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Investing in the Piceance Basin

Brian Hicks

Written By Brian Hicks

Posted August 19, 2013

If you’re a fan of gorgeous scenery like I am, picture yourself atop a high hill, overlooking wide valleys and far-reaching plateaus as far as the eye can see.

The dawning sun is at your back, providing a red and orange hue to the landscape in front of you. You see the Colorado River cutting across the valley you’re overlooking, and you find yourself in the moment.

piceance basin small

click to enlarge
Source: USGS 

In a nutshell, this describes the Piceance Basin of northern Colorado. It is one of those landscapes where you find your “awe” moment – inspired by your surroundings.

Aside from the plethora of rich natural gas, oil shale, and shale oil resources, it should also be a place on your vacation itinerary if you ever find yourself traveling cross-country one day.

When you think of U.S. shale production, North Dakota and Texas are probably the first two states that come to mind. And there is also Oklahoma, a host of Mississippi Lime crude, and an energy reference point for the New York Mercantile Exchange in Cushing. But if America’s shale oil boom will excel at full capacity, it must have other states join the energy fray.

That is why states like Colorado, New Mexico, and those surrounding are so crucial to America’s energy future.

In fact, Wyoming, Utah, and Colorado hold the largest concentration of shale oil deposits in the world!

The Piceance Basin in particular stands a real chance of joining the likes of the Bakken and the Eagle Ford.

There are no significant populations located near the basin, so drilling practices like fracking can go unimpeded. And the basin has an estimated 1 trillion barrels of oil shale reserves. That is the equivalent of the entire world’s proven oil shale reserves.

And that’s not all.

The Piceance is also said to contain over 300 trillion cubic feet of natural gas and 1.5 trillion barrels of shale oil – four times the amount of Saudi Arabia’s reserves and more than OPEC nations combined!

Now, oil shale is not the most talked about commodity, but it can be turned into a source of domestic crude if the kerogen is properly heated. It can prove to be a valuable source of domestic energy in the future, but the technology needed to convert oil shale into shale oil is still new – not to mention the negative environmental effects that occur from heating the rocks.

Nevertheless, oil shale can prove to be a valuable asset if oil prices become too high for consumers or in the case of potential shale oil supply gluts.

But right now, shale oil is the main focus, and it is this resource that is making smaller energy companies so popular on the stock market.

U.S. Shale Scene

Within the Piceance is the Niobara Shale, one of the fastest growing drilling sites in the country, and host to oil and natural gas reserves.

In the Bakken, the Piceance is also home to the Williams Fork formation, a land with layers of coal deposits and shale.

But if you’re on the prowl for other shale-rich areas in the country, then consider these areas.

We know about the Bakken, which holds roughly 7.4 billion of barrels of oil, not to mention the Three Forks formation, a relatively unexplored landscape that looks promising to many energy companies. In North Dakota, production has surged to 800,000 bpd, and analysts are confident that the state will soon hit one million barrels a day.

In Texas, big places to watch out for are the Eagle Ford of South Texas, a play with a rich concentration of natural gas, NGLs, and oil. Energy companies of all strides have been drilling down there, and a heavy amount of investment has been pouring into South Texas, contributing to local government coffers, and providing a surplus of well-paying jobs in and outside of the oil industry.

The Permian Basin of West Texas is another place with well-paying jobs and a bustling economy. It is one of the main contributors to the national oil supply, contributing 25 percent to overall national production and 57 percent to Texas oil production.

The Mancos shale is a primary asset to the state of Colorado, holding roughly 30 billion barrels of oil in New Mexico alone and containing 500 trillion cubic feet of natural gas overall.

There are many shale areas that have vast potential out west, but there’s no doubt in my mind that the Piceance can reach or even exceed the likes of the Bakken and the Eagle Ford one day.

Piceance Investing

The Piceance is home to a significant amount of shale gas reserves, so much so that it has been named “The Gas Factory.”

If you’re concerned about the Piceance’s commercial potential, Exxon Mobil (NYSE: XOM) has been active in the region for some time, increasing natural gas capacity in a processing plant in 2009. Exxon also purchased assets from a smaller company in the Piceance. Exxon has mostly been betting on natural gas, but shale oil could be the next best commodity as Big Oil tries to exploit more shale oil.

Chevron (NYSE: CVX) has assets in the Piceance and acreage in the Niobara shale as well. Chevron was also invested in oil shale ventures but recently pulled out.

And Encana (NYSE: ECA) has been investing in natural gas but recently needed to shut down 32 wells in fear of spreading wildfires back in June. Encana also teamed up with a smaller company, planning to drill over 4,000 wells over the course of 20 years. Encana is most notable for its multi-pad drilling technique in the region, once producing 50 wells in one location.

Now I should point out that big companies like Chevron and Exxon Mobil have not done the greatest on the IPO market because they have invested too heavily in natural gas. If these companies shift gears toward shale oil in places like the Piceance, they stand a good chance of catching up with smaller energy companies that are way ahead in the shale energy game.


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