acre Denver-Julesburg Basin holdings to Hong Kong-based CNOOC Ltd. Its 16 wells in the basin are producing 1,000 BOE and 3 million cubic feet of natural gas per day. The company plans to have 20 rigs operating in the basin by the end of 2012, up from 10 at the end of 2011.

Northern Colorado’s Niobrara shale formation has been producing oil since the late 1800s, but, as most anyone in these parts can tell you, 2009 was the year Niobrara put the region on the oil-and-gas exploration map.

In October of that year, EOG Resources drilled the Jake well and a year later it was steadily pumping out 2,500 barrels per month, compared with a national average of 300 barrels per well. At the end of 2010, Noble Energy’s Gemini well had produced 32,000 barrels over a six-month period.

Now, the Niobrara, which is part of the larger Denver-Julesburg Basin, is being compared with…

Sign up for BizWest Daily Alerts