A Niobrara Update (Not a Bakken Story)

Scroll down to read the "original blog" on the Niobrara; at the very bottom are sources.

I track the D-J Basin here. 

NEWS

October 30, 3010: SM with first well in southeast Wyoming's oil rush; SM with good, but not great well.  SM Energy's first well in this play, the Atlas 1-19H is now on pump, producing approximately 350 bopd.

Original Blog

Note: I posted this on October 23, 2010. Today, three days later, Motley Fool does an update on the Niobrara and offers some investment ideas.

For a quick review of the action in the "Niobrara," this is probably as good a link as any. I haven't really followed the Niobrara all that closely but as more and more Bakken oil exploration and production (E&P) companies are mentioned in the context of the Niobrara, it makes sense to at least post a few Niobrara stories once in awhile.

The activity on my blog is about the "Bakken." The Bakken is an oil-bearing formation that is the center of excitement in the Williston Basin. The Williston Basin is centered at Williston, North Dakota, and extends from western North Dakota, to eastern Montana, to southern Saskatchewan.

Likewise, the Niobrara is an oil-bearing formation that is now the center of excitement in the North Park Basin, also known as the Colorado Basin. Oil companies refer to this as the DJ Basin (Denver or Denver-Julesberg Basin). It is located in north central Colorado. The "park" is actually a valley surrounded by mountain ranges. It is one of three such parks, or valleys; the others are West Park and South Park.

The well that "opened" the current Bakken boom was Lyco Energy's Burning Tree State 36-2H, a horizontal well drilled in the year 2000, that had an initial production of 196 barrels of oil per day. It is estimated that the Burning Tree well will ultimately produce 300,000 barrels. That well was on the Montana side of the ND-MT border in the Elm Coulee oil field, one of hundreds of small fields in the Williston Basin.

Then, in 2006, EOG opened the Bakken on the North Dakota side of the border with its discovery well in the Parshall oil field, the Parshall 1-36H, file number 16164.

Now it appears that 2010 will be another milestone in the nation's on-shore domestic oil drilling program: the opening of the Niobrara. Again, interestingly enough, it was EOG that was responsible.  From today's story in the Billings Gazette:

The reported success of EOG Resources’ Jake 2-01H horizontal well in Weld County, Colo., earlier this year set off a rush on mineral leasing in southeast Wyoming. The Jake well tapped into the Niobrara formation some 7,000 feet down then continued horizontally for about 4,000 feet.

The results of the Jake well, near the town of Grover, Colorado, were announced on February 18, 2010. That well produced 50,000 barrels of oil in the first 90 days of production, similar to the better wells in the Bakken. There are now a handful of EOG exploratory wells in the Niobrara, but the "breaking news" in today's Billings Gazette story is the fact that these new EOG wells are as far north as anyone has ever gone in the Colorado Basin. The exploratory wells have taken the play another 100 miles north to Chugwater, Wyoming.  Chugwater is 45 miles north of Cheyenne, Wyoming, on US Highway 87.  Cheyenne is 100 miles directly north of Denver, also on US Highway 87/I-25.

The Jake discovery well was in Colorado, just on the south side of the Colorado-Wyoming border, east of US Highway 87.  According to MDU's most recent presentation, there are several areas of interest on both sides of the border, north and south of the old Silo field, Laramie County, Wyoming. This was  a "hot" field for horizontal drilling back in 1993. 

The first thing I notice when looking at the map of this area, from Denver, Colorado, north to Cheyenne, and then to Chugwater, Wyoming. There is a lot of "green" in this area of Colorado: state and national parks, forests, and grasslands. In fact, the Jake discovery well is just a few miles outside the Pawnee National Grasslands, I believe. On the Wyoming side: no such areas. Something tells me most of the drilling is going to occur on the Wyoming side of the border if the EOG exploratory wells are as good as the rumors suggest. The good news is that there are many, many established fields already in existence between Greeley, Colorado, and Cheyenne.

Like North Dakota, Wyoming allows completed wells to remain on the confidential list for up to six months. Of all the oil companies I cover in the Bakken, it is my impression that EOG and Hess are the best at holding their cards close to the chest. So, until they come off the confidential list, I don't expect any early press releases.

As a rule of thumb I think of Bakken wells going down vertically to a depth of 9,000 feet, and then going horizontal 4,000 feet for a short lateral, or 9,000 feet for a long lateral with "total depth" being about 18,000 feet for a long lateral well.  (Total depth refers to the number of feet of pipe the roughnecks push down the hole, not the actual depth below the surface of the earth.) The Jake discovery well went down to a depth of 7,000 feet and then laterally for 4,000 feet.

So,

• 2000: Lyco Energy, Elm Coulee Field, Montana, Bakken, Williston Basin
• 2006: EOG, Parshall Field, North Dakota, Bakken, Williston Basin
• 2010: EOG, Jake Discovery well, Colorado, Niobrara, North Park, DJ Basin

Depth of Wells and Cost


EOG's Jake discovery well well went down to a depth of 7,000 feet and then laterally for 4,000 feet. The horizontal leg is the same length as the "short laterals" in the Bakken. However, whereas, as a rule of thumb, a Bakken well drills to a depth of 9,000 feet before going horizontal, the Jake discovery well went to only 7,000 feet. The cost of Bakken well is generally considered to be $6 - $8 million, most of the cost associated with the depth of drilling.

But there is a very, very interesting tidbit in Whiting's 3Q10 conference call: Whiting has accumulated Niobrara acreage in Carbon County, Wyoming, where the Niobrara is only 3,500 feet below the surface. Whiting states that the cost to complete exploratory vertical wells in that area should cost between $1 million to $1.5 million.

Sources:
Niobrara Shale Map and Information
Exact location and satellite imagery of Jake 2-01H

Footnote:
DJ Basin: the Denver Basin or the Denver-Julesburg Basin.  Julesburg, Colorado, is on I-76, 185 miles northeast of Denver.

Footnote:
Another shale play that will probably end up being bigger than either the Bakken or the Niobrara is the Eagle Ford in south Texas. The source rock for the oil in East Texas is the lower-lying Eagle Ford Shale. EOG is the early driller in this area, also. The Eagle Ford started getting attention in 2009 (Chesapeake) but one can argue that 2010 will be the breakout year for this formation also.

Footnote:
Speaking of the nation's "on-shore" domestic oil exploration and production program, it certainly sounds like the nation's outer continental shelf, deep-water oil exploration and production program is dead in the water (pun intended). If you doubt this rather cavalier statement, listen to the Schlumberger 3Q10 earnings conference call or read the transcript. 

Turning now to the future, we expect the fourth quarter to show continued strong activity in North America on land, but we do not expect any rapid return to deepwater drilling in the U.S. Gulf of Mexico despite the lifting of the moratorium.

Further, clarification of the new rules and liabilities under which activity will be conducted will be necessary before any major increase in activity takes place. Our restructuring efforts will continue to deliver margin improvements in U.S. land.