Bananarama in the Rockies – The Niobrara Oil Shale

January 2013 oil production from the Denver-Julesburg and Powder River Basin Niobrara Shale plays in Colorado and Wyoming was 170 Mb/d (Bentek estimate). Operators in the Niobrara have been running hot and cold on the play ever since a gusher in Weld County, CO hit the headlines in October 2009 by producing 550 b/d in its first ninety days. Some like Chesapeake have sold assets; others like Noble Energy expect their oil production to increase significantly in 2013. Today we check out the current sentiment on this Rockies play.

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The Niobrara shale formation extends across northeastern Colorado, northwestern Kansas, southwestern Nebraska and southeastern Wyoming (see map below). To date, most of the Niobrara’s oil and gas development has focused on two areas, the Denver-Julesburg (DJ) Basin and the Powder River Basin (PRB). The current DJ basin hot spot is the Wattenberg field in Weld County, CO. PRB drilling activity is concentrated in Campbell and Converse counties WY, where Chesapeake is the largest operator. 

Source: Chesapeake Investor Presentation

Far from a recent discovery – Niobrara has been producing oil for nearly a century from vertical wells. The Niobrara is organic rich shale with the potential to generate 10-20 MMBbl of oil per square mile. As a result this 200 to 400 feet thick layer of sedimentary rock has long attracted the attention of producers. However Niobrara is not easy to work with – frustrating even. The shale has many different layers and rock types that make horizontal drilling and hydraulic fracturing particularly difficult. Incidentally the oil rich part of the formation running north to south from Wyoming to Colorado is shaped like a banana. Which explains our title today (in case you were wondering). Check out the green shaded area in the diagram below and use a bit of imagination. For the operators at least it turns out that the Niobrara can be one tricky banana to peel.

 

Source: RBN Energy & Robert Coskey, Rose Exploration from“The Niobrara Play – An Overview” Denver Petroleum Club Feb 2011 (Click to Enlarge) http://denverpetroleumclub.com/Robert_Coskey_DPC_20110210.pdf

Early on in the oil shale era the potential of the Niobrara attracted comparisons to the Bakken. A good deal of excitement was generated in Oct 2009 after EOG Resources brought in its Jake horizontal well in Weld County that produced 550 b/d during its first 90 days. Much less exciting and sometimes disappointing well results since – especially in the Wyoming sector of the DJ-Niobrara have led to producers adopting a more cautious attitude. Last year (2012) Chesapeake Energy sold off acreage and operating assets in the play.

Getting accurate Niobrara production data is more of a challenge than usual because the shale crosses two states and oil is produced from multiple basins at different depths meaning that production from the region it is not always from Niobrara shale. Bentek estimates of production in the DJ and PRB basins over the past two years show an increase from 115 Mb/d in January 2011 to 150 Mb/d in January 2012,  and then up to 170 Mb/d in January 2013. The Bentek view projects  an increase to 235 Mb/d by the end of 2013.

The DJ Basin Wattenberg field in Weld County is at the center of the Niobrara banana and the shale is at its most productive there. In 2012, 40 of the 45 drilling rigs operating in the DJ Basin were in Weld County.  State oil and gas commission numbers for Weld County indicate significant production growth during 2011 and particularly in the latter half of 2012. The chart below shows Weld County production increased from 60 to 80 Mb/d during 2011 and to 126 Mb/d by December 2012 falling back to 119 Mb/d in January 2013 (green circle) – likely because all the data is not yet reported.

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