Rocky Mountain High? - A Midstream Build-out Frenzy in the D-J and Powder River

The U.S. midstream sector has been on a development binge the past few years, mostly in an effort to catch up — and then keep up — with production growth in the Shale Era’s two premier plays: the Marcellus/Utica in the Northeast and the Permian Basin in West Texas and southeastern New Mexico. What’s sometimes overlooked, however, is that significant numbers of new pipelines, processing plants and other key assets are being built in smaller, lower-profile production areas. The Niobrara’s Denver-Julesburg and Powder River basins are cases in point. Exploration and production activity in the D-J in particular has been soaring, and the resulting gains in crude oil, natural gas and NGL output has been stressing the region’s hydrocarbon-related infrastructure, thus spurring the development of new processing plants and pipelines. Also, interest in the Powder has been renewed — production there has been rebounding after crude-production ups and downs and gas-production declines through the 2010s. Today, we discuss highlights from RBN’s new Drill Down Report on the Niobrara production region.

The Niobrara production area in Colorado and Wyoming has been producing hydrocarbons for more than a century. The volumes were relatively modest, however, until the late 1990s and early 2000s, when production of natural gas — especially coal-bed methane in the Powder River Basin — took off. The gains were so big that one of the U.S.’s largest gas pipelines ever — the 1,700-mile, 1.8-Bcf/d Rockies Express Pipeline (REX) from Colorado and Wyoming to eastern Ohio — was built to give all that gas an outlet. Niobrara gas production quickly leveled off, but by the mid-2010s it was again on the rise, this time driven by increasing production of crude oil and associated gas in the Denver-Julesburg Basin. That growth in the D-J accelerated in 2017-18 as exploration and production companies (E&Ps) focused on what they found to be highly productive focal points — with Weld County, CO, being the prime example. More recently, a few E&Ps have been finding similar success in parts of the Powder, and gas production there is finally on the upswing again.

Figure 1 summarizes what’s been happening. The green areas in the left and middle graphs show the rapid pace of crude oil and dry gas production growth in the D-J over the past seven-plus years. Crude production in the D-J is now approaching 570 Mb/d (nearly double where it stood in early 2017) and dry gas output is nearing 2.3 Bcf/d (more than triple its 2012 level). As for the Powder, crude production (purple area in left graph) now tops 120 Mb/d — up 140% from 2012 but still below its 2015 peak — and, as we said, Powder gas output (purple area in middle graph) appears to be reversing its long decline — it has topped 700 MMcf/d each and every month since last summer. And more growth may be on the way; indications are that production in Johnson County, WY — the recent focus of exploration efforts in the Powder — is poised to increase significantly in 2019 and 2020.

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