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Niobrara Shale Stocks

Brian Hicks

Written By Brian Hicks

Posted July 12, 2013

Is the Niobrara the next Bakken?

The Niobrara Shale encompasses Northeast Colorado, Southeast Wyoming, and Southwest Nebraska. It is a region located within the Piceance Basin, an area known for its rich natural gas reserves.

In the Niobrara, oil and natural gas resources are said to be concentrated anywhere between 3,000 and 14,000 feet. One company is already calling the new formation a neo-Bakken in the making.

fracking rigAdvances in horizontal drilling and hydraulic fracturing (fracking) have led to rising commercial production in recent years. The region is known for its oil and natural gas liquids, and although plenty of natural gas is being produced, the region has been primarily known for oil drilling. And since gas prices are lower right now, it makes economical sense to focus on oil.

Total estimates may vary, but there could be as many as two billion barrels of oil in the region, according to the Energy Information Administration. Other estimates peg oil reserves at 7 billion, similar to the 7.4 billion barrels of undiscovered but technically recoverable oil from the Bakken and Three Forks formations.

But the Niobrara may fall closer in line with Eagle Ford, which contains oil reserves of around 3 billion barrels and 150 trillion cubic feet of natural gas. Niobrara could add significant value to the American oil boom, and these reserve estimates are subject to increase as exploration and production continue.

According to projections from the International Energy Agency, western states like Colorado will contribute to overall non-OPEC supply growth within the next five years. The Niobrara could be an important formation that will propel the U.S. into ever-increasing natural gas and oil production.

North Dakota and Texas are two of the most prominent states in the shale oil boom, but an extra production boost in states like Colorado could be needed to keep up national drilling in the long-run.

Aside from the Mancos shale, the Niobrara could place Colorado on the national map as a major oil and gas producer on par with North Dakota and Texas. Since 2009, Colorado oil production jumped 46% to 47.9 million barrels in 2012.

The Niobrara may be a young development area, but there is more than enough drilling activity going on.

Niobrara Development

The Niobrara is in the in-between stages of exploration and production.

Weld County is considered the center of Niobrara production, with 18,000 oil and gas wells.

The top three companies in the area are Anadarko Petroleum (NYSE: APC), EOG Resources (NYSE: EOG) and Noble Energy (NYSE: NBL).

Armada Oil Inc. (OTC: NDBED) is contracted with Anadarko Petroleum, whose wells may generate an output of 300,000 to 600,000 barrels of oil per well. Anadarko is the number one acreage holder, with over 1 million acres in the Niobrara.

EOG Resources has over 400,000 acres in Weld County and has been successfully drilling in the Powder Basin and the Niobrara. EOG’s notable Jake well produced 1,750 billion bpd in late 2009 and blossomed to net over 50,000 barrels of oil over the course of 90 days.

Noble Energy produced 1,110 billion bpd from its Gemini well. Noble has 640,000 acres in the Denver Julesburg Basin and could invest as much as $10 billion in the next five years.

Chesapeake Energy (NYSE: CHK) has had some of the highest well success rates in the past, with 2,400 bpd flowing from wells in the Powder River.

WPX Energy (NYSE: WPX) has 180,000 net acres and managed to discover 1 bcf of gas near the Niobrara/Mancos region. Toward the end of 2012, estimates for natural gas were 18 tcf, but representatives believe they can more than double that estimate. WPX has been able to pull off 16 million cubic feet per day of natural gas so far. A total of four test wells will be drilled in 2013.

Crestwood Midstream Partners (NYSE: CMLP) will acquire a 50% working interest in Jackalope Gas Gathering Services LLC, which makes up over 100 miles of gathering pipelines. And there are future plans of adding a processing center and additional infrastructure.

Crestwood purchased the share from RKI Exploration & Production LLC, which has been in the early stages of developing the Powder River, a region rich in natural gas and natural gas liquids (NGLs). The other 50% interest is owned by Access Midstream Partners (NYSE: ACMP), which acquired a working interest from Chesapeake Energy in December 2012.

Chesapeake and RKI were the largest acreage holders in the Power Basin, with 750,000 acres.

Other major players in the region include ConocoPhillips (NYSE: COP), Encana (NYSE: ECA), Marathon Oil (NYSE: MRO), and MDU Resources Group (NYSE: MDU).

Future Outlook

There are no guarantees, but the Niobrara is turning out to be a solid area for major commercial development. There is already a rush from energy companies to secure mineral rights from landowners.

Companies like EOG Resources have been conducting 3D Seismic surveys, which could lead to higher reserve discoveries. And Niobrara crude is considered light, which would be a more sought after commodity as more refiners around the country are refining domestic, light crude.

Success rates are low in some areas when drilling for commercially viable wells, but the proven track record of flourishing wells keeps energy companies grounded in the region. Investors looking for the next big oil spot should keep an eye on the Niobrara and the state of Colorado as a whole.


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