The Denver-Julesburg Basin in northeastern Colorado and southeastern Wyoming has been producing crude oil for many decades now, but there were only a few crude gathering systems there until just the past three or four years, which were marked by a rapid ramp-up in production associated with the Shale Revolution. The development of these systems was spurred by producers’ desire to more efficiently and cost-effectively transport increasing volumes of crude from their new horizontal wells to new and expanded takeaway pipelines. The gathering systems have been built and added to over time by a combination of entities –– producers themselves, midstream affiliates of producers, and independent midstream companies, many of them backed by private equity. Today, we discuss highlights from our new Drill Down Report on D-J Basin crude oil gathering systems.
It would be hard to ignore the D-J Basin of late, given both the rapid growth in crude oil, natural gas and NGL production there and the efforts to develop new takeaway capacity. For example, crude oil production in the D-J has nearly doubled over the past four years and increased by 45% over the past two years to about 620 Mb/d, according to IHS Markit, making the D-J the second-fastest-growing major production area in the U.S. — only the Permian Basin has been growing faster. Natural gas production in the D-J has also been rising fast, from less than 1.6 Bcf/d, on average, in January 2016 to almost 2.8 Bcf/d this month, driven by NGLs-rich associated gas production from crude-focused wells.
The “sweet spots” in the D-J offer just about everything that producers desire, including an unusually intense concentration of hydrocarbons within four geologic layers, or “benches,” only a few thousand feet below the surface. The play also benefits from low per-well drilling costs and direct pipeline access to the crude hub in Cushing, OK, via the Pony Express, White Cliffs and Saddlehorn/Grand Mesa pipelines. Most of the oil produced in the D-J comes from the Niobrara B, Niobrara C and Codell benches, with smaller volumes coming from the Niobrara A layer. In Weld County, CO, the epicenter of drilling activity in the D-J, these benches lie only 5,000 to 8,000 feet below the surface, which helps keep drilling costs relatively low: less than $5 million per well, on average. By contrast, per-well costs in the Bakken average around $7 million, and in the Permian, they average close to $8 million.
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