NIOBRARA INDEPENDENTS UNRAVEL PLAY, HIKE LIQUIDS PRODUCTION
While the byzantine Niobrara shale that underlies a substantial portion of the U.S. Rockies, and beyond, is not for the technologically skittish, recent production data suggest that the resolute independents, who dominate the liquids-rich play, are steadily getting a handle on its unrivaled geological complexities.
Even though the multi-horizon Niobrara may have a long way to go, to reach its earlier billing as the Bakken-in-waiting, both oil production and drilling activity continue to increase, largely within its Colorado hub. As currently defined, the sprawling Niobrara, which has produced at considerable rates from vertical wells for the better part of a century, extends across northeastern Colorado, southeastern Wyoming and into northwestern Kansas and southwestern Nebraska. The epicenter of horizontal drilling activity continues to fall primarily around the giant Wattenberg field of Colorado (Fig. 1) and, to a much lesser degree, the Silo field of Wyoming, both of which are sourced by the Niobrara.
Based on its fairway in the Denver-Julesburg (DJ) basin and close alignment with the underlying Codell sandstone (Fig. 2), the primary pay zone for the billion-barrel-plus Wattenberg field, the play is known interchangeably as the DJ-Niobrara and the Niobrara-Codell. Regardless of what you choose to call it, however, the Niobrara is undoubtedly the most geologically daunting of the North American shale plays.
“The structuring and very complex faulting can really create havoc with drilling horizontal wells in the Niobrara,” said Jack Wiener, Halliburton’s Denver-based technical advisor for geosciences and subsurface characterization. “Well placement is one of the critical challenges operators face here today. Now that they’re going lateral, when they cut these faults they’ve had to react on the fly and try to get back to where they need to be in the target zone. A lack of planning can seriously impact costs and ultimate production.”
ACTIVITY, PRODUCTION UP
Despite the unprecedented geological challenges, a growing anti-fracing backlash, and the sudden withdrawal of one of the lone majors to have announced a once-promising exploration program, the undaunted operators that remain are increasing both production and drilling activity.
The latest data available from the Colorado Oil and Gas Conservation Commission put the state’s oil production at the end of 2012 at a 50-year high, at just under 48 MMbbl. While the state’s chief regulator does not separate formation-specific production in its cumulative statistics, nearly everyone agrees that the increased oil output comes directly from the Niobrara and underlying Codell formations. “The Niobrara is the King Kong,” Pete Stark, vice president of industrial relations for IHS, told the Denver Post in March.
According to Colorado’s northern counterpart, Wyoming oil production increased to just over 57.5 MMbbl in 2012, representing an 11% increase since 2009. Thus far, during 2013, Wyoming oil producers have pumped more than 29.6 MMbbl, says the Wyoming Oil and Gas Conservation Commission.
While the Wyoming regulator, like its Colorado counterpart, does not break out production by formations, the state agency said that nearly a third of the state’s production comes from vertical and horizontal wells in the prolific Powder River basin. Despite earlier excitement over Wyoming’s Niobrara prospects, primarily in Goshen, Platte and Laramie counties, the state has never come close to approaching the level of Colorado Niobrara production. Chesapeake, for instance, put its Colorado Niobrara properties on the block, and says it will concentrate its drilling activity in the Powder River with Chinese partner CNOOC. In fourth-quarter 2012, Chesapeake had 10 rigs drilling in the Power River basin.
Like production, the average rig counts in both Colorado and Wyoming are running slightly ahead of last year. According to Baker Hughes, 52 rigs were active in the DJ-Niobrara as of Aug. 20, compared to 45 for the like period last year. Of those, 49 were drilling in key Colorado counties, including 42 in Weld County, home turf of the Wattenberg. Three rigs were drilling in the Wyoming portion of the Niobrara, all in Laramie County. Conversely, in the second quarter, an estimated 293 new wells were drilled in the DJ-Niobrara, according to the new Baker Hughes U.S. land well count, which represents a 104-well drop from the 397 drilled during the like 2012 period.
Meanwhile, going forward, Colorado’s chief regulatory agency had issued 2,306 drilling permits for horizontal and directional wells from common pads as of August 7, compared to 3,775 similar permits issued for all of last year. Of the total permits issued last year, 1,826 were for wells in Weld County, which is recognized as the spark for the Niobrara tight oil play. To the north, Wyoming had issued 1,399 horizontal drilling permits as of August 19, according to state data.
The thermally mature Niobrara formation, which vertically ranges in thickness between 275 ft and 400 ft, is described in the literature as a Cretaceous hybrid shale/carbonate reservoir, deposited in a deep marine environment, with areal variations in reservoir properties and tectonic overprint. Although generally identified as a shale play, heterogeneous Niobrara reservoirs are comprised primarily of limestone or chalk intervals. Over the past few years, much of the exploration and development activity has shifted to the myriad sub-plays, including the lower, carbonate-rich Niobrara benches and the underlying Codell formation. Typical drilling depths for Niobrara wells range from 7,000 ft to more than 8,000 ft, with ever-increasing laterals of up to 9,000 ft.
Prospects for the Niobrara spiraled in October 2009, when EOG Resources brought in its Jake horizontal well in Weld County. Even though Jake, as of early last year, was still producing 50,000 bbl/month, EOG does not list the Niobrara within its core plays. Jake was followed in early 2010 with Noble Energy’s Gemini well, also in Weld County, that was completed with a 16-stage frac treatment and produced 1,100 bopd at its peak.
Comparisons to the Bakken quickly followed and attracted a host of operators, which Halliburton’s Wiener said were caught unawares by the geological complexities, and, just as quickly as they arrived, they retreated. “Those who have endured, those who have worked with us and more consciously tried to evaluate and truly understand this play, are still here today,” said Wiener, who in his former stint as an operator engineer, drilled his first Niobrara well more than 20 years ago.
Niobrara pacesetter Noble Energy is one of those operators that, most definitely, has endured, and like all those who remain, has concentrated on improving reservoir drainage, which has included extending lateral lengths. “We continue to see the performance of the 9,000-ft extended-reach laterals, on average, in excess of the 750,000-bbl equivalent-type curve,” Noble President and COO David Stover said during the second quarter-earnings call. “And, a number of the wells are performing in line with 1-million-bbl equivalent EUR (estimated ultimate recovery).”
Stover said longer laterals are extending to the Codell in the greater Wattenberg area that, he said, are “performing in line” with Niobrara wells of similar length. “We’re currently testing our first long lateral at Codell,” he said. “With the entire 300-ft vertical column through the Niobrara and Codell observed to be productive, we have yet to see any production interference amongst tightly spaced Niobrara B wells and A, C and Codell completions.”
“Most of the established operators here understand the Niobrara, but not the ones who are coming in now and not doing their homework,” said Dr. Kumar Ramurthy, Halliburton technical manager for the Rockies, West Coast and Alaska.
More recently, the Niobrara has become a political football in Colorado, pitting anti-fracing activists against the state, which claims their attempts to ban drilling in a number of communities oversteps their authority. Nevertheless, Fort Collins drilling opponents say they have sufficient signatures on a petition that would clear the way for a five-year fracing moratorium within the city limits to be put before voters in November. Similar initiatives are underway in Broomfield, Loveland and Boulder. Last year, Longmont voters banned fracing within its boundaries, which spurred a lawsuit by the Colorado Oil and Gas Association.
As development accelerates in the Denver basin, the Colorado Geological Survey (CGS) has taken a novel approach to easing the fracing backlash. The CGS recently unveiled an online-accessible Niobrara Calculation Tool that it says “helps citizens or planners understand the geologic conditions that exist beneath their property” and determine any impact fracing may have on groundwater, Fig.3.
“The tool is designed to help people visualize the spatial relation of hydraulic fracturing in the Niobrara formation to the important freshwater aquifers. The tool will show the average depth to the Niobrara formation at any selected point or address on the map. It will also show the minimum thickness of the shale barrier (Pierre shale) that separates the Niobrara strata from freshwater aquifers. The tool also provides the depth of the deepest fresh water aquifer at any spot on the map,” the CGS says on its website.
INDEPENDENTS PUSHING ON
In early August, Shell Oil announced that it will sell off its Niobrara holdings in the Sand Wash basin of northwestern Colorado, only eight months after signing a 50-50 exploration JV with Quicksilver Resources, and four months after releasing plans to drill 17 Niobrara wells in Routt and Moffat Counties. Shell cited disappointing second-quarter earnings, primarily from its North American shale plays, as the reason for the abrupt pull-out. Consequently, nearly all Niobrara activity is now in the hands of independents, and a sampling of activity going forward suggests they remain committed to the play.
Noble Energy averaged a record 90,000 boed from its play-leading DJ basin holdings in the second quarter, representing a 22% increase over the like 2012 period. The Houston independent plans to run an average 10 rigs the remainder of the year and expects to drill up to 300 horizontal wells.
Noble spudded more than 130 horizontal wells in the first half within its 640,000 net acres, 80% of which are in the oil window. Of its leaseholdings, 410,000 net acres are in the core Wattenberg area, while the remaining 230,000 net acres are spread across northern Colorado. Noble says its drilling rate represents the highest level of horizontal activity in the company’s history.
“We completed 31 wells in the month of June, with 604 stages pumped, a record for us and significantly above our prior record of 26 wells and 500 stages pumped in October of last year,” Stover said during the second-quarter earnings release. “We’ll continue to transition to larger pads, more centralized production, and water handling facilities and gathering systems to support our increasing levels of activity.”
Anadarko Petroleum said it plans to drill more than 300 wells this year in the 350,000 net acres that it holds in its Wattenberg area leaseholding. The Woodlands, Texas, operator ran 12 rigs in the second quarter and drilled 83 horizontal wells, Fig. 4. Quarter-over-quarter production increased by nearly 7,000 boed, to an average of approximately 52,000 boed.
PDC Energy, after unloading non-core Colorado gas assets and announcing a public offering of 4.5 million shares of common stock in early August, said it would accelerate its 2013 drilling program with a primary focus on the approximately 98,000 net acres it holds in the Wattenberg area, of which 95% is held by production (HBP). The Denver-based independent added a third rig in May and plans to drill at least 69 Niobrara wells this year. The independent estimates 2,000 gross horizontal locations remain to be drilled within its holdings.
The home-grown operator has earmarked capital expenditures of $280 million for the Wattenberg in 2013, which will include 48 re-fracs and recompletion stages. PDC Energy increased production 40% to 15,019 boed in the second quarter, from the 10,813 boed produced in the first quarter last year. The company has set a 2013 average target of 15,039 boed with an average per well-EUR of 335,000 boe.
Quicksilver Resources says that it intends to maintain its planned drilling schedule this year, even with the sudden pull-out of its short-lived JV partner, Shell Western E&P Co. The Fort Worth, Texas, independent says it plans to participate in seven wells in 2013, in the 167,000 net acres that it held prior to the JV, largely in the Sand Wash basin. Quicksilver said it has identified 1,200 ft of productive Niobrara across a distance of 35 mi, in an east-to-west direction and 15 mi in a north-to-south band across the leasehold. The operator drilled four wells last year, while completing three and re-fracing two additional wells with treated slickwater.
Bonanza Creek Energy plans to double drilling activity in 2013 within its core Wattenberg leasehold. Bonanza says around 15,000 net acres, or about half its total lease holdings, are prospective for the Codell. Bonanza is operating four rigs in the play (Fig. 5) and, during 2013, plans to drill a cumulative 72 wells in the Niobrara B and C benches, and the Codell. Bonanza said 56 wells planned for the Niobrara B will be drilled with 4,000-ft laterals, while two will test 9,000-ft extensions. The independent also plans to drill six B bench wells in a 40-acre spacing test; while four, each, will target the C bench and the Codell.
Synergy Resources, likewise, completed a common stock offering in June, which raised $78.3 million net, nearly all of which will be used for both horizontal and vertical drilling in the 17, 046 net acres that it holds in the Wattenberg field. In a related development, in March 2013, Synergy completed an exploration agreement with Dallas, Texas-based Vecta Oil and Gas that increased its Northern DJ basin acreage position to 20,040 net acres.
During the first half of fiscal 2013, Synergy drilled and completed 27 vertical wells in Wattenberg field, and participated as a non-operator on an additional 10 horizontal wells in the core area.
Whiting Petroleum has assembled a 120,513-gross acre (87,559-net acre) leasehold in its Redtail Niobrara prospect in the northeastern portion of the DJ basin. Whiting is operating two rigs and plans to add a third in October.
Bill Barrett Corp. plans to drill around 45 wells in second-half 2013, primarily targeting Niobrara C and Codell prospects. The Denver independent added 42,900 net acres to its leasehold last year, giving it an aggregate 76,475 net acres.