Colorado (G)oil - Pipelines in Place for Niobrara/DJ Basin Growth, But Will It Come?

The rig count in the Niobrara Shale’s Denver-Julesburg (DJ) Basin has doubled in the past year, and crude oil production has been rebounding modestly in recent months. Most of the activity in the play is concentrated in super-hot Weld County, CO, where 23 of the DJ Basin’s 29 active rigs are set up. But with crude prices below $50/barrel, will the DJ make a real comeback, or will production sag again, just like it did after the big price declines of 2014-15? And what about Niobrara-related midstream infrastructure? Even some of the more optimistic forecasts leave the region with far more pipeline takeaway capacity than it needs. Today we consider recent developments in the Rocky Mountain region’s most important shale play and what they mean for exploration and production companies and midstreamers.

The Niobrara Shale and its two subregions — the Denver-Julesburg Basin, centered in northeastern Colorado, and the Powder River Basin in eastern Wyoming — never attracted the national spotlight like the Bakken, the Eagle Ford and the Permian shale plays have in recent years. But the Rockies’ leading production area experienced noteworthy growth through the first half of the 2010s, especially in the DJ Basin. We tracked that growth in a number of blogs, beginning with Bananarama in the Rockies, in which we discussed the Niobrara’s decades-long history as conventional producer (using vertical wells), the region’s complex geology (which posed significant challenges for horizontal-drilling pioneers in the play) and the early successes that suggested the DJ may become a superstar. Then, in Hey Mr. DJ, Keep Playing That Song, Part 1 and Part 2, we looked at the challenges that rapid growth initially posed regarding takeaway capacity, in part because DJ (and Powder River Basin) output has historically had to compete for pipeline space with production traveling through the Rockies region from western Canada and North Dakota.

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The midstream sector responded — maybe too aggressively — by adding new pipeline capacity. As we said, the Niobrara is along key routes for western Canadian and Bakken crude, more specifically oil from those regions that is bound for the crude storage and marketing hub at Cushing, OK (and, from there, to the Gulf Coast), or to Midwest refineries via the Platte Pipeline. Therefore, the pipelines from the Niobrara to Cushing and the Midwest need to transport crude produced in three plays: the Western Canadian Sedimentary Basin (WCSB), the Bakken and the Niobrara.

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