Another Random Look At The Niobrara -- October 12, 2015

On the way to looking up something else, I came across an article in The Bismarck Tribune that I don't recall seeing before. I know I've linked stories like this before, and it's possible I've linked this story before:

Strike a 500-mile-long line due south from Williston (along the 103rd west meridian), and you'll eventually light in an area that is a near mirror-image of Bakken country. Just a few dozen or so miles east of the Rocky Mountain Front, the prairies of eastern Colorado, western Nebraska and Kansas, and southeastern Wyoming are home to an oil and gas play that has all of the earmarks of the Bakken, including technology, infrastructure and the companies punching holes. The play is called the Niobrara and it is so much like the Bakken that it's been tagged with the moniker "NeoBakken."

The Niobrara is one of North America's most extensive geologic formations. It underlies much of the American Great Plains, Rocky Mountain basins and northward into the Canadian prairies. In fact, if you're standing anywhere in North Dakota west of the Red River Valley, the Niobrara is somewhere under foot. Unlike the Bakken, however, the Niobrara is actually exposed at the surface, primarily in a thin belt from Cavalier County in the north to Sargent and Dickey Counties in the south. Whisk away the overlying glacial debris here and there, and you can easily see and touch the Niobrara.

The Bakken was more than a quarter billion years old when the Niobrara was deposited between 87 million and 82 million years ago. Geologists call that period the "Cretaceous" (Latin for "chalky"). At that time, North America was split by the Western Interior Seaway, which extended from what is now the Arctic Ocean to the Caribbean. The seaway endured for some 40 million years and reached depths of 2,500 feet and a width of up to six hundred miles.

In those days, what is now North America was much closer to the Equator, so the Seaway teemed with subtropical marine life ranging from microscopic plants and animals to sharks and mosasaurs (giant marine reptiles). While the eastern region of the Seaway bordering the Appalachians was relatively quiet, the western area received a near-continuous supply of sediments being washed in from the highlands to the west in what would later become the Rockies. The microscopic marine life mixing with sediments and rising and falling sea level was the perfect recipe for the formation of oil and natural gas - right out of a Geology 101 textbook.

Current oil and gas activity in the Niobrara is centered in the Denver-Julesburg Basin, a deep geologic structure that underlies eastern Colorado and adjacent parts of Wyoming, Kansas, and Nebraska. The basin is nestled against the Rockies to the west. The City of Denver is situated above its thickest point - some 14,000 feet, which is comparable to the Williston Basin's thickest point in northwestern North Dakota.

The Niobrara (sometimes called the Niobrara shale) is made up of two general units. The Fort Hays limestone (including shale layers), the lower unit, ranges between 10 feet and 60 feet in thickness. The Fort Hays is overlain by the Smoky Hills chalk, 200 feet to 1,400 feet thick. The Niobrara is found at depths of 8,000 feet (northwest of Denver). It outcrops in central Kansas and eastern Nebraska, as it does in North Dakota and South Dakota.

This story is timely for a number of reasons. First and foremost: look when the story was published -- April 9, 2015 -- well into the deep slide in the price of oil. This is not exactly the time one would think about looking at a "new" play.

Second, it is timely because RBN Energy just had an excellent blog on the Niobrara. I linked it earlier this morning and posted a bit of the essay but there was much, much more at the link. RBN Energy will archive its stories a few days after they've been posted. This is one you may want to read before you need to have a subscription to access it. 

There is another reason why The Bismarck Tribune story is very, very timely.  It has to do with one of the polls that was just closed out late last night. That's all I can say. Stay tuned.

By the way, for those keeping scorecards, I always though the big three tight oil plays were the Permian, the Bakken, and the Eagle Ford, with the Eagle Ford, dropping back a bit. I'm beginning to think that I have to add the Niobrara to either the top four or the top three.

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Hollywood Movie Set?

This had all the feeling of a Hollywood medieval setting. Any minute I thought I would see marauding Vikings attacking this peaceful little pumpkin patch:

Colleyville/Grapevine 2015

Human Interest / Update on the Niobrara in Wyoming/Colorado

Link here to the Casper Wyoming Star Tribune.

After several years of booming, oil development in the Bakken oilfield in North Dakota is leveling off. Plus, constant advances in drilling technology have prompted oil companies, including Anadarko and Devon Energy and servicing companies such as Schlumberger, to turn their attention to Converse County, giving some who left the area for work elsewhere an opportunity to return home.

“A friend of mine who used to work for Schlumberger now works for a company out of Buffalo and he is out in North Dakota. And he heard that they are going to try to bring him back for [Powder River Basin], so he’s hoping to come home. Supply companies like that have been beginning to move back from North Dakota to the PRB,” Kristiansen said.

A big "thank you" to a reader for sending this link. 

Update on the Niobrara -- A Story Yet to Be Told

Link here (regional links break early and break often).

I have blogged before that one of the reasons the Bakken boom is a boom is because the oil industry had done much of the preliminary work since oil was first discovered in 1951. I won't go into all that now.

Here's the nut on the Niobrara, in Wyoming-Colorado:

The [Wyoming] state oil and gas commission has offered approximately 240 drilling permits in Laramie County since the beginning of 2010, but companies have only drilled about 25 to 27 wells.

“We’re really not seeing very many wells being drilled,” Doll said. “Laramie County is leading the pack here, but again, 25 wells do not make a boom.”

Twenty-five wells since 2010! "We" are drilling 167 wells/month in North Dakota.

The Value of High IPs

There is an article in today's Bismarck Tribune: The numbers are in! The first wells to report from the Niobrara in southeast Wyoming are promising but not earthshattering.

There has been a lot of talk over the past two years regarding initial production numbers from the Bakken wells.

It has been said that some companies are more interested in high initial production numbers even if that means less ultimate recovery. Common sense seems to suggest that high production numbers will attract investors. I won't argue one way or the other; I think we are still a long way off sorting out the debate whether high IPs affect long term EURs.

Having said that, I do think the high IPs that were reported in the early Bakken boom attracted a lot of interest, and was one of six reasons why the Bakken developed as quickly as it did.

Hearing that the first numbers coming out of southeastern Wyoming are "promising but not earthshattering" may cause some operators to put their focus back on the Bakken. As a reminder, some have opined that it will take a lot longer, even under the best of circumstances, to develop the Niobrara than it took to develop the Bakken in North Dakota. American Oil (AEZ) was one of the first to act on that, by selling all their assets in the Niobrara and becoming a pure-Bakken play. It has since been bought by Hess.

Note: one thing that the Bismarck Tribune article failed to discuss was the cost of the wells in southeastern Wyoming. If they are not as deep as those in the North Dakota Bakken, they may not cost as much. There is a lot more to this than just the production numbers. The cost of the wells, the regulatory ease of drilling, and EURs mean a lot more than initial production numbers, to include the first several months of production.

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.