DJ

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.

Let’s face it — for producers, the last couple of years have stung, with low-slung energy prices allowing little-to-no returns on drilling investments in most parts of the major shale basins. A side effect of the low price environment in the past two years has been the shrinking geographic footprint of the Shale Revolution. About 50% of all onshore rigs in the Lower 48 currently are clustered in the top 20 counties for drilling activity. In effect, this also means a lot of the new production growth will come primarily from these same 20 counties, with the potential for all sorts of implications for infrastructure and regional price relationships. In today’s blog, we take a closer look at rig counts by county to see how much the geographic focus of the Shale Revolution has narrowed.

Despite slowdowns in drilling, completions and crude oil production in the Niobrara Shale region in northeastern Colorado and eastern Wyoming, new pipeline takeaway capacity out of the tight oil play is being built, apparently due to the expectations of some that the Niobrara will bounce back more quickly than most other basins if and when crude prices rise –– and stay –– above $55-60/bbl. Later this year, the 340 Mb/d Saddlehorn/Grand Mesa Pipeline to the crude storage and distribution hub in Cushing, OK is expected to begin operation, supplementing Pony Express and White Cliffs, which already move crude from the Bakken and the Niobrara’s Denver-Julesburg and Powder River basins, and giving Niobrara producers more than enough takeaway capacity for the foreseeable future. Today, we look at the possibility of an infrastructure over-build in the eastern Rockies.